Kinder Morgan suspends non-essential spending on Trans Mountain Expansion Project

Proponent puts last major tidewater export pipeline in doubt due to B.C. resistance

Calgary, Edmonton, Victoria – In a move reminiscent to what TransCanada did a month before it put the kybosh on the Energy East Pipeline Project, Kinder Morgan put out a press release Sunday, April 8, in which the company said it would curtail spending on the project if things didn’t change with the Province of British Columbia, essentially immediately.

That press release brought swift response from the premiers of Alberta and British Columbia, as well as Jason Kenney, Alberta’s leader of the opposition who is in strong contention in that province’s next provincial election. The reaction from both Alberta’s premier and leader of opposition indicate that province is ready to go to economic war to make sure that pipeline is built, including going so far as taking a stake in the pipeline.

First off, the press release from Kinder Morgan said, “Kinder Morgan Canada Limited (KML) today announced that it is suspending all non-essential activities and related spending on the Trans Mountain Expansion Project. KML also announced that under current circumstances, specifically including the continued actions in opposition to the project by the Province of British Columbia, it will not commit additional shareholder resources to the project. However, KML will consult with various stakeholders in an effort to reach agreements by May 31st that may allow the project to proceed. The focus in those consultations will be on two principles: clarity on the path forward, particularly with respect to the ability to construct through B.C.; and, adequate protection of KML shareholders.”

“As KML has repeatedly stated, we will be judicious in our use of shareholder funds. In keeping with that commitment, we have determined that in the current environment, we will not put KML shareholders at risk on the remaining project spend,” said KML chairman and chief executive officer Steve Kean. The project has the support of the Federal Government and the Provinces of Alberta and Saskatchewan but faces continued active opposition from the government of British Columbia.

“A company cannot resolve differences between governments. While we have succeeded in all legal challenges to date, a company cannot litigate its way to an in-service pipeline amidst jurisdictional differences between governments,” added Kean.

“Today, KML is a very good midstream energy company, with limited debt. The uncertainty as to whether we will be able to finish what we start leads us to the conclusion that we should protect the value that KML has, rather than risking billions of dollars on an outcome that is outside of our control," Kean said. “To date, we have spent considerable resources bringing the project to this point and recognize the vital economic importance of the project to Canada. Therefore, in the coming weeks we will work with stakeholders on potential ways to continue advancing the project consistent with the two principles previously stated.”

KML had previously announced a “primarily permitting” strategy for the first half of 2018, focused on advancing the permitting process, rather than spending at full construction levels, until it obtained greater clarity on outstanding permits, approvals and judicial reviews. Rather than achieving greater clarity, the project is now facing unquantifiable risk, the company said.

“Previously, opposition by the Province of British Columbia was manifesting itself largely through B.C.'s participation in an ongoing judicial review. Unfortunately B.C. has now been asserting broad jurisdiction and reiterating its intention to use that jurisdiction to stop the project. B.C.'s intention in that regard has been neither validated nor quashed, and the Province has continued to threaten unspecified additional actions to prevent project success. Those actions have created even greater, and growing, uncertainty with respect to the regulatory landscape facing the project. In addition, the parties still await judicial decisions on challenges to the original Order in Council and the B.C. Environmental Assessment Certificate approving the project. These items, combined with the impending approach of critical construction windows, the lead-time required to ramp up spending, and the imperative that the company avoid incurring significant debt while lacking the necessary clarity, have brought KML to a decision point,” the release said.  

Kean continued: “We appreciate the support shown by the Federal Government and the Provinces of Alberta and Saskatchewan, and are grateful for the strong endorsements among the majority of communities along the route and 43 Indigenous communities, as well as customers, contractors and unions. The fact remains that a substantial portion of the project must be constructed through British Columbia, and since the change in government in June 2017, that government has been clear and public in its intention to use 'every tool in the toolbox' to stop the project. The uncertainty created by B.C. has not been resolved but instead has escalated into an inter-governmental dispute."

The release noted Trans Mountain has spent C$1.1 billion (approximately half of which has been spent since the KML initial public offering) and made unprecedented efforts to develop the project since its initial filing with the National Energy Board in 2013. As a result of extensive engagement, a comprehensive regulatory process and detailed engineering and design, the project has changed in several, substantive ways during the intervening five years, including: thicker wall pipe in environmentally sensitive areas such as watercourses and aquifers; avoidance of several fish bearing streams; changes to the detailed route of the pipeline in consideration of community needs and concerns and environmental impacts; Burnaby tunnel construction, to avoid neighbourhoods and minimize impacts; changes to Burnaby Terminal tank design in response to risk assessments; and, enhancements to marine safety that will benefit all marine users.

“While we are prepared to accept the many risks traditionally presented by large construction projects, extraordinary political risks that are completely outside of our control and that could prevent completion of the project are risks to which we simply cannot expose our shareholders,” said Kean. "However, given the importance of the project to Canada and Alberta, to Indigenous communities, our shippers, our contractors, and working Canadians, we are committed to trying to find a way forward, working with stakeholders between now and the end of May on measures that may allow us to advance this critical project, but only if it does not subject KML shareholders to undue risk. If we cannot reach agreement by May 31st, it is difficult to conceive of any scenario in which we would proceed with the project. The time period for reaching a potential resolution is short, but necessarily so because of approaching construction windows, the time required to mobilize contractors, and the need to commit materials orders, among many other imperatives associated with such a large project.”

Given the current uncertain conditions, KML is not updating its cost and schedule estimate at this time.

Notley responds

Within short order, Alberta Premier Rachel Notley was addressing reporters in Edmonton that Sunday afternoon. She directly tackled British Columbia Premier John Horgan’s actions on the pipeline, saying she would bring in legislation to impose serious economic consequences on B.C. in short order. She added that Horgan had been harassing the managers and investors of Kinder Morgan.

“They cannot mess with Alberta,” Notley said. To that end, she said Alberta was prepared to become an investor in the pipeline.

"If we take that step, we will be a significantly more determined investor than B.C. has dealt with up to this point," she said.

“Never count Alberta out,” Notley said. She promised the legislation would be in place well before Kinder Morgan’s deadline.

“Maybe the stick out to come into play,” she said. Asked by reporters if she would re-impose a boycott on B.C. wine, she said Alberta was definitely considering other actions right now. Notley added there are other tools to that end.

When a reporter asked why she was not angry, Notley said, “In this job, you need to keep your head about you.”

Jason Kenney, Alberta’s United Conservative Party leader and leader of the opposition, spoke right after Notley, saying, “We’ve seen this movie before,” and told of how TransCanada cancelled the Energy East Pipeline in October 2017 after making a similar announcement a month before.

In addition to taking on the B.C. government, Kenney partially blamed Notley for the situation, saying she had “fumbled the ball from Day 1” and had let off the pressure with a boycott on B.C. wine too early. He also blamed the federal liberal government for “meaningless bromides” and a lack of definitive action.

Horgan campaigned on it

B.C. Premier John Horgan, in talking to reporters in Victoria, said that he had just spoken to both Ian Anderson, of Kinder Morgan Canada, and Prime Minister Justin Trudeau on the phone.

Horgan said that Anderson told him the project was unnecessarily harassed by the Province of British Columbia. Horgan disagreed, and pointed out that he had campaigned on opposition to this pipeline with a consistent message. “Our job is to defend our water, our land, the coast,” Horgan told reporters.

Horgan said he also disagreed with the prime minister, telling him that the National Energy Board process was flawed and that he would carry on with the court reference.

Horgan took exception to Alberta’s strong words regarding the Kinder Morgan project, implying the cancellation of other major export pipeline projects was no big deal.

“The Energy East Pipeline was stopped and there was no consequence of that,” he said, adding a similar thing was the case with the Keystone XL, although he acknowledged that project may yet go ahead.

Horgan said that maybe there should be more investment into refining in Canada.

The B.C. premier dodged the question of if he considered this a victory, instead saying hit was a press release for the markets. “The interests of Texas boardrooms are not that of British Columbians,” Horgan said.

“We believe the risk is too great. There’s no evidence that risk has been diminished,” he said.

Feds speak up

While Horgan said there had been no threats from the prime minister in his phone call, federal Natural Resources Minister Jim Carr said in a statement, “The Government of Canada believes that the Trans Mountain Expansion pipeline is in our national interest, which is why we approved the project and why we continue to stand by our decision.

“This crucial resource project will expand export markets for Canadian resources and create thousands of good, middle class jobs and no one should be standing in the way of those jobs and the families that stand to benefit.

“The Government of Canada calls on Premier Horgan and the B.C. government to end all threats of delay to the Trans Mountain Expansion. His government's actions stand to harm the entire Canadian economy. At a time of great global trade uncertainty, the importance of Canada's role in the global energy market is bigger than individual projects and provinces.

“We will act in Canada's national interest to see that this project is built. Our government's approach to resource development will grow our economy and protect the environment. These are not competing interests, they are shared priorities. We have the responsibility to ensure the stability and growth of the Canadian economy and to get our resources to market, and British Columbia shares in this responsibility.

“Our government stands behind this project and has the jurisdiction in this matter. Under Canadian constitutional law, this is well-established and clear and has been reaffirmed by multiple courts, including the Supreme Court of Canada.

“We are determined to find a solution. With all our partners, we continue to consider all available options. As our Prime Minister has said, this pipeline will be built,” Carr concluded.

Saskatchewan

As for a Saskatchewan response, the afternoon of the Kinder Morgan announcement coincided with the gathering of Premier Scott Moe and Prime Minister Justin Trudeau at the vigil held in Humboldt in memory of those killed and injured in a horrific bus/semi crash on April 6 involving the Humboldt Broncos junior A hockey team.

While Saskatchewan oil will not flow through Kinder Morgan’s Trans Mountain Expansion Pipeline, Moe told Pipeline News in mid-March that it will have a substantial impact on the heavy oil price differential, and that, in turn, impacts Saskatchewan’s finances to the tune of $150 million per year. Additionally, the pipe to be used for the project was to be sourced from EVRAZ steel in Regina, with 1,000 jobs impacted there.

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