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Vol. 23, No.21 Week of May 27, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

Kinder Morgan bail out

Canadian government ready to cover losses to company caused by British Columbia

Gary Park

for Petroleum News

The Canadian government has made its strongest pledge yet to steer Kinder Morgan’s Trans Mountain pipeline to completion by pledging to cover any financial losses resulting from the British Columbia government’s politically motivated “attempts to delay or obstruct the project.”

Federal Finance Minister Bill Morneau’s offer of a financial backstop for the C$7.4 billion crude bitumen pipeline also gave a strong indication that the government believes there are “plenty of investors ... interested in taking on this project, especially knowing that (we) are willing to provide indemnity that makes sure the pipeline gets built.”

While he would not identify any of those players, one likely candidate would be Enbridge, but that company said it has not engaged in discussions with the government. Other possible participants include pension funds.

Morneau would not say whether his government is prepared to invest in Trans Mountain through an equity stake.

Following three hours of meetings in Houston with Morneau, Steve Kean, chief executive officer of Kinder Morgan’s Canadian division, said he appreciated Morneau’s recognition that a private company “cannot resolve differences” between the Canadian, Alberta and B.C. governments that have effectively brought work on the pipeline to a halt.

Kean said Kinder Morgan is still seeking “clarity on the path forward, particularly with respect to the ability to construct (a pipeline) through British Columbia and ensuring adequate protection for our shareholders.”

May 31 deadline

But he said negotiations between the company and the Canadian government “are not yet in alignment,” while the company’s May 31 deadline for a resolution of the dispute remains firm.

Morneau said his financial guarantee covers only obstruction caused by the B.C. government and that resulting from the activities of protesters or legal challenges.

He declined to say how the indemnity would work, or how much it might cost taxpayers beyond insisting the payments would be “commercially appropriate” and would not clash with international trade treaties.

B.C. Premier John Horgan rejected Morneau’s accusations as “rhetoric and hyperbole. I’m not causing any risks. I’m issuing permits (for Trans Mountain) as they are asked for.”

Alberta could turn off taps

The Alberta government also stepped up its fight with B.C. by passing legislation giving it the power to restrict fossil-fuel shipments outside its borders.

Premier Rachel Notley said that if the “path forward” for Trans Mountain is “not settled soon, I am ready and prepared to turn off the taps. It could happen ... within 24 hours” of that decision being taken.

Alberta Energy Minister Marg McCuaig-Boyd said the law would require companies shipping energy products from Alberta to get a license - covering products such as crude oil and refined fuels - that previously was not needed.

Those licenses could then be throttled back to reduce the volumes of fuel being exported, she said.

If Alberta does make such a move, the result would be an immediate increase of 30 to 45 cents per liter in the wholesale price of gasoline in Vancouver, which is already averaging about C$1.60, said Dan McTeague, senior analyst with GasBuddy.

B.C. Attorney General David Eby tried to downplay Alberta’s right to reduce shipments, arguing the likelihood of Alberta using its legislated power “is highly speculative.”

He said Alberta could have to “convince a court” it was acting within the Canadian Constitution, as well as “grappling with the impacts on their own industry.”

Otherwise he said B.C. would backfill any shortages of gasoline and diesel from the United States, saying negotiations are already underway to identify additional reserves that could be accessed from Washington state refineries, which rely for much of their feedstock on raw crude from Alberta.

Tim McMillan, president of the Canadian Association of Petroleum Producers, said the legislation is recognized “by most people in the industry as one of the few tools that Alberta has to increase the pressure on B.C.,” but added he hopes the law “never gets used.”

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