PIPELINE ‘INDEMNITY’ NO CERTAINTY

Federal Finance Minister Bill Morneau’s announcement this week that Ottawa would indemnify Kinder Morgan against losses arising from delays in construction of the Trans Mountain Pipeline expansion project that are “politically motivated” moved the needle a little.

It prompted B.C. Premier John Horgan to switch his animus for “Texas boardrooms” to a “Toronto-based finance minister.”

Morneau said the indemnity offer would stand for any new player that might take over the project if Kinder Morgan walked, which it has threatened to do by May 31 unless uncertainty plaguing the project is resolved. In effect, Morneau threw down the gauntlet, giving Kinder Morgan notice that if the company backs out, the project will be completed under new management. Rumours pegged Enbridge as a potential new player, but the company said it was not in discussions. Enbridge was the proponent of the Northern Gateway Pipeline, which the federal government rejected in November 2016.

Morneau said the Liberal government will not cover delays caused by legal challenges launched by environmental or First Nations groups, which suggests the federal backstop will not be sufficient to ensure completion. It seems unlikely Horgan will drop his opposition regardless of the outcome of the reference case the province filed in the B.C. Court of Appeal to clarify its jurisdiction in regulating the flow of oil through the pipeline. And that raises the question of how long and how much Canadians will be on the hook for Kinder Morgan’s — or another operator’s — losses.

Meanwhile, work on the pipeline cannot continue as long as protesters are given free rein to obstruct work sites. The company cannot risk the safety of its workers; protesters have already threatened violence against media covering the story. Stewart Phillip, the grand chief of the Union of B.C. Indian Chiefs, has promised an “Oka-like” standoff, a reference to the 1990 violent confrontation between a group of Mohawks and the Canadian military in Quebec.

For the protesters, arrest is not a deterrent, but deemed a badge of honour: witness MPs Kennedy Stewart and Elizabeth May.

The Alberta government passed legislation this week giving it the authority to stop oil and gas exports to B.C. and Premier Rachel Notley threatened to “turn off the taps” if the path forward for the pipeline is not settled soon. But Horgan warned Alberta that B.C. would commence court action if it does, saying Alberta’s legislation is unconstitutional.

At this point, it is difficult to imagine a satisfactory conclusion to this imbroglio. Much is at stake for all the players. Kinder Morgan has already spent $1.1 billion over the last six years and would earn an estimated US$860 million a year starting in 2021 if the project goes ahead on schedule.

Alberta says it needs the pipeline to get its energy product to offshore export markets and narrow the $15-to-$30-a-barrel discount to world prices. The federal government has vowed the pipeline will be built, so its reputation rests on that outcome. B.C. is determined that the pipeline will never be built, claiming it must be stopped to protect the environment.

Polls indicate that British Columbians are evenly split on the risks versus benefits of the pipeline, with a third saying risks outweigh benefits, another third saying the opposite, and the remainder saying they are equal. At the same time, 42 per cent of British Columbians say their province is on the wrong track, while awarding Horgan a 47 per cent approval rating.

With the May 31 deadline just days away, Kinder Morgan Canada CEO Steven Kean said at the company’s annual meeting this week that “it’s hard to conceive of a scenario under which we can proceed.”

Canadian taxpayers may have to prepare themselves to assume ownership of a pipeline project in limbo.