STAKES RAISED IN PIPELINE BATTLE
Ottawa wades in, Alberta set to punish B.C., as Kinder Morgan deadline looms on May 31
Is Kinder Morgan prepared to walk away from its Trans Mountain pipeline expansion?
Is Ottawa talking with other prospective buyers for the development?
Are the Alberta and federal governments willing to overpay to ensure the venture is built?
These are all valid questions as the company’s May 31 deadline approaches for the three sides to reach an agreement that would see major construction work continue on the oil pipeline from Alberta to the B.C. coast.
But if you were looking for tangible answers Wednesday at Kinder Morgan Canada’s annual meeting — or during separate news conferences by federal Finance Minister Bill Morneau and Premier Rachel Notley — you were out of luck.
At Kinder Morgan’s meeting in downtown Calgary, pro-pipeline supporters showed up en masse to back the $7.4-billion development that would triple the amount of oil moving from the Edmonton area to Burnaby, B.C.
They easily outnumbered the 50-odd shareholders gathered inside a conference hall to hear about the company’s day-to-day business.
Kinder Morgan Canada chairman Steve Kean headed a lightning-fast, 16-minute meeting that dealt with official business and saw no questions asked by investors about the embattled project.
Shareholders already knew what the answer would be.
Kean, who is also CEO of Houston-based Kinder Morgan Inc., started off his address by cautioning he wouldn’t give an update on the state of negotiations.
Last month, Kinder Morgan announced it would suspend all nonessential spending on the federally approved project given the ongoing political uncertainty in British Columbia, where the government of Premier John Horgan has promised to derail the development.
The company wants clarity on the path forward to building across the coastal province, where it faces stiff opposition and protests in the Lower Mainland.
Kinder Morgan is also seeking adequate protection for shareholders from the risk of future delays as it heads into the heavy spending portion of its capital project.
The energy company has already spent $1.1 billion on the project and is a full year behind schedule.
“The time period for reaching a resolution is short. And if we don’t reach a resolution by May 31, as we’ve said, it’s hard to conceive of a scenario under which we can proceed,” Kean said.
The company didn’t take media questions, although it later issued a statement that said discussion is ongoing, adding: “We are not yet in alignment.”
However, Kean did go out of his way at the meeting to note the company has a set of stable assets in Canada, “with or without the Trans Mountain pipeline expansion.”
One was left with the distinct impression the company is preparing for life without the long-awaited project remaining on its books.
The political spotlight intensified earlier in the day after Morneau announced Ottawa is prepared to indemnify the pipeline owner from the costs of any unnecessary delays caused by the “politically motivated” actions of Horgan.
If Kinder Morgan decides to walk away, the financial backstop would be available to another party that takes over the project.
Morneau, who met with Kean in Houston last week, wasn’t offering further insights, nor saying how much it might cost taxpayers to make the project happen.
“Should Kinder Morgan not want to move forward … we think there are other private sector actors who would be willing to move forward,” the finance minister said.
Morneau made a big move — offering a firm financial commitment — to push the project along, but will it be enough?
He may have dealt with political risks tied to further B.C. government intervention, but other challenges remain, including lawsuits from opponents.
It’s also unclear how Kinder Morgan’s demand for a clear path to construction in the western province is being addressed.
“If the government can’t give them what they want, yes, they’ll walk away,” said analyst David Galison with Canaccord Genuity.
“If the government isn’t able to make concessions enough for Kinder Morgan to go forward with it, it’s going to be difficult for another company to come in and take on additional risk as well.”
In Alberta, the NDP government has pledged it will do what’s necessary to see the development completed. It moved ahead Wednesday with new legislation that would let Alberta issue licences for oil, gas and refined products exported out of the province.
Notley said this bill could be used to “turn off the taps” to B.C., although she wouldn’t spell out when or where it might be unleashed.
As for the ongoing pipeline talks, Notley called them “complex negotiations” and said she’s speaking with Morneau on a daily basis.
The premier wouldn’t bite on the question if Kinder Morgan is making excessive demands, but noted Ottawa is prepared to remove any certainty with a backstop “that will travel from investor to investor, if necessary.”
With the company’s deadline set to expire in just two weeks, the pressure is increasing on all three sides to strike a deal.
There’s still reason to think it will get done, however.
For Alberta, it’s imperative the pipeline is built to get a better price for oil produced in the province.
For the Trudeau government, it’s flatly declared the pipeline will be built and it can’t afford to let it fail, given the negative signal that would send to investors about Canada’s inability to move approved developments forward.
For Kinder Morgan, the expansion represents an important growth project that it’s worked on for six years.
If it wanted to kill the project, it could have done so already.
The process is now getting messy and intensely political. But the answers to all these lingering questions will come quickly. For Alberta, it can’t come soon enough.
Should Kinder Morgan not want to move forward … we think there are other private sector actors who would be willing to move forward.