Federal backstopping of pipeline project might not be enough to convince Kinder Morgan to break ground


Within the corridors of Alberta’s legislature and across the oilpatch, federal Finance Minister Invoice Morneau’s dedication to backstop building of the Trans Mountain pipeline project was greeted with optimism Wednesday.

For a project that is been devoid of a lot hope not too long ago, this was no small feat.

However Ottawa’s promise of monetary indemnity, which is principally an enormous insurance coverage coverage if Kinder Morgan has to pay for delays attributable to the B.C. authorities, is not a silver bullet for the challenges nonetheless confronting the project. Nor is it a assure Kinder Morgan will determine by month’s finish to break ground on the $7.4-billion pipeline that would ship heavy oil to the West Coast.

Not but, anyway.

Finance Minister Invoice Morneau’s announcement acquired optimistic critiques in Alberta on Wednesday. (Patrick Doyle/Canadian Press)

Kinder Morgan Canada CEO Steve Kean was predictably mum on the topic in the course of the firm’s annual assembly in Calgary on Wednesday, held a pair of hours after Morneau’s announcement in Ottawa.​

Later, Kean mentioned in an announcement that he appreciated the acknowledgement of the uncertainty created by the B.C. authorities’s courtroom challenges, however cautioned that “whereas discussions are ongoing, we’re not but in alignment.”

The corporate has threatened to abandon the project if it does not see a transparent path ahead by Might 31.

So, many questions stay. What’s the threat to taxpayers? Is that this enough for Kinder Morgan? If it is not, will the Alberta authorities, or one other firm, step in to construct the project?

An enormous backstop

The indemnity is not a direct subsidy or an possession stake, however it’s important. Morneau would not present an estimate when pressed by journalists.

“I feel that is precisely the way in which this business negotiation had to go,” mentioned Dennis McConaghy, a former senior govt with pipeline large TransCanada.

“This was by no means about investing within the pipeline [for the government], it was about taking completion threat to a stage that Kinder may bear.”

He factors to two courtroom challenges in opposition to Kinder Morgan. One issues whether or not the project falls beneath provincial or federal jurisdiction, whereas the opposite claims insufficient session of B.C. communities. With the indemnity, there’s a lot much less monetary threat for the corporate.

“The largest threat they can not bear is a judicial determination that units the clock again,” he mentioned.

Nonetheless, he expects there are a variety of key negotiations to happen between Ottawa and Kinder Morgan to determine what precisely the backstop covers and the restrict of how a lot the federal authorities will spend.

“If in case you have the need to agree on the important thing factors, papering it may well at all times be performed as rapidly as folks want it to be performed.”

One threat gone, however others stay

Ottawa’s dedication nonetheless does not shield Kinder Morgan in opposition to different potential delays and bills, equivalent to these attributable to protesters.

That is why some specialists nonetheless aren’t satisfied it presents a inexperienced mild for the corporate.

“I am not positive that this can be a huge enough announcement to get Kinder Morgan to be snug to transfer ahead,” mentioned Richard Masson, the previous CEO of the Alberta Petroleum Advertising and marketing Fee and govt fellow of the College of Calgary’s Faculty of Public Coverage.

Opponents of the Kinder Morgan Trans Mountain pipeline extension protest on the firm’s property in Burnaby, B.C., final month. (Darryl Dyck/Canadian Press)

Certainty continues to be the No. 1 concern — and Kean hasn’t let something slip.

The assertion by Kinder Morgan’s chief govt reiterated the corporate’s targets: readability on a path ahead for the project, significantly the power to construct via B.C., and making certain enough safety for shareholders. 

Alberta Premier Rachel Notley mentioned Wednesday that conversations between the provincial and federal authorities and Kinder Morgan are ongoing however insights into these talks have been sparing.

Potential new proprietor

If Kinder Morgan abandons the project, specialists say there would be suitors to take it over — maybe even the Alberta authorities.

The federal authorities acknowledged that truth by stating the indemnity would be prolonged to whoever takes cost.

Studying between the strains of Morneau’s announcement, Masson can see the situation the place Alberta assumes an even bigger position.

“That claims to me that there is a excessive chance that any person else goes to take over this project,” he mentioned.

“The one any person else I feel is sensible is Alberta at some stage. So it is fairly doable that Alberta will find yourself on the hook for the delays related to protests, like on-the-ground protesters, whereas the federal authorities would be on the hook for delays concerned with courtroom instances, and there could be some half of a discount that is been struck.”

If persons are critical about getting this project performed and in service in 2020, there’s just one method to do this — make the cope with Kinder Morgan.– Dennis McConaghy, former senior govt with TransCanada

Masson mentioned there is definitely a enterprise case for Alberta to get entangled, contemplating oil manufacturing within the province is rising and export pipelines are full. If even just a few hundred thousand barrels a day cannot discover their method to market, it leads to a reduction on all of the oil produced within the province.

“It prices a fortune in phrases of jobs, in phrases of taxes, and in phrases of royalties,” he mentioned. “This project is significant for Alberta.”

Notley, who raised the prospect of Alberta taking up the project a number of weeks in the past, repeated Wednesday that the province is ready to “do no matter is important” to get it constructed.

She additionally mentioned it was fairly clear from Morneau’s assertion that Ottawa is ready to prolong the indemnity to “any purchaser that got here alongside, if that had been the place we ended up in.”

Nonetheless, if Kinder Morgan sells the project, that might additionally take time and set the timeline again additional. That is why McConaghy says the Alberta and federal governments are nonetheless hoping Kinder Morgan pushes ahead with the pipeline.

“If persons are critical about getting this project performed and in service in 2020, there’s just one method to do this — make the cope with Kinder Morgan,” he mentioned. 

“Kinder Morgan is not going to promote the present property that they’ve associated to this project simply.”




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