Tanker ban may haunt Trudeau
Leaves Ottawa with limited export options
The Liberals have done it to themselves. Just as Henry Ford’s customers could have any colour of Model T car, as long as it was black, so the Liberals can have any pipeline they want, as long as it’s Trans Mountain.
By reducing the number of options, they are now engaged in the politics of last resort to push through Kinder Morgan’s Trans Mountain project.
But if they hadn’t blocked Northern Gateway, raised the regulatory bar on Energy East to unattainable levels and imposed an oil tanker moratorium on the west coast, they wouldn’t be faced with the prospect of a need to fund a de facto nationalization of Trans Mountain.
(The tanker ban is frustrating the ambitions of First Nations-led Eagle Spirit Holdings to build a northern Alberta-B.C. pipeline).
Finance minister Bill Morneau said on Wednesday that there are “plenty of investors who would be interested in taking on this project.”
Eagle Spirit was suggested by some observers as one potential partner — an optic that would obviously sit well with the Liberals’ reconciliation agenda.
But Calvin Helin, the Indigenous entrepreneur who heads up the company, said it is not interested in the Trans Mountain route.
Rather it is focused on a legal challenge by the Lax Kw’alaams Band, of which he is a member, to the oil tanker moratorium legislation that is currently before the Senate.
Helin said the 1,500-km, $12-billion pipeline plan between Fort McMurray and an export terminal site at Grassy Point, near Prince Rupert, has won support from 35 First Nations along the route.
Eagle Spirit’s pipeline would carry up to two million barrels a day of medium to heavy crude, not the diluted bitumen that was planned for the Northern Gateway route.
This was crucial to winning the support of chiefs along the route because crude is easier to clean up after a spill. The downside is it needs a refinery in Alberta to turn the bitumen into crude, adding to the cost.
There remain divisions with First Nations who say they have not given their consent. The project is still in its infancy when it comes to arranging financing and hiring experienced engineers.
But Helin’s approach was to get First Nations support first and a more sophisticated business plan later. “Our view was that if we didn’t get First Nations onside, we didn’t have a project.”
Oil producers like Cenovus Energy and Suncor have expressed interest in the project and AltaCorp Capital is trying to raise capital.
Helin said that if the only hurdle remains the tanker ban, Eagle Spirit will re-locate its export terminal from the big natural harbour at Grassy Point to Hyder, Alaska. The state of Alaska, unlike the province of British Columbia has already said it would welcome the project.
“It’s ridiculous — we’d be putting a large piece of infrastructure worth $1 billion and between 500-1000 permanent jobs into the hands of the Americans,” said Helin.
The Eagle Spirit pipeline is a long way from being a viable option. But, thanks to the various policy decisions made by the Liberal government, Canada is running out of more workable choices.
The Prime Minister repeated again on Thursday that lack of pipeline capacity is costing this country $15 billion a year.
Trudeau has put his personal credibility on the line to get Trans Mountain built. But the triple whammy of political, legal and civil opposition has made Kinder Morgan think twice and persuaded it to set a deadline of May 31 to decide whether to proceed.
The federal government could buy the project but Kinder Morgan will make it pay over the odds. Even at that stage, it’s not immediately clear who would operate the pipeline, or whether the regulatory permits would be easily transferable.
Perrin Beatty, president and chief executive of the Canadian Chamber of Commerce, said a financial backstop wouldn’t be his first choice and any equity investment should be a short-term intervention.
“But I don’t think we can be ideological about it,” he said. “It’s good that they’re engaging and re-asserting federal authority. It’s good that the Minister of Finance was prepared to put the blame squarely on the Premier of British Columbia and make clear he may be costing Canadian taxpayers hundreds of millions of dollar. But we need to address a regulatory system that is clearly dysfunctional.”
Dennis McConaghy, a former TransCanada Corp. executive, said the value of Trans Mountain is that cashflow back to Canada would be significant, regardless of whether the oil is transported to Asia or to refineries on the Gulf Coast.
But he said that all depends on a meeting of minds between the Canadian government and Kinder Morgan on what he called a “conscionable indemnity”.
Morneau said that the government would insure the project against financial losses derived from “politically motivated” delays. To McConaghy, that means compensation is only given for incremental spending delays caused by the Canadian political and judicial system, not money already spent, or profits not yet earned.
“The biggest risk is a perverse judicial re-set,” he said.
McConaghy does not believe it is realistic to think a third party is going to get involved, given it would face many of the same risks, including the prospect of having a full do-over of the regulatory process. “The only thing people should be focused on is a deal with Kinder. Let’s not get distracted by third party entities,” he said.
But the Liberals can’t afford to fixate exclusively on a deal with Kinder Morgan.
It will be interesting to see if Trudeau is as committed to the west coast oil tanker moratorium, which has already passed through the House of Commons, if Kinder Morgan walks away from the Trans Mountain pipeline and nobody else is keen to take it on.
At that point, Eagle Spirit’s project might start to look highly attractive.
“This project provides an off-ramp for everyone,” said Helin.