PIPELINE DEFEAT WILL LEAD TO FINANCIAL POUNDING
Credit Agency warns Alberta will feel more pain if Trans Mountain project Cancelled
Premier Rachel Notley has spent months hammering home just how high the stakes are for Alberta in the pipeline war with British Columbia.
Now, a credit-rating agency has waded in to clinically back up the premier’s political assessment.
Alberta can’t let the Trans Mountain expansion hit the rocks or it will suffer a financial pounding on several fronts for years to come.
“Despite the recent federal indemnity, the Trans Mountain pipeline dispute is credit negative for the Canadian province of Alberta,” said a statement from Moody’s Investors Service vice-president Adam Hardi.
“The project’s cancellation would represent a potentially significant loss in revenue, increase its energy transportation costs and diminish future energy infrastructure investment and oil development.”
For a province that has already seen its fair share of credit rating downgrades and two gruelling years of recession, that’s the last thing Albertans can afford.
But the countdown clock is ticking louder each day, and the question keeps being asked: Will the project finally move ahead?
Ottawa, the provincial government and Kinder Morgan continue to meet this week over the Trans Mountain expansion as the company’s self-imposed May 31 deadline approaches.
Kinder Morgan has suspended all non-essential spending on the $7.4-billion expansion.
Faced with multiple delays and lawsuits, the company is seeking assurances it can get the project built through B.C., where the NDP government of John Horgan is trying to stop the expansion over concerns about the increased potential of tanker spills off its coast.
Kinder Morgan is also seeking to protect its investors from the financial risk of further delays. The project is a year behind schedule and faces two major legal rulings in the coming weeks that could complicate, or clarify, its future.
Federal Finance Minister Bill Morneau has offered to provide indemnity to Kinder Morgan on any further political uncertainty created by the B.C. government. The federal backstop would be available to a third party if the pipeline company decides to withdraw.
While the federal offer is welcome, there are more intricacies ahead on a file that is already as politically complex as quantum physics.
“Although this (promise) eases some of the related credit risks, the federal announcement lacks detail,” states the Moody’s report released Wednesday.
“In addition, the guarantee may not provide sufficient assurances to entice privatesector investors to invest in cross-border energy projects in Alberta, or even in other provinces.”
The Horgan government, which wants to see a liquefied natural gas (LNG) complex built in B.C., should take careful note of that last phrase. Killing the pipeline might have ramifications for its own energy dreams.
But let’s not get ahead of ourselves; talks with Kinder Morgan and the governments are ongoing and a deal could be reached within the next week.
If project opponents want to understand why Alberta is fighting so resolutely for the pipeline to proceed, the Moody’s report would be a good place to start.
Cancelling the federally approved venture would increase transportation costs for Alberta oil, forcing more crude to move by rail.
It would cut into provincial revenues “at a time when the province is already forecasting a prolonged period of deficit and rapidly rising debt,” the report states.
In his spring budget, Alberta Finance Minister Joe Ceci projected $8.8 billion in red ink this year, and another $20.6 billion of deficits before Alberta sees a balanced budget in 2023-24.
And that’s based upon achieving success on the pipeline front.
Building at least two of three proposed oil pipelines now on the books — Trans Mountain, TransCanada’s Keystone XL and Enbridge’s Line 3 project — is projected to boost Alberta’s economy between 1.5 and two per cent by 2023.
The three projects would trigger more oil production and investment, adding an extra $10.5 billion in royalties to provincial coffers over five years.
So there’s a clear economic imperative — with more jobs — to be realized if the project moves ahead.
But what if Horgan is successful and the Trans Mountain project is shelved?
Coming after the failures of Energy East and Northern Gateway, such a step would have “significant implications for investor confidence,” Moody’s states.
The rating agency said such a lack of success building crossborder pipelines “could ultimately impact TransCanada’s decision whether to proceed with the Keystone XL project.”
For opponents of Trans Mountain, that would be a doubleknockout win in their attempt to keep more Alberta bitumen from being exported out of the province, but it would cause a deep ripple across this province’s economy.
“In the absence of new investment, transportation bottlenecks will worsen as existing pipeline capacity would be insufficient to consistently move oil out of the province,” the report added.
To recap, killing Trans Mountain would lead to lower energy investment, fewer jobs, less government revenues, a bigger deficit for Alberta and a negative cloud hanging over investor confidence in Canada.
In an interview shortly before the Moody’s report was issued, Ceci insisted Alberta can’t let that happen.
Moving ahead on the pipeline would bolster economic certainty and lead to a “reinvigoration of capital investment in the oil and gas sector,” he predicted.
“This is a very pivotal moment for Alberta and one that will define Canada and what it looks like, so we are going to take every and all actions necessary to make sure this pipeline gets built,” Ceci said.
Alberta has gone all in at the pipeline poker table as it, along with the federal government, seeks to broker a deal to get the project across the finish line. Time is running out.
But failure, as Alberta’s finance minister says, is not an option.
This is a very pivotal moment for Alberta and one that will define Canada and what it looks like.