What has been reported is that Kinder Morgan, frustrated by delays, may scrap their pipeline project unless the Canadian government makes legal challenges launched by the B.C. government and Indigenous groups disappear in the next six weeks, and gets all their permits approved by skipping the usual process. An almost impossible ask.
In response to this ultimatum, Finance Minister Bill Morneau admitted in a series of interviews on Wednesday that the government is in talks with the Texas-based oil company that emerged from the ashes of Enron on a variety of possible solutions, including buying some or all of the troubled pipeline. Rachel Notley’s Alberta government has already indicated its desire to buy some or all of the project, and the feds are likely looking at a partnership with that province.
What hasn’t been reported outside of the business press is that this is a shakedown. The lead paragraph of a matter-of-fact Reuters investor report published on Tuesday read as follows.
“Kinder Morgan Canada shareholders on Tuesday backed the pipeline operator’s decision to pause most work on its Trans Mountain expansion as a way to force the Canadian government to give final approval for the project.”
But it’s not as much about forcing through approval of the project, although as Andrew Nikiforuk points out “the National Energy Board has not approved construction for any portion of the project but the Westridge marine terminal in Burnaby,” or a real hope that the government can wave its magic wand and make court cases and permit issues disappear, as it is a shakedown for government money.
Kinder Morgan, as Morneau stated Wednesday, didn’t anticipate the obstacles that have hampered its pipeline. They’re sitting on a 65 year-old aging pipe, and a theoretical new “twin” that may never be built and they’re struggling to raise the money to complete the project.
Meanwhile, the chances of it being completed diminish with each passing year as public anger over the consequences for the climate and the coast grows, and an oversupply of oil causes prices to drop. Talk about a toxic asset.
Economist Robyn Allan told The Tyee that “Kinder Morgan is looking for an exit strategy, but it likely includes a need to demonize Ottawa in order to set the stage for a suit under NAFTA.”
As Nikiforuk notes in his excellent article, Kinder Morgan has struggled to raise the capital they need to complete the project, and “Allan says investors recognized a year ago that the Trans Mountain project didn’t make commercial sense.”
“The project is not commercially viable and, even before it’s built, Kinder Morgan is looking for a bailout,” Allen said. “If Kinder Morgan’s long-term contracts for moving 700,000 barrels of bitumen and oil on a controversial pipeline were solid, would Kinder Morgan now be blaming the government of B.C. for its problems?”
It all adds up to a lot of risk. It’s a project they almost certainly would not undertake if Kinder Morgan were given the chance for a do-over today. So wouldn’t it be great if they could unload this damaged and diminishing asset for sky-high government prices?
That’s what Kinder Morgan’s shareholders think, and they’re thrilled by the idea of a government bailout. As they see it the company has shrewdly created an artificial deadline and a sense of urgency in government circles, and a win-win situation for investors.
If the government is able to remove all obstacles to construction in six weeks, great. If not, even better as the government has made clear it will buy the project outright if necessary.
“If they put money or provide loan guarantees to the project, that could be a very big win for the shareholders because they will have to put in less risk to receive the end result of a built pipeline,” said Paul Bloom, chief investment officer at Bloom Investments Counsel Inc., which owns a small piece of the pipeline project.
Analysts at RBC Capital Markets agree. “Reduced spending on the expansion project should improve parent Kinder Morgan’s ratio of debt to earnings before interest, tax, depreciation and amortization.”
In the unlikely event the Canadian government calls their bluff, the company isn’t worried. Analysts predict the stock would drop around 20 per cent if the pipeline were cancelled, but that the company would survive and could explore new investment opportunities or a cash return to shareholders.
But the federal government has made clear that they have no intention of calling that bluff. Kinder Morgan effectively commanded Justin Trudeau to jump this past weekend, and he and his ministers have spent the week bouncing up and down.
Morneau has said the government is prepared to use “all means under federal control” and has declined to rule out drastic measures to retaliate against the B.C. government and Indigenous nations such as cutting health and social transfer payments to B.C. or, as Natural Resources Minister Jim Carr suggested in 2016, sending in the army.
But there seems to be one specific option that comes up again and again from federal officials.
“We want to make sure this pipeline goes forward,” said Morneau at an event in Toronto on Wednesday morning. “That will include us considering financial options that might help that to happen.”
Morneau indicated the government is in talks with Kinder Morgan, saying that “discussion is one that of course I will leave to be one between us and them, and [we’re] really not going to negotiate with media, but [I can] say that we will be looking towards all vehicles to ensure the project gets done.”
So our government is in secret talks with a multinational oil company to buy perhaps the most expensive white elephant in Canadian history, and virtually every voice in parliament and in the nation’s media is enthusiastically cheering them on.
The project will cost an estimated $7.4 billion dollars to build, and the purchase price could be several times that amount.
This for a project that is on life support, appearing more and more like an albatross around the neck of Kinder Morgan. An albatross they would be all too happy to pass on to our government.
Legal obstacles
Once you get past the heated rhetoric, one thing is clear: The fate of this pipeline is uncertain, and it may not be built for any one of a variety of reasons.
As Jennifer Ditchburn eloquently explains in Policy Options, Indigenous rights are no subplot to this affair. They are at its core. The federal government’s obligation to consult with Indigenous nations has been repeatedly upheld by the Supreme Court, in the 2014 Tsilhqot’in decision and others.
Just last year the Supreme Court overturned an NEB decision to allow seismic testing by Enbridge that could have a negative impact on Inuit hunting and fishing rights, finding that “a project authorization that breaches the constitutionally protected rights of Indigenous peoples cannot serve the public interest.”
In the 1990 Sparrow case the court found that “Parliament is not expected to act in a manner contrary to the rights and interests of aboriginals, and, indeed, may be barred from doing so by the second stage of s. 35(1) analysis.”
Six bands have taken their claim to the federal court of appeal, and that case was heard last October. A ruling is expected soon, but even if the challenge is dismissed it is likely to end up in the Supreme Court.
In other words, the case is unlikely to be decided promptly, and based on previous decisions by the court, is no slam dunk for the government. If the bands win, it almost certainly means the end of the pipeline project.
Meanwhile both the province of B.C. and city of Burnaby have filed notices of motion to appeal the NEB’s approval of the Kinder Morgan pipeline. These cases revolve around jurisdiction, and the federal government has been clear that they feel confident that they have no case.
But these are thorny issues, and many legal observers who agree that jurisdiction is broadly vested in the federal government also think the courts could find areas of jurisdiction that B.C. can apply. This case is likely to go the feds way, but it’s also not as open and shut as they claim. Althia Raj said as much on Power and Politics on Wednesday.
But that’s not all. Perhaps the largest impediment to the pipeline is the bodies that will lie in its path. In B.C. thousands of people have signed pledges committing to engage in civil disobedience to stop construction. Hundreds have already been arrested, including two members of parliament. No doubt many more will follow. As far away as Quebec Indigenous leaders have promised “civil unrest” if the pipeline goes ahead, and a coalition of over 40 groups that fought the Energy East pipeline sent a letter to Trudeau on Thursday indicating they would stand with their allies in B.C. in opposing this project.
Meanwhile an Angus Reid poll from February found that the country is evenly divided on the pipeline fight, with 50 per cent backing Horgan, and 50 per cent backing Notley. Talk about divisive!
Sounds pretty bonkers to invest billions of dollars of government money in such a fraught and uncertain project, doesn’t it? Just wait, it gets worse.
Canada currently subsidizes the fossil fuel industry to the tune of $3.3 billion a year. That’s almost $100 per person, per year. Or more than enough to offer job retraining and full financial support to every worker and their family negatively affected by the phase out of fossil fuels in Canada.
During the 2015 election campaign, Justin Trudeau’s Liberals promised to “phase out subsidies for the fossil fuel industry.” In fact, it was the lead commitment of their environmental plan and was blared from headlines across the country.
Since the election Canada has called for other G20 countries to eliminate fossil fuel subsidies within the next decade, but has announced no timetable for the elimination of our own subsidies.
Now our government is in serious talks to increase our subsidies to the fossil fuel industry by what could be tens of billions of dollars, and become an owner and promoter of fossil fuel infrastructure designed to last for sixty years.
Moreover, the likelihood the pipeline won’t be built is high, hence Kinder Morgan’s desire to extricate itself from the project, and if it does die it’ll take all this taxpayer money to its grave.
On the edge of a climate crisis
New studies show the Gulf Stream current is at its weakest in 1,600 years. If it collapses it would bring about catastrophic changes to our climate and weather. Its failure was the basis for the Hollywood disaster film The Day After Tomorrow.
“Such a collapse would see western Europe suffer far more extreme winters, sea levels rise fast on the eastern seaboard of the US and would disrupt vital tropical rains. The new research shows the current is now 15% weaker than around 400AD, an exceptionally large deviation, and that human-caused global warming is responsible for at least a significant part of the weakening.”
Climate change is real, it’s coming even faster than the most doomsaying scientists predicted, and the time has come to get serious. But what can we do?
Well, we can be like New Zealand, which this week banned all offshore oil exploration. According to prime minister Jacinda Ardern, “unless we make decisions today that will essentially take effect in 30 or more years’ time, we run the risk of acting too late and causing abrupt shocks to communities and our country.”
It’s called planning ahead for what we know is coming. Wouldn’t it be nice to have a prime minister like that?
Instead we have one who talks a good game, but who is ignoring the risks of climate change, the rights of Indigenous peoples and the science on what must be done (phasing out rather than expanding the tar sands).
If he goes ahead with this plan to buy into the pipeline, Trudeau will not only be betraying our future, but our present, by putting taxpayers on the hook for a failing project.
The decisions that are made here, in the heat of an artificial deadline imposed by a foreign company, will determine Canada’s future for decades to come.
Don’t let our government mortgage your future to appease a dying industry. If they buy this pipeline, we will all pay for it. In more ways than one.
