Canada Said Likely to Buy Kinder's Trans Mountain Pipeline

(Bloomberg) -- Canada is likely to buy Kinder Morgan Canada Ltd.’s Trans Mountain oil pipeline and its controversial expansion project in a bid to ensure it gets built amid fierce opposition, according to a person familiar with the talks.

Buying the pipeline outright has become increasingly likely and is now the most probable option for the Canadian government, the person said, speaking on condition of anonymity because the discussions are private. The deal, a value for which hasn’t been publicly reported, will be announced as soon as Tuesday when Prime Minister Justin Trudeau’s cabinet meets in Ottawa.

“We are going to get that pipeline built,” Trudeau said Tuesday morning heading in to the meeting.

A purchase would mark a stunning development for Trudeau’s government -- effectively nationalizing the country’s highest-profile infrastructure project until an operator can be found. The project has been beset by legal uncertainty and rising protests from environmental groups and the province of British Columbia. It will be a key test of Trudeau’s bid to balance the environment and the economy by backing the C$7.4 billion ($5.7 billion) pipeline expansion while pushing a national carbon price to reduce greenhouse gas emissions.

Expects to Sell

Canada first offered earlier this month to indemnify the expansion project but is now likely to buy it, along with the existing pipeline that’s been in operation since 1953. The Canadian government plans to sell the project -- the existing line and its expansion -- as soon as is reasonable once it’s guaranteed that it will be built, the person said. It’s unclear if other Kinder Morgan assets will be included in any sale.

A spokesman for Canadian Finance Minister Bill Morneau said he wouldn’t comment on “speculation.” Morneau declined to comment on his way into the cabinet meeting.

In an emailed statement late Monday, the Calgary-based company said it didn’t intend to issue updates “unless and until these discussions have concluded or we’ve reached an agreement that satisfies our two objectives: clarity on the path forward, particularly with respect to the ability to construct through British Columbia, and ensuring adequate protection of our KML shareholders.”

Kinder Morgan Canada, a unit of the Houston-based parent, was little changed at C$16.59 in Toronto trading Monday, for a market value of C$5.76 billion.

The two sides had been in talks since the company set a May 31 deadline for the government to give certainty in the face of opposition from British Columbia, which is concerned about increased tanker traffic and possible oil spills along the Pacific coast. Trudeau pledges regularly, including on Monday, that the pipeline will be built.

The Trans Mountain expansion would almost triple capacity to 890,000 barrels of oil on a line running from Alberta to a terminal near Vancouver. The 980-kilometer (600-mile) expansion is seen by the oil industry as a crucial link to Asian markets, allowing producers to diversify away from the U.S., which takes the vast majority of Canadian oil exports.

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