Nationalizing Trans Mountain pipeline a big mistake

The federal government’s decision to nationalize the Trans Mountain pipeline is deeply flawed.

It is flawed politically because it doesn’t solve the real problem — which is that a good many British Columbians oppose any project that would increase the likelihood of heavy-oil spills along the Pacific Coast.

It is flawed economically because it is predicated on the assumption that the world — particularly China — is desperate to buy high-cost bitumen from the Alberta oilsands.

Certainly for Texas-based Kinder Morgan, the pipeline’s current owner, Tuesday’s announcement is good news. The company’s share price, which had been sliding, moved upward after Finance Minister Bill Morneau announced Ottawa’s plan to buy the pipeline for $4.5 billion.

Delays had been costing Kinder Morgan $75 million a month.

The original Trans Mountain pipeline, from Alberta to Burnaby, B.C., on the Pacific Coast, has been in place since 1953. For years, it transported standard crude oil without controversy. That changed in 2012 after Kinder Morgan announced plans to triple its capacity in order to move bitumen from the tarsands for export to Asia.

Bitumen is heavier and stickier than standard crude. In the event of spills, it is much more difficult to clean up.

For that reason, the expansion proposal, which was okayed by the federal government in 2016, alarmed residents in the B.C.’s populous Vancouver area. It also aroused opposition from some Indigenous nations along the pipeline route.

For many, the proposed Trans Mountain expansion came to represent everything that was wrong with Canadian energy policy. Climate-change activists saw it as an attempt to prop up the carbon-emitting oilsands industry. Some First Nations saw it as an attack on Indigenous rights.

But for Justin Trudeau’s Liberal government, the Trans Mountain expansion represented a historic compromise: Alberta would sign onto Ottawa’s climate change agenda; in return the federal government would guarantee the province a new pipeline to get tarsands bitumen to market.

In theory, this compromise seemed doable. In practice, it was not. It didn’t speak to the real concerns of pipeline opponents. It still doesn’t.

But the real weakness in Ottawa’s nationalization scheme is economic. The Trans Mountain expansion was conceived at a time when petroleum prices were hitting record highs and before shale oil had become an important source of energy.

Companies that have already invested heavily in the oilsands will continue to mine bitumen at almost any price in an effort to offset their fixed costs. But new investors are warier.

What’s more, as Alberta’s Parkland Institute points out, the Trans Mountain expansion was conceived at a time when there were fewer pipelines bringing tarsands oil to market. Since then, the Keystone XL pipeline, which is meant to take heavy oil from Alberta to Texas, has been approved.

The ultimate cost of the federal government’s new pipeline scheme remains unclear. The $4.5 billion price tag cited by Morneau on Tuesday covers only the cost of purchasing Kinder Morgan’s existing assets. The planned expansion was expected to cost the Texas-based company $7.4 billion more.

The finance minister said he plans to reprivatize the pipeline company as soon as possible. We shall see how well that works out.

In all of this, the federal government’s assumption appears to be that the obstacles facing Trans Mountain are transitory — that all Ottawa need do is guide the project through a rough patch.

In fact, the problems facing pipelines today are much deeper. Kinder Morgan found that out the hard way. The federal Liberal government and its new Crown corporation are on track to be taught the same lesson.