From Canada comes a new twist on the proverbial win-win deal. A controversial pipeline wins governmental support, and pipeline opponents win a strategic victory.
Expansion of the Trans Mountain oil pipeline between Edmonton, Alta., and Burnaby, BC, has been rescued. Kinder Morgan had suspended work on the important project and was ready to withdraw on May 31 because of adamant resistance at provincial and local levels in British Columbia. The resistance evoked bitter reaction in Alberta, where rising production from the oil sands requires new pipeline takeaway capacity and connection with global markets. Alberta recently passed legislation enabling officials to limit or block energy shipments to its western neighbor. BC responded with a lawsuit. Kinder Morgan’s project, in which it had invested more than $1 billion (Can.) and 5 years of administrative work, was stymied.
Government intervenes
Two days before the prospective abandonment date, the federal government intervened to keep the Trans Mountain expansion alive. It agreed to pay Kinder Morgan $4.5 billion for existing equipment and the expansion project, a 1,150-km twinning to add 590,000 b/d of capacity and bring the system total to 890,000 b/d of crude oil, blended bitumen, and products.
Kinder Morgan agreed to restart construction of the expansion immediately with funding guaranteed by Ottawa through summer. It also will help the government find a buyer. Until that transaction, if a buyer emerges, a crown corporation will own and operate Trans Mountain. And the federal government will indemnify any future owner against losses resulting from “politically motivated unnecessary delays.” Alberta will help construction with emergency funding of as much as $2 billion for “unforeseen circumstances,” to be compensated by a commensurate equity interest or profit sharing.
From any government, these measures would be extraordinary. They’re especially so coming from a green-minded regime heretofore tepid in its support for Trans Mountain expansion and loath to alienate environmental activists. If nothing else, they reflect welcome recognition by Prime Minister Justin Trudeau’s Liberal government that vaunted hopes for mitigating climate change must sometimes give ground to baser necessities, such as money and jobs.
But what a mess. This is the country where neither the Northern Gateway pipeline to the Pacific nor the Energy East system to the Atlantic could survive political resistance. It’s the country where pipeline congestion, by depressing crude oil and bitumen values at their points of production, might cost Alberta’s producers $15 billion this year. It’s a country from which major oil companies have largely withdrawn. And now an economically crucial project much more modest than Northern Gateway and Energy East, using an existing pipeline route, and holding all necessary federal and provincial approvals could not advance until it was nationalized.
But wait: It still might not advance. BC Premier John Horgan answered the federal surprise with a promise to continue his legal challenge, which ultimately will test federal primacy in matters of interprovincial transportation. This is a constitutional showdown. A wayward court decision might enable any level of government to block pipeline construction in Canada.
This is a clarifying moment. Horgan fooled no one when he claimed to be protecting his lovely province against bitumen spills and tanker accidents. He governs in a fragile coalition with the Greens, who want nothing less than to block all pipelines everywhere to keep oil and gas in the ground. That’s the essence of pipeline opposition. And it’s uncompromising.
Sharing the risk
Environmentalists therefore won’t like Trudeau’s step away from climate puritanism. They’ll make the prime minister pay for his accommodation of economic imperatives. Worse for him, having let the BC fiasco run so long before acting, he now must manage the probability that any future energy project of strategic scope will arrive with expectations for risk-sharing by Canadian taxpayers.
For at least a while, however, that problem will be moot. After Trans Mountain—and Energy East and Northern Gateway—how many such projects might there be? Environmentalists who hate pipelines should be cheering.
