Kinder’s Pipeline Pause Puts Pressure on Trudeau to Act, Somehow
Justin Trudeau has a lot riding on the Trans Mountain pipeline expansion. But has few viable options to save it.
(Bloomberg) -- Justin Trudeau has a lot riding on the Trans Mountain pipeline expansion. But the Canadian prime minister has few viable options to save it.
Kinder Morgan Inc. halted most work on the project Sunday, ramping up pressure on the federal government to somehow deter provincial opposition and protests from environmentalists before a May 31 deadline. Trudeau’s energy strategy is at stake, along with overall business confidence and the price of Canadian oil landlocked in neighboring Alberta.
His problem is that opposition from British Columbia has been mostly talk, leaving Trudeau essentially in a war of words that’s been enough for the Houston-based company to warn the uncertainty has become too great. Trudeau’s team backs the pipeline and flatly promises it will be built, though with the project already approved its options are few beyond trying to cajole the Pacific coast province.
“The consequence of their indirection has created a problem of certainty for the proponent. That problem is real,” Natural Resources Minister Jim Carr said Monday in an interview at his Ottawa office. “We will look at every option available to the government of Canada -- financial, regulatory, legal.”
Shares of Kinder Morgan Canada Ltd. fell 13 percent Monday, the biggest decline since its initial public offering last May.
Jurisdictional Battle
While cross-border pipelines are under federal jurisdiction, provinces have asserted themselves in recent years, muddying the outlook and allowing new challenges to pop up. In this case, British Columbia’s New Democratic Party government -- whose razor-thin command of the provincial legislature relies on support of Green Party lawmakers -- has dug in its heels.
“This matter has gone well beyond the merits of a project,” said Iain Black, president of the Greater Vancouver Board of Trade, whose business members represent a third of the province’s workforce. The impasse “is now challenging -- in the full view of the international investment community -- the very ability of our country to govern itself.” He called for the federal government “to demonstrate beyond a doubt that we are one country united under the law.”
Trudeau’s energy strategy essentially hinges on introducing a carbon price to make oil pipelines palatable. Provinces like Saskatchewan have bristled at the carbon price, and Trans Mountain -- one of two major pipelines he’s approved -- now hangs in the balance.
A two-track battle awaits. Legally, the project faces court challenges from various opponents and proposed provincial restrictions on bitumen shipments, neither of which are finalized. Politically, and more substantially, Trudeau is squaring off against Premier John Horgan, who took power last July pledging to employ “every tool” to thwart the Trans Mountain expansion. Horgan’s government hired a former British Columbia Supreme Court judge, Thomas Berger, in August to advise on its options for halting construction.
Nuclear Option
Ian Blue, a Toronto-based constitutional lawyer with Gardiner Roberts LLP, said the federal government, “assuming the political will” to follow through, has at least one option that would put a stay on any lawsuits: declaring a state of emergency in British Columbia and Alberta.
“It really would act as an adult wake-up call to the two governments to be sensible,” Blue said in a phone interview Monday, adding British Columbia’s efforts to argue provincial jurisdiction will eventually fail. “The constitutional law is very clear.”
Because the project is approved, any measures to reaffirm the approval would be essentially ceremonial. Carr’s notion of “financial” options raises the prospect of some kind of federal guarantee or direct stake to minimize the company’s risk, an option already being floated by Alberta Premier Rachel Notley that Kinder Morgan says it’s open to. Trudeau brushed aside a question on the subject Monday, telling reporters in Montreal only that he is “determined to see that pipeline built.”
‘Stakes Are High’
Jason Kenney, leader of Alberta’s opposition Conservatives, has floated the idea of withholding federal transfers to British Columbia. That would raise the stakes considerably, something the government appears reluctant to do. Asked in the interview if the pipeline could become a constitutional crisis, Carr replied: “I wouldn’t use or want to use any words that would escalate or inflame.”
The natural resources minister said the pipeline “is clearly within the federal jurisdiction” and said this is about more than Kinder Morgan. “It’s also the capacity of the government of Canada to make the decision and to see it implemented,” he said. “I think that Premier Horgan should understand that the stakes are high here.”
The timeline for Trudeau’s team to craft a solution is tight. Kinder Morgan Chief Executive Officer Steve Kean said the May 31 deadline is firm because of construction timelines. Any further delays may be enough to scuttle the project, he said.
“We cannot change the seasons in Canada, when we do certain work, and we
need that clarity by May 31,“ Kean said on a conference call Monday. “That’s what it is. We don’t think of it as something that’s extendable.“
Uncertainty around Canadian energy development has brewed for years, fueled by environmental protests and legal challenges, in particular from indigenous communities. Polls show dissent over Trans Mountain is broad-based. A survey by Insights West in early March indicated British Columbia is evenly split, with 47 percent opposing the expansion and an equal share supporting it.
“This is going to be a bit of a wake-up call for everyone involved,” Shailesh Kshatriya, director of Canadian strategies at Russell Investments Group, said in an interview. Inability to boost pipeline capacity is one reason global investors have shied away from Canadian stocks, he said. “We can’t just keep flip-flopping.”
Carr said Kinder Morgan gave him a one-day heads-up about the announcement. “The uncertainty that’s created largely by the British Columbia government’s indirect threats to delay are creating a problem for investors,” he said, adding the firm needs “some assurance that the project is going to move to completion.”
--With assistance from Greg Quinn and Kevin Orland
To contact the reporters on this story: Josh Wingrove in Ottawa at jwingrove4@bloomberg.net, Natalie Obiko Pearson in Vancouver at npearson7@bloomberg.net.
To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Stephen Wicary, Steven Frank
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