Killing the Trans Moun­tain pipe­line puts cli­mate change strat­egy in jeop­ardy

Investment Executive - - FRONT PAGE - BY MICHAEL GAN LEY IE

The per­ils of killing the Trans Moun­tain pipe­line.

AMID DOOM-AND-GLOOM NEWS IN Al­berta about pipe­line bot­tle­necks and oil­price dif­fer­en­tials, Cal­gary-based Sun­cor En­ergy Inc. has dou­bled down on the oil­sands, buy­ing Mo­cal En­ergy Ltd.’s 5% stake in Syn­crude Canada Ltd.’s oil­sands op­er­a­tions for $920 mil­lion. The move comes on top of the $937 mil­lion Sun­cor spent on Mur­phy Oil Corp.’s 5% stake in Syn­crude in April 2016 and the $6.6 bil­lion Sun­cor paid for Cana­dian Oil Sands Ltd.’s 37% stake in Fe­bru­ary 2016. Sun­cor now owns al­most 56% of the bi­tu­men-pro­duc­ing be­he­moth.

In jus­ti­fy­ing the move, which will add 17,500 bar­rels a day of light sweet syn­thetic crude to Sun­cor’s pro­duc­tion, CEO Steve Williams cited his “con­fi­dence in the longterm fu­ture of the oil­sands and the high qual­ity and value of the Syn­crude as­set.”

“What?” you might want to ask Mr. Williams. “With grow­ing car­bon taxes and the ob­struc­tion­ist poli­cies of the British Columbia gov­ern­ment and the City of Burn­aby over Kin­der Mor­gan Inc.’s Trans Moun­tain pipe­line ex­pan­sion, doesn’t the long-term fu­ture of the oil­sands look ter­ri­ble? How can you be con­fi­dent when the price dif­fer­en­tial be­tween West Texas in­ter­me­di­ate and West­ern Cana­dian se­lect crude re­cently ex­ceeded US$30 a bar­rel?”

Ap­par­ently, Williams knows some­thing a lot of peo­ple are miss­ing. Sun­cor gen­er­ated record rev­enue from op­er­a­tions of $3 bil­lion in the fi­nal quar­ter of last year, sup­ported by a strong per­for­mance from the com­pany’s oil­sands op­er­a­tions. Net earn­ings for the quar­ter came in at 84¢ a share, up from 32¢ a share in the cor­re­spond­ing pe­riod a year prior, and Sun­cor con­tin­ues to drive down ex­penses. Its cash op­er­at­ing costs in the oil­sands fell to $24.20 a bar­rel for the quar­ter.

Sun­cor is just one ex­am­ple of the healthy num­bers com­ing out of Al­berta’s oil­patch. Oil­sands op­er­a­tors’ ef­fi­ciency to­day is amaz­ing — as is how they’re able to make money with oil at US$50 a bar­rel.

These are not the high-cost pro­duc­ers of 10 years ago that many pre­dicted would get priced out of the mar­ket. To­day’s pro­duc­ers have sur­vived the down­turn and are set up for some strong years, with or with­out an­other pipe­line.

That’s not to say things wouldn’t be bet­ter for the in­dus­try with an­other pipe­line. The big­gest prize would be Tran­sCanada Corp.’s Key­stone XL, which would move Al­berta’s heavy oil di­rectly to the U.S. Gulf Coast re­finer­ies that are tooled up for it and are thirsty as Venezue­lan sup­plies dry up. That pipe­line re­mains in limbo.

Then, there’s Trans Moun­tain, the most scru­ti­nized pipe­line in his­tory. B.C. Pre­mier John Hor­gan is try­ing to stop the pipe­line, which has fed­eral ap­proval and has been judged to be in the na­tional in­ter­est. Prime Min­is­ter Justin Trudeau re­cently noted the irony of Hor­gan’s move: block­ing Trans Moun­tain is so po­lit­i­cally di­vi­sive, the move will slow progress on cli­mate change.

“By block­ing the Kin­der Mor­gan pipe­line, [Hor­gan] is putting at risk the na­tional cli­mate change plan be­cause Al­berta will not be able to stay on if the pipe­line doesn’t go through,” Trudeau told the Na­tional Ob­server. “And you will get politi­cians pick­ing and choos­ing parts of the na­tional plan they don’t like. If we don’t con­tinue to stand strongly in the na­tional in­ter­est, the things peo­ple don’t like within the agree­ment, which is filled with com­pro­mises, [means there will be] no agree­ment — and no ca­pac­ity to reach our cli­mate tar­gets.”

Trudeau and his rel­e­vant min­is­ters must en­sure this mes­sage gets through and Trans Moun­tain gets built.


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