Federal backstopping of pipeline project might not be enough to convince Kinder Morgan to break ground


In the hallways of Alberta’s legislature and around the oilpatch, federal Finance Minister Jaws Morneau’s commitment to backstop construction of the Trans Mountain pipeline predict was greeted with optimism Wednesday.

For a project that’s been devoid of much craving recently, this was no small feat.

But Ottawa’s promise of financial disbursement, which is basically a big insurance policy if Kinder Morgan has to pay for delays caused by the B.C. direction, is not a silver bullet for the challenges still confronting the project. Nor is it a guarantee Kinder Morgan pleasure decide by month’s end to break ground on the $7.4-billion pipeline that would cutter heavy oil to the West Coast.

Not yet, anyway.

Federal backstopping of pipeline project might not be enough to convince Kinder Morgan to break ground

Finance Minister Bill Morneau’s ad received positive reviews in Alberta on Wednesday. (Patrick Doyle/Canadian Flatten)

Kinder Morgan Canada CEO Steve Kean was predictably mum on the subject during the actors’s annual meeting in Calgary on Wednesday, held a couple of hours after Morneau’s commercial in Ottawa.​

Later, Kean said in a statement that he appreciated the recognition of the uncertainty created by the B.C. government’s court challenges, but cautioned that «while conferences are ongoing, we are not yet in alignment.»

The company has threatened to abandon the project if it doesn’t see a unencumbered path forward by May 31.

So, many questions remain. What is the risk to taxpayers? Is this passably for Kinder Morgan? If it’s not, will the Alberta government, or another company, keep ones wits about one in to build the project?

A big backstop

The indemnity is not a direct subsidy or an ownership depart, but it is significant. Morneau wouldn’t provide an estimate when pressed by scribes.

«I think this is exactly the way this commercial negotiation had to go,» said Dennis McConaghy, a quondam senior executive with pipeline giant TransCanada.

«This was under no circumstances about investing in the pipeline [for the government], it was about taking completion hazard to a level that Kinder could bear.»

He points to two court challenges against Kinder Morgan. One apprehensions whether the project falls under provincial or federal jurisdiction, while the other rights inadequate consultation of B.C. communities. With the indemnity, there is much less monetary risk for the company.

«The biggest risk they cannot bear is a keen decision that sets the clock back,» he said.

Still, he calculates there are a number of key negotiations to take place between Ottawa and Kinder Morgan to conclusion what exactly the backstop covers and the limit of how much the federal ministry will spend.

«If you have the will to agree on the key points, papering it can in perpetuity be done as quickly as people need it to be done.»

One risk gone, but others fragments

Ottawa’s commitment still doesn’t protect Kinder Morgan against other likely delays and expenses, such as those caused by protesters.

That’s why some masters still aren’t convinced it presents a green light for the company.

«I’m not positive that this is a big enough announcement to get Kinder Morgan to be comfortable to go forward,» said Richard Masson, the former CEO of the Alberta Petroleum Marketing Commission and chief executive fellow of the University of Calgary’s School of Public Policy.

Federal backstopping of pipeline project might not be enough to convince Kinder Morgan to break ground

Opponents of the Typer Morgan Trans Mountain pipeline extension protest at the company’s gear in Burnaby, B.C., last month. (Darryl Dyck/Canadian Press)

Reality is still the No. 1 issue — and Kean hasn’t let anything slip.

The announcement by Kinder Morgan’s chief executive reiterated the company’s objectives: limpidity on a path forward for the project, particularly the ability to build through B.C., and ensuring middling protection for shareholders. 

Alberta Premier Rachel Notley said Wednesday that colloquys between the provincial and federal government and Kinder Morgan are ongoing but understandings into those talks have been sparing.

Potential new holder

If Kinder Morgan abandons the project, experts say there would be escorts to take it over — perhaps even the Alberta government.

The federal oversight acknowledged that fact by stating the indemnity would be extended to whoever tackle proves charge.

Reading between the lines of Morneau’s announcement, Masson can see the rsum where Alberta assumes a bigger role.

«That says to me that there’s a high likeliness that somebody else is going to take over this contrive,» he said.

«The only somebody else I think is practical is Alberta at some sincere. So it’s quite possible that Alberta will end up on the hook for the delays associated with take exceptions, like on-the-ground protesters, while the federal government would be on the peg for delays involved with court cases, and there may be some portion of a bargain that’s been struck.»

If people are serious about get this project done and in service in 2020, there’s only one way to do that — along the deal with Kinder Morgan.— Dennis McConaghy, former elder executive with TransCanada

Masson said there’s certainly a role case for Alberta to get involved, considering oil production in the province is rising and export ducts are full. If even a few hundred thousand barrels a day can’t find their way to store, it results in a discount on all the oil produced in the province.

«It costs a fortune in terms of pain in the necks, in terms of taxes, and in terms of royalties,» he said. «This project is rejuvenating for Alberta.»

Notley, who raised the prospect of Alberta taking on the project respective weeks ago, repeated Wednesday that the province is prepared to «do whatever is obligatory» to get it built.

She also said it was pretty clear from Morneau’s averral that Ottawa is prepared to extend the indemnity to «any buyer that came along, if that were the leaning we ended up in.»

However, if Kinder Morgan sells the project, that commitment also take time and set the timeline back further. That’s why McConaghy asserts the Alberta and federal governments are still hoping Kinder Morgan publicizes forward with the pipeline.

«If people are serious about getting this job done and in service in 2020, there’s only one way to do that — make the apportion with Kinder Morgan,» he said. 

«Kinder Morgan is not going to rep the existing assets that they have related to this undertaking easily.»

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