Canadian government to buy controversial oil pipeline for C$4.5bn
31 May 2018
Canada’s federal government has announced it will buy the Trans Mountain pipeline from Kinder Morgan for C$4.5bn (US$3.4bn) to ensure plans to expand the pipeline go ahead. Kinder Morgan had threatened to pull out of the project, which will triple capacity on the pipeline between Edmonton in Alberta and Burnaby in British Columbia, because of environmental and political opposition.
Finance minister Bill Morneau, at a news conference with Natural Resources Minister Jim Carr on May 29, described the project as being a vital national interest for the country, adding: “It must be built. It will be built.”
The expansion of the pipeline would allow Canada to increase exports to Asia, where it could command a higher price. Canada has the world’s third largest oil reserves but 99% of its exports now go to refiners in the US, where limits on pipeline and refinery capacity mean Canadian oil sells at a discount.
The agreement to purchase the pipeline, struck after weeks of negotiations between company representatives and government officials, will mean the government takes over the existing Trans Mountain pipeline and terminal assets – with the aim of commencing construction on new capacity in August.
Morneau said the project would preserve jobs, reassure investors and get resources to world markets. He said he could not state exactly what additional costs will be incurred by the Canadian public to build the expansion, but suggested a toll paid by oil companies could offset some costs and that there would be a financial return on the investment.
Kinder Morgan had estimated the cost of building the expansion would be $7.4 billion, but Morneau insisted that the project would not have any impact on taxpayers.
Pipeline supporters, including the province of Alberta and the federal government, argue the project is a critical piece of infrastructure needed to help Canadian oil reach new markets in Asia.
Environmental groups and indigenous communities have long fought against any expansion of the pipeline, which they say contradicts the country’s climate commitments. The project has also pitted Alberta against British Columbia, which has called for a review of potential environmental hazards.
Morneau said the government does not intend to be a long-term owner, and at the appropriate time, the government will work with investors to transfer the project and related assets to new owners. Investors such as Indigenous groups and pension funds have already expressed interest, he said.
Following the takeover, which must be approved by Kinder Morgan's shareholders in August, the project will proceed under the ownership of a Crown corporation.
The government will not publicly discuss construction cost for the expansion because it wants private companies to carry out their own assessments, then bid on the project, an unnamed official told the Toronto Globe and Mail.
The government announcement came just two days before a deadline that had been set by Kinder Morgan. The company had said it needed clarity on a path forward for the project by May 31 or it would walk away from construction.
The original Trans Mountain pipeline was built in 1953. The expansion would be a twinning of the existing 1,150-kilometre pipeline between Strathcona County near Edmonton in Alberta and Burnaby on the Pacific Coast in British Colombia. It would add 980 kilometres of new pipeline and increase capacity from 300,000 barrels a day to 890,000 barrels a day.
Tanker movements from Burnaby would increase from approximately five to 34 tankers a month.
According to Kinder Morgan's project website, the construction and the first 20 years of expanded operations would mean a combined government revenue of $46.7 billion, with $5.7 billion for BC, $19.4 billion for Alberta and $21.6 billion for the rest of Canada.
Since being elected in 2015, the federal government under Prime Minister Justin Trudeau has sought to balance a national climate change plan – including carbon pricing, emissions caps and investment in renewable energy – with the continued development of the oil sands, one of the country’s largest economic engines.
Canadian commentators have emphasised the political risks Trudeau and his Liberal Party are taking by nationalising and expanding the pipeline, particularly in British Columbia. Environmentalists who once applauded Trudeau for his enthusiastic embrace of the Paris climate targets now feel deceived, and are likely to take their votes elsewhere in future.
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