Analysts offer low odds of success for Trans Mountain

With the clock ticking on Kinder Morgan’s May 31 deadline to get certainty that it can build its $7.4-billion Trans Mountain oil pipeline expansion, industry analysts doubt the company’s demands can be met.

No new suitors have emerged, at least publicly, to share the risk of the project, despite federal Finance Minister Bill Morneau’s pitch in mid-May that plenty of investors would be interested in the pipeline because of Ottawa’s promise to indemnify the project against extra costs of politically motivated delays.

Morneau had named the country’s pension funds as possible investors. And Alberta had talked earlier about taking a stake.

“I think they will walk away and I wouldn’t blame them at all,” Roger McKnight, a petroleum analyst with Oshawa, Ont.-based En-Pro International said of Kinder Morgan.

McKnight said he thinks that financial security for the project is less important for Kinder Morgan than security it can be built and built safely, which is difficult to satisfy, particularly in the short time remaining.

“The only people that could really take it over are the provincial governments of B.C., if they want to, Alberta and the feds,” he said.

There was some positive news for Kinder Morgan Thursday: B.C. Supreme Court Justice J. Christopher Grauer dismissed challenges by the Squamish Nation and the City of Vancouver that had argued there was inadequate consultation during B.C.’s environmental approval of the project, which took place under the former Liberal government.

But McKnight said that’s simply a reminder of the several court hurdles the project has to overcome.

Kinder Morgan’s key concern has been the introduction this spring by B.C. Premier John Horgan’s government of new uncertainties around the shipment of heavy oil from Alberta through B.C.

Horgan’s NDP government filed a reference case with the B.C. Court of Appeal to determine if the province has jurisdiction to restrict heavy oil transport, bring in new spill regulations and add cleanup funding requirements.

Whether B.C. is successful or not in court, the outcome is certain to be challenged at the Supreme Court of Canada, meaning a lengthy delay before a final outcome.

Kinder Morgan CEO Steve Kean has said his company has already spent more than $1 billion and cannot afford to put more capital at risk.

Ed Kallio, a principal of Calgarybased Eau Claire Energy Advisory Inc., said he viewed Alberta Premier Rachel Notley’s decision not to attend a Western premiers’ conference this week as a signal Alberta is going to backstop the project in some way.

“B.C.’s strategy is playing out perfectly. They are just delaying, hoping that the investors will get cold feet and that’s exactly what is happening,” said Kallio.

The project will triple the capacity of the Trans Mountain pipeline largely along its existing route. It would give Alberta marine access to ship oil to markets in California and Asia but also increase tanker traffic in Burrard Inlet by an estimated 350 tanker trips a year.

Hilary Novik Sandberg, an analyst in New York at the political risk consultancy firm Eurasia Group, said despite the federal government’s promise of indemnification, there remains much uncertainty, including from First Nation court challenges and civil disobedience.

Several First Nations, including the Tsleil-Waututh, have challenges of the Trudeau government’s approval before the Federal Court of Appeal. A decision is expected soon.

Said Sandberg: “I think walking away would be a very tough decision. But at the end of the day, it’s going to come down to whether or not they feel they can get it done with the B.C. government being as hostile as it is to the project.”