Canada's Government Buys Controversial Oil Pipeline, To Ensure It Gets Expanded

3:17pm


Image Credit CFJC Today

3:17pm Image Credit CFJC Today

OTTAWA-Canada on Tuesday struck a multibillion deal with Kinder Morgan Inc.to take ownership of the Trans Mountain pipeline project in a bid to save the project.

"This is a great day for Canada, for our customers, for our employees", Kinder Morgan Canada CEO Steve Kean said on a morning conference call.

Under the plan, revealed Tuesday by federal Finance Minister Bill Morneau, Kinder Morgan will go ahead with its original plan to twin the pipeline this summer while the sale is finalized.

Shares of Calgary-based Kinder Morgan Canada, a unit of the Houston-based parent, surged as much as 9 per cent after the announcement, and were down 28 cents, or 1.69 percent, to $16.31 at 12:27 p.m.in Toronto. The purchase includes the pipeline, pumping stations, and rights of way along the route.

The plan - similar to how Canada financed and managed shares in General Motors and Chrysler in 2009 during the financial crisis - will include a new Crown corporation to manage the project.

Ottawa is acquiring the existing Trans Mountain pipeline and the expansion project.

News that the federal government is buying the pipeline surprised Martin Tallett, president of Massachusetts-based oil market research firm EnSys Energy. The expansion project received federal approval in 2016.

Canada needs projects like the expansion created to triple Trans Mountain's capacity to move crude oil and refined products from the Alberta oilsands and Edmonton refining complex to the West Coast, said Chris Bloomer, CEO of the Canadian Energy Pipeline Association.

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If the government succeeds in getting the pipeline built, it plans to sell it back to the private sector.

The two western provinces have been sparring over the pipeline, a situation that Mr Morneau said can not be allowed to "fester".

"Prime Minister Justin Trudeau is making a historic mistake in buying the doomed Kinder Morgan project", Adam Scott, senior adviser at Oil Change International (OCI), said in a statement denouncing Trudeau's decision, which comes just weeks after fierce opposition from Indigenous groups and environmentalists forced the oil giant to halt construction operations.

"They have 10 to 20 years of firm commitment for shipments so from an investors perspective, there aren't too many projects like this that can provide that type of certainty in terms of cash flow over that period", said ARC Energy Research Institute senior director Jackie Forrest. Citing investor uncertainty, it also said it would give up on the expansion plan if British Columbia did not stop its attempts to block it by this Thursday. Construction costs going forward will be included in the $4.5-billion sale price if no buyer is found.

"The majority of Canadians support this project".

Prime Minister Justin Trudeau has long insisted the project is in Canada's national interest and is a pivotal part of the country's economic future.

"It is not, however, the intention of the Government of Canada to be a long-term owner of this project". If Canada buys the pipeline, it will also acquire the personnel needed to continue with construction.

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