Trans Mountain expansion plan loses lustre as oil prices drop
But barring a prolonged slump, decision won’t be affected: analyst
As the National Energy Board gears up to hear final arguments on Aug. 24 into its embattled review of the proposed Kinder Morgan Trans Mountain pipeline expansion, opposition is mounting as the price of oil drops, making the project less attractive.
Local economists say that, barring a major war in the Middle East directly affecting top oil producers like Saudi Arabia, Canada’s oilsands might be in for a prolonged period of lower crude prices.
“My own belief is that unless there’s another war in the Middle East of significant nature in the major oil-producing areas, (then) I think there’s a good chance that oil prices won’t rise significantly for at least a fiveyear time frame, maybe even 10 years,” Simon Fraser University energy economist Mark Jaccard said. He noted that pipeline decisions are usually based on projected revenues over 25 to 50 years.
“The fact that the price of oil has fallen right now shouldn’t affect the decision of either the company or the regulator. However, if they believe that that price fall has a real long-term element to it, like we’re in a new world of oil prices for a decade or two, then it will affect the decision.
“If prices stay really low, I don’t think (Trans Mountain) would go ahead.”
Kinder Morgan hopes to triple the bitumen-carrying capacity of the Trans Mountain line by laying almost 1,000 kilometres of new pipe between Edmonton and Metro Vancouver in the $5.4-billion project, increasing the number of tankers in Burrard Inlet to 34 from the current five per month.
However, crude oil prices, which stood at about $92 US a barrel in September 2014, dropped to about $45 US a barrel this week.
James Brander, professor of strategy and business economics at the University of B.C.’s Sauder School of Business, agreed lower prices could make the pipeline less attractive.
“However, what really matters is the long-run trajectory in oil prices, not short-run changes in price. After all, oil would not start flowing in the new pipeline until 2018 at the earliest, and probably later.”
Trans Mountain project spokesman Ali Hounsell said they have binding, long-term contracts with 13 customers in the Canadian oil producing and marketing business.
“Fluctuations in North American and world oil prices are normal, expected and factored into the considerations by our customers when signing on for the project. Pipelines, similar to other pieces of infrastructure, are long-term investments and by their very nature, designed and financed to withstand the normal ups and downs of markets.”
Meanwhile, the NEB is facing new resistance to its review of the proposed pipeline expansion with British Columbia’s New Democrats, the City of Burnaby and the Sierra Club issuing renewed challenges to the process.
The NDP submitted its letter of comment to the board to outline concerns with the risks of the project and flaws in the review.
The strongly worded letter signed by leader John Horgan and environment critic Spencer Chandra Herbert details four major concerns with the NEB process, including that it lacks public confidence, doesn’t consider climate change, hasn’t required Kinder Morgan to disclose its emergency response plans and failed to ensure First Nations are on board.
Burnaby sent a letter to the NEB refusing to provide extra policing services for the upcoming Trans Mountain hearings in September. The board had asked for seven officers and one supervisor.
“We are also extremely concerned that the NEB has come into Burnaby and is doing things that we know are going to be provocative,” Burnaby Mayor Derek Corrigan said, noting that people aren’t allowed to attend the hearing in person. NEB spokeswoman Tara O’Donovan said the hearing is not meant to be an open forum for the public, but rather an opportunity for interveners to present their oral summary arguments.
The NEB is due to release draft conditions for the pipeline on Aug. 12. The board is also under fire for changing a deadline for letters of comment on these conditions. It initially changed the deadline from July 23 to Sept. 3, but last week issued a new deadline of Aug. 18, giving opponents just six days to respond.
Sierra Club spokeswoman Larissa Stendie called the NEB handling of the pipeline review process “chaotic,” “deeply flawed,” and “unfair.”
O’Donovan said the deadline was changed to give time for interveners and Trans Mountain to respond to letters in their written submissions.
Meanwhile, the Conservative government has named Steven Kelly — who wrote an economic argument for the pipeline — to the NEB on Friday, trumpeting his “wealth of experience” in a news release.
“If prices stay really low, I don’t think (Trans Mountain) would go ahead. SIMON MARK FRASER JACCARD UNIVERSITY ENERGY ECONOMIST