Canada’s appeals court overturns Trans Mountain crude pipeline approval

Aug. 31, 2018
Canada’s Federal Court of Appeal on Aug. 30 declared the regulatory review of Kinder Morgan Inc.’s (KMI) Trans Mountain Pipeline Expansion impermissibly flawed, effectively halting work on the crude oil transportation project. The court based its decision on a failure to include project-related tanker traffic as part of its evaluation. It also cited KMI’s failure to consult with indigenous peoples.

Canada’s Federal Court of Appeal on Aug. 30 declared the regulatory review of Kinder Morgan Inc.’s (KMI) Trans Mountain Pipeline Expansion impermissibly flawed, effectively halting work on the crude oil transportation project. The court based its decision on a failure to include project-related tanker traffic as part of its evaluation. It also cited KMI’s failure to consult with indigenous peoples.

The court described Canada’s National Energy Board (NEB) process and findings as “so flawed that the governor in council could not reasonably rely on the report.” The decision went on to say that “in effect the governor in council did not have a ‘report’ before it and thus could not proceed to its decision.”

The Tsleil-Waututh Nation asserted, and the court found, that NEB failed to comply with the Canadian Environmental Assessment Act of 2012 by:

• Failing to determine whether the environmental effects of project-related marine shipping are likely, adverse, and significant.

• Concluding that the project is not likely to cause significant adverse environmental effects.

• Failing to determine whether the significant adverse environmental effects likely to be caused by project-related maritime shipping can be justified under the circumstances.

KMI said it is “reviewing the decision with the government of Canada and taking the appropriate time to assess next steps. We remain committed to building this project in consideration of communities and the environment, with meaningful consultation with indigenous peoples and for the benefit of Canadians. Trans Mountain is currently taking measures to suspend construction-related activities on the project in a safe and orderly manner. The court decision was not a condition of the transaction between KML and the federal government.”

BMO Capital Markets stated that the resulting “delay and potential cancellation of the Trans Mountain expansion will extend the period of wider differentials for Western Canadian Select (WCS).” BMO continued, “We expect rail deliveries to reach more than 450,000 b/d in 2020. Assuming the Enbridge Line 3 replacement program is completed, reliance on rail could fall; however, we still see the need for more than 200,000 b/d of rail transportation after Line 3 is in service, which will remain the price-setting mechanism. We expect the West Texas Intermediate-WCS differential to trade in the $20-25/bbl range until sufficient pipeline capacity is constructed.”

KMI earlier this year reached an agreement with the Canadian government to sell Trans Mountain for $4.5 billion (OGJ Online, May 29, 2018). The expansion project involves building 1,150 km of 36-in. OD pipeline, generally paralleling the route of the existing system. The expansion would carry 590,000 b/d of crude from Alberta to coastal British Columbia for export, bringing total capacity to 890,000 b/d. Kinder Morgan Canada Ltd. announced closure of this sale Aug. 31.

Contact Christopher E. Smith at [email protected].