U.S. analyst lauds government’s purchase of pipeline
‘Project will be attractive to investors when it’s built,’ Eurasia Group head says
The federal government is likely to recover the $4.5-billion purchase price of the Trans Mountain pipeline and could even make a profit, an American analyst says.
“The project will be attractive to investors when it’s built,” Robert Johnston, chief executive of Washington, D.C.-based risk analysis firm Eurasia Group, said Thursday.
“The investor appetite for longterm, income-generating assets like pipelines is pretty high.
“The risk is in the construction stage. Once they’re built, they tend to be pretty positive … There could be some upside from what they paid for it.”
Johnston, a panellist at an Edmonton energy forum run by consultants PwC, said in an interview the federal government made the right decision to buy the oil pipeline this week so it can complete the stalled expansion project through B.C.
The move will help keep construction going, and has a precedent, he said — the federal government created a Crown corporation in the 1950s to build part of the original TransCanada gas pipeline to Quebec from Alberta.
“When the market is failing or not working or there’s political risk, it’s OK for the government to be involved.”
Natural Resources Minister Jim Carr, in Edmonton for a speech to the Edmonton Chamber of Commerce, said the government’s plan is eventually to sell the still-unnamed Trans Mountain Crown corporation to a private company.
It’s too early to tell whether the government will make money on the deal, Carr said.
“We’re not interested in holding it for years,” he said.
“We have had some expressions of interest already, because we believe it’s a commercially viable project.”
Carr, who said completing the pipeline expansion will improve investor confidence in Canada, received what chamber president Janet Riopel described as the first standing ovation she has seen for a lunch speaker at the chamber headquarters.
Eurasia’s Johnston said American investors are getting mixed messages about the Canadian market, but he sees some good news in the high-profile sale of major foreign-owned oilsands facilities to Calgary firms over the last few years.
“You hate to lose companies of that size with those balance sheets and the ability to raise capital and fund growth,” Johnston said.
“But I would rather have Canadian companies that see this as their No. 1 priority than international companies that see this … as No. 5 or No. 6 in their portfolios.”
One issue discussed by panellists at the PwC forum was the impact of climate change on the international energy industry.
David Victor, co-chairman of the Brookings Institution’s initiative on energy and climate, said advanced countries will have to eliminate greenhouse-gas emissions over the next few decades to help keep global temperatures from rising too high.
This shift will require greater energy efficiency and more electricity use, including renewables and in some cases nuclear power generation, to cut the amount of carbon put out, he said.
“The bulk energy system is going to be increasingly electric energy.”