Pipeline in Canada wins OK of panel
Canada’s chief energy regulatory body on Thursday recommended the approval of Houston-based Kinder Morgan’s $5.4 billion Trans Mountain oil pipeline expansion.
The National Energy Board’s support increases the likelihood that the 715-mile project will gain final approval from Canadian Prime Minister Justin Trudeau and his Cabinet by year’s end, analysts said. The favorable recommendation by regulators is an important win for Kinder Morgan, which, like many other energy companies, has had its profits, revenues and market value squeezed by the oil bust. Trans Mountain represents nearly 40 percent of Kinder Morgan’s $14 billion project backlog.
The Trans Mountain expansion would almost triple its existing capacity from 300,000 to 890,000 barrels of crude oil per day. The pipeline would carry crude from Alberta’s oil sands to Vancouver ports, where it could be
shipped to Asian markets that typically pay steeper prices. The expansion would lay another pipeline next to the company’s existing one, which began operations in 1953.
The project, which has been pending for more than three years, is opposed by environmentalists, indigenous tribes and many landowners. The controversy, to some extent, became Canada’s version of the Keystone XL pipeline expansion that was ultimately rejected last year by President Barack Obama.
The recommended approval carries 157 conditions, including safety requirements and environmental mitigation efforts to offset greenhouse gas emissions caused during construction.
Kinder Morgan originally hoped to have the pipeline in operation next year, but that was pushed back until the end of 2019. Kinder Morgan said it has 13 companies signed to long-term contracts for 708,000 barrels of crude shipments a day.
Happy with decision
In a prepared statement, Kinder Morgan said it was pleased with the decision but reserved additional comment until it reviewed the decision further.
The energy board’s chief environment officer, Robert Steedman, said Trans Mountain is in the Canadian public’s best interests. He said the benefits include “increased access to diverse markets” for Canadian oil, as well as thousands of construction jobs.
“The project would not likely cause significant adverse environmental effects,” Steedman said, noting that the resulting increased marine shipping activity would create the largest carbon footprint.
The 157 conditions include safety requirements, community efforts and the need to offset greenhouse gas emissions from construction with enough environmental restoration. The positioning next to the existing pipeline somewhat limits the impacts on the environment and landowners, he said.
Still no sure thing
Brandon Blossman, an analyst at the Tudor Pickering Holt & Co. investment banking firm in Houston, said the recommendation makes it likely the project will ultimately proceed, although it’s still no sure thing.
The project is going through “uncharted territory” almost as a test case, Blossman said. The more liberal Trudeau administration is in its first year in office and has imposed tougher regulatory requirements in the approval process. Other efforts north of the border, such as TransCanada’s Energy East Pipeline Project, remain mired in regulatory proceedings.
In a prepared statement, the Trudeau administration said Thursday it aims to support the energy sector’s growth while working to restore public trust in the regulatory process and environmental assessments.
Pricey project
As for Kinder Morgan, the project is still risky because it’s so expensive, Blossman said, especially during a downturn that presents an uncertain future for the oil sands.
The oil bust has put a big dent in the value of the Houston pipeline giant. Kinder Morgan’s project backlog has shrunk since mid-2015 to about $14 billion from $22 billion.
Its stock was trading at more than $42 a share one year ago but closed Thursday at $17.26 per share, up 22 cents for the day.
The company cut its dividend by 75 percent in December to free up more cash.