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Vol. 23, No.36 Week of September 09, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

Line takes legal blow

Canada’s appeal court halts work on Trans Mountain, possibility of 2-stage rescue

Gary Park

for Petroleum News

Canada’s Federal Court of Appeal - second only to the nation’s Supreme Court - wiped out thousands of jobs and billions of dollars in government revenues while doing untold damage to Canada’s ability to attract investment in resource projects in a single blow on Aug. 30.

A three-judge panel forced the National Energy Board to halt construction work on the C$9.4 billion expansion of Trans Mountain’s pipeline from Alberta to the Pacific Coast, generating an outpouring of celebration among First Nations, environmentalists, some municipal governments and the British Columbia administration of left-leaning Premier John Horgan.

The net result is that Canada’s last serious hope of obtaining world prices for its oil sands production has been thwarted, potentially adding Trans Mountain to a list of smoking carcasses, notably Enbridge’s Northern Gateway proposal and Trans Canada’s plan for Energy East.

If all three become historical footnotes, Canada will have lost a chance to export 2.2 million barrels per day of raw bitumen to Asia, Europe and even the Middle East, where producers could have collected up to C$30 per barrel more than they receive from buyers in the United States.

Ironically, the verdict was delivered less than an hour before shareholders of Kinder Morgan (the owner of Trans Mountain) voted by 99 percent in favor of selling the existing 300,000 bpd Trans Mountain system to the Canadian government for C$4.5 billion, plus the rights to add 590,000 bpd of new capacity to the pipeline.

The hunger for an expanded Trans Mountain was reflected in producer nominations for space on the pipeline which were oversubscribed by 46 percent in July and 43 percent in June.

Government options

The government of Prime Minister Justin Trudeau now has the option to return the Trans Mountain application to the NEB for review and to meet the federal court’s demand for a new phase of consultation with First Nations affected by the project, or to appeal directly to the Supreme Court of Canada.

Appeal court Justice Eleanor Dawson said the Trudeau government had failed, despite nine months of consultations, to “engage, dialogue meaningfully and grapple with the real concerns of (indigenous communities) to explore the possible accommodation (of their) concerns. The duty to consult was not adequately discharged.”

The court also said the NEB review of Kinder Morgan’s application did not give full consideration to the impact an increased number of tankers sailing out of the Port of Vancouver would have on the region’s resident killer whales.

Alberta Premier Rachel Notley, after reveling in 17 earlier decisions by various courts that endorsed the Trans Mountain plans, made no effort to hide her anger, faced with estimates that losing the pipeline expansion could reduce Alberta’s Gross Domestic Product by 1.5 percent to 2 percent by 2023.

“Alberta has done everything right and we have been let down,” she said. “It’s a crisis.”

Other observers noted that delays in conducting regulatory hearings have resulted in a net divestment of C$8.6 billion in energy and mining investment over the last 15 months.

Call for emergency session

At the same time Notley called on Trudeau to hold an emergency session of Parliament and to appeal the case to the Supreme Court, she also delivered a blow to Trudeau’s goal of imposing a federal carbon tax as the key underpinning of his climate change initiative.

She said Alberta will withdraw from the strategy by refusing to raise the province’s current tax of C$30 a metric ton to C$40 in 2021 and $50 in 2022, joining Ontario and Saskatchewan in their legal fight against the tax.

However, Notley said that if the federal government “acts boldly and gives this crisis the attention it deserves,” there might still be a chance of work resuming on Trans Mountain by early 2019.

“No one in Canada should accept that the only way to sell Canada’s resources is through the United States,” she said. “No other country on Earth would accept this and Canada shouldn’t either, especially when we are doing it to ourselves.”

Notley’s fear now, even though the appeal court verdict was out of Alberta’s control, is that she could be ousted from power in the provincial election expected in May 2019.

Lori Williams, a political scientist at Calgary’s Mount Royal University, said Notley was already “facing an uphill battle (in the next election campaign) and the hill just got steeper. As a single issue (Trans Mountain) is not as consequential for Justin Trudeau as it is for Rachel Notley.”

However, as some of the initial fury over the appeal court verdict subsides some analysts have noted that the 250-page judgment and its 800 clauses contain possible hope for Trans Mountain, even going as far as suggesting a two-step rescue plan.

The panel of judges said the federal government cabinet could refer the project back to the NEB for “reconsideration,” including taking into account concerns raised by the court about the impact of tankers on marine safety and species at risk, especially the whale population.

The judges suggested a “reconsideration” could take into account any factors specified by the federal cabinet, including strengthening the Trudeau government’s C$1.5 billion ocean protection plan, which they found “insufficient.”

Time limit

In a telling comment, the court also said the federal cabinet would be within its rights to “specify a time limit, within which” the NEB should complete its reconsideration.

Equally significant, the court said the government did not have to secure consent from each of the five First Nations who triggered the court case, or unanimity among all of those nations.

The judgment made it clear that the obligation to meaningfully consult with First Nations and, if possible, accommodate their interests can be complex and demanding, but they do not imply a veto.

“Canada is not to be held to a standard of perfection in fulfilling its duty to consult,” the appeal court said.

“At the same time, indigenous claimants must not frustrate (the government’s) reasonable good faith attempt, nor should they take unreasonable positions to thwart the government from making decisions or acting in cases where, despite meaningful consultation, agreement is not reached.”

Judge Dawson said the concerns of indigenous applicants are “specific and focused ... this means that the dialogue Canada must engage in can also be specific and focused.”

“This may serve to make the corrected consultation process brief and efficient while ensuring it is meaningful. The end result may be a short delay (in construction).”

But that glimmer of hope could easily be shredded in British Columbia, which has a long history of getting bogged down in legal fights over resource development.

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