Biggest step still ahead for pipeline expansion
Kinder Morgan’s Trans Mountain expansion project still faces its biggest step before starting construction on the $6.8-billion twinning of its pipeline — a final decision from its board of directors.
The B.C. government’s decision Wednesday to declare that Kinder Morgan has met its five conditions for allowing a heavy-oil pipeline, including payments to the province of up to $1 billion over 20 years, removes one more hurdle.
However, Kinder Morgan continues to work on project planning and design, engagement with communities and environmental permitting to meet the 157 conditions imposed on the project by the National Energy Board review, as well as 37 conditions from the province’s decision, project spokeswoman Ali Hounsell said in a statement.
Despite continued fierce opposition to the project from First Nations and environmental groups, Kinder Morgan is expected to start construction by September, with an in-service date for the pipeline by late 2019.
“Next steps will include a final investment decision by the Kinder Morgan board of directors,” Hounsell said in the statement, which is expected before the end of March.
For Canadian oil producers, B.C.’s clearance of the project is pushing them into the more detailed work of figuring out how to use the flexibility that the Trans Mountain expansion would give them to reach markets other than the U.S.
In order to backstop the project, Kinder Morgan has lined up a roster of 13 customers that want to ship oil and diluted bitumen on the twinned pipeline, including Suncor Energy Co., Canadian Natural Resources and Cenovus Energy Inc.
One of the NEB conditions Kinder Morgan must meet is to file, within 90 days of the start of construction, confirmation that shipping contracts remain in force.
Between them, shippers have committed to use up to 707,500 barrels-per-day — about 80 per cent of the expansion’s 890,000-barrelsper-day capacity — in 15-20-year binding agreements on a take-or-pay basis.
“For Cenovus, we’re entering a phase where we can finally start to do some detailed planning,” said Claus Thornberg, vice-president of transportation for Calgary-headquartered Cenovus.
Cenovus is a shipper on the existing Trans Mountain pipeline, Thornberg said, and has even tested the market for its diluted bitumen in Asia by sending a small amount of product to a refinery in China, which was well-received.
And Thornberg said “we’re quite encouraged” that the TMX expansion will lead to increasing shipments to that market.
However, economist and project critic Robyn Allan, doubts bullish projections about market opportunities in Asia since shippers haven’t used the existing pipeline capacity that Kinder Morgan has made available for exports from its Westridge Marine terminal in Burnaby.
Oil shipments from the Port of Vancouver shrank by almost 40 per cent over the first 11 months of 2016, according to records from the port authority.
“They’re counting on markets developing,” Allan said, arguing that the U.S. markets equipped to handle heavy oil in the Midwest and Gulf Coast are still the best places to sell more Canadian diluted bitumen.
However, global projections for oil demand still point to Asia as growth markets, “while the U.S. is flat to declining,” said Jackie Forrest, director of research at the ARC Energy Research Institute in Calgary. “Over the last four or five years we’ve learned you can’t always rely on the U.S. It is good to have more than one customer.”