Business·Analysis

After all the talk, deadline date for Trans Mountain nears without clear picture of the future

Decision day is looming for the Trans Mountain pipeline expansion, but there's no clear sign of an outcome despite weeks of politics and closed-door talks.

'This is really the make-or-break week,' expert says

All eyes are on Kinder Morgan's CEO Steven Kean, left, and Prime Minister Justin Trudeau as the May 31 deadline nears for the Trans Mountain expansion project. (Kyle Bakx/CBC; Vincent Elkaim/Canadian Press)

Decision day is looming for the Trans Mountain pipeline expansion, one of the most polarizing energy projects in years, but there's no clear sign of an outcome despite weeks of politics and closed-door talks.

"This is really the make-or-break week for this particular project," said Warren Mabee, director of the Queen's Institute for Energy and Environmental Policy.

Last month, Kinder Morgan Canada, facing protests and legal challenges in British Columbia, issued an ultimatum, saying it needed clarity on a path forward for the $7.4-billion project by May 31 or it would walk away from construction.

Prime Minister Justin Trudeau, B.C. Premier John Horgan, left, and Alberta Premier Rachel Notley, sit in Trudeau's office on Parliament Hill for a meeting on the deadlock over Kinder Morgan's Trans Mountain pipeline expansion, in Ottawa last month. (Justin Tang/The Canadian Press)

This touched off private talks between the Alberta and federal governments and Kinder Morgan, and spurred Finance Minister Bill Morneau's promise to backstop the project against financial losses caused by British Columbia's efforts to thwart it.

Feud between Alberta and B.C.

The deadline also poured fuel on the feud between Alberta and B.C., and brought into focus issues around the environment, Canada's reputation as a place to do business, and the federal government's role in protecting both.

But while politicians have had much to say about Trans Mountain, Kinder Morgan has had little to offer in recent weeks, leaving experts to speculate on what will ultimately happen with the project, which could triple the amount of product shipped from Alberta's oilsands to the company's facilities in Burnaby, B.C., where it can be exported.

While analysts have said Kinder Morgan could simply walk from the project despite investing more than $1 billion so far, Mabee doesn't think that's how things will play out.

Rather, Mabee believes that the federal government will invest — perhaps heavily — to encourage the line's construction.

"I suspect that what's going to happen is that the government of Canada will make a sizeable investment," he said.

"I don't know what the number will be and I've heard lots of different numbers. I think Kinder Morgan will probably stay associated with the project because ultimately they'll see benefit and they've sunk a lot of effort into it.

Opponents of the Kinder Morgan oil pipeline protest outside Liberal Party fundraising event in Vancouver in April 5. (Ben Nelms/Reuters)

"An investment would go a long way to offsetting their own financial risk."

Project may need to change

Mabee believes the project will be built in the end.

"But I think that there could be many concessions between now and then," he said. "And ... what ultimately gets put into the ground, and what ultimately operates, may not look the same as what they're talking about today."

British Columbia is concerned about the threat of an oil spill, both by tankers plying its coasts and along the pipeline route. Environmentalists disagree with a project that will lead to burning of more fossil fuels, that will conflict with Canada's climate change goals. These concerns will have to be addressed for the project to be viable in the eyes of many British Columbians. 

Zachary Rogers, a research analyst at Wood Mackenzie, also expects the expansion to be built and has even speculated on a construction date. However, this is not based on what the company has said.

"The reason that in Wood MacKenzie's view that it's likely going to go in in 2021 is it comes down to the Canadian federal government's willingness to assert its authority over a project that they've deemed in the national interest," Rogers said. "Nothing is certain, but we do believe that the pipeline will end up going in in the early 2020s."

In recent weeks, critics have raised questions about the viability of the project.

All the existing pipelines filled

But Rogers says clearly the Alberta and federal governments are convinced of the commercial need. Alberta and the energy sector contend that the pipeline is necessary for the health of the oilpatch by easing transportation constraints and helping Canadian oil to reach more markets than just the U.S.

"Production growth in Western Canada has filled up all the existing pipelines. As a consequence, the producers have had to ship out some crude on rail which has obviously hurt their netback price in the basin," he said.

"From that perspective, we don't feel that Kinder Morgan needs to really convince the Alberta or Canadian government of the need of the pipeline."

Thus the real question becomes, Rogers said, will the Canadian government back this pipeline all the way through?

Richard Masson speculates that Ottawa might be willing to go a very long way.

Masson, the former CEO of the Alberta Petroleum Marketing Commission and executive fellow of the University of Calgary's School of Public Policy, said the government could make a play for Kinder Morgan Canada.

"My view is that one or both of the Alberta and federal governments are going to make a proposal to buy Kinder Morgan Canada and effectively buy the Trans Mountain expansion," Masson said.

Canada's Finance Minister Bill Morneau is scheduled to speak to a sold-out audience in Calgary on May 30, one day before the Trans Mountain deadline, at an event hosted by the Chamber of Commerce. (Chris Wattie/Reuters)

Masson doesn't believe any private sector companies are willing to step into the shoes of Kinder Morgan, nor is he convinced that Ottawa's indemnity pledge is enough to convince Kinder Morgan to proceed.

Could Ottawa buy Kinder Morgan?

If government decides the only way to get the line built is to step up and do it itself, then Masson suggests it could make sense to buy all of the company's assets, including the existing Trans Mountain pipeline and terminal facilities.

Kinder Morgan Canada has a market cap of nearly $6 billion.

"If you're just trying to do the expansion you would have to put in place your own team, you wouldn't get the synergies of having the two lines operating as a system," Masson said.

"The ideal way would be for somebody to buy the whole company and manage the two lines together."

But even if government decided to buy into the pipeline business, the Trans Mountain expansion would still face the same challenges with protests and the courts it does today. The government would also have to figure out how — and who — to manage such an enterprise.

Morneau may have some answers for Canadians on Wednesday, when he gives a speech to a sold-out event at the Calgary Chamber of Commerce, one day ahead of Kinder Morgan's deadline.

It's certain the audience will be bigger than those in attendance.

ABOUT THE AUTHOR

Tony Seskus

Senior Producer Western Digital Business Unit

Tony Seskus is senior producer with CBC's Western Business unit in Calgary. He's written for newspapers and wire services for more than 25 years on three continents. In Calgary, Tony has reported on the energy sector and federal politics.

With files from Meegan Read and Reid Southwick

Comments

To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.

Become a CBC Member

Join the conversation  Create account

Already have an account?

now