Trans Mountain opt-outs still option

But company says shippers unlikely to balk at increased project costs

Oil companies that previously committed to using Kinder Morgan’s expanded Trans Mountain pipeline still have the option to back out, if the project breaks its current $6.8 billion cost estimate, and it is almost certain to exceed that amount.

However, Kinder Morgan Canada president Ian Anderson believes it is unlikely that those shippers will opt out, as the company finalizes the latest cost estimate that it is obligated to provide to them within the next few weeks.

“There’s a high probability we will exceed that ($6.8 billion),” Anderson said in an interview Friday. “By how much? We’re adding up the numbers now.”

The project remains contentious with at least nine requests for judicial review of its approval by the National Energy Board and Prime Minister Justin Trudeau’s cabinet.

First Nations, including the Squamish, Tsleil-Waututh and Merritt’s Coldwater Indian Band, are among the challengers seeking to overturn that approval, but Anderson remains confident corporate backing by potential customers won’t be a barrier.

Anderson said the 13 shippers that Kinder Morgan enlisted to demonstrate support for the project will have 30 days to decide whether to re-confirm their commitments to use up to 80 per cent of the expanded pipeline’s 890,000-barrels-a-day capacity.

Kinder Morgan wants to start construction to complete the twinning of its existing 1,150-kilometre pipeline from just outside Edmonton to the Lower Mainland, which involves building 890-kilometres of new pipeline, an expansion of its tank facility in Burnaby, and a major size increase to its Westridge Marine terminal on Burrard Inlet.

The prospect that shippers will balk at the increased costs and abandon the facility is one that was held out by project critic and economist Robyn Allan, who remains skeptical about the prospects of shippers to develop the export markets to justify the project.

Allan, who registered as an expert intervener in the NEB review of the project but later withdrew from what she called a “biased process,” has consulted for the TsleilWaututh First Nation on the pipeline’s proposed economics.

However, Anderson said Kinder Morgan has kept the shippers apprised of changes to the project’s scope and elements that have been putting pressure on costs. He is doubtful that the new estimate will cause them to trigger any opt-out provisions in their agreements.

“I think our shippers have committed with us,” Anderson said.

Those companies, which include Canada’s biggest oilsands producers such as Suncor Energy, Canadian Natural Resources and Imperial Oil as well as major refiners such as BP Canada and Tesoro Refining & Marketing, signed firm agreements on a take-or-pay basis, barring breaking the $6.8-billion cost.

Several of them are shippers on the existing, 300,000-barrelsper-day Trans Mountain pipeline, which has been so clogged by additional demand — particularly Washington-state refiners that are watching shipments of Alaska crude shrink — that Kinder Morgan has had to ration access to the line for more than five years.

“We’re turning away requests for service every day,” Anderson said.

The next step after that will be a final investment decision by Kinder Morgan’s board of directors, which Anderson expects by the end of March or beginning of April.

The project was billed as an outlet for Canada’s oil industry to tap new markets offshore where demand is expected to grow and diversify away from U.S. markets where demand is expected to stagnate.

Anderson acknowledged that market conditions have changed dramatically since it first began developing the proposal in 2010, including the collapse of oil prices starting in 2014.

And he said the company realizes it still faces opposition, which it is prepared to meet.

“We just hope it’s all done sensibly and in a law-abiding way,” Anderson said.