Trudeau's Pipeline Takeover Is Bittersweet Win for Oil Sands

(Bloomberg) -- Canada’s purchase of Kinder Morgan Inc.’s embattled pipeline is good news for the oil patch, so long as it doesn’t become the norm.

While the $3.5 billion Trans Mountain takeover keeps alive a project seen as critical to expanding markets for Canada’s crude and improving the price oil-sands producers get paid, it also reveals how key infrastructure projects can be stymied by local opposition and regulatory hurdles.

“We would desperately hope this is not the model of how future projects get done,” Chris Bloomer, president and chief executive officer of the Canadian Energy Pipeline Association, said in a phone interview, adding that he is nonetheless pleased that the project can now go ahead.

Long after getting federal approval to almost triple the capacity of its six-decade old conduit in 2016, Kinder became the latest pipeline operator to come against fierce local opposition in Canada. The much more ambitious Energy East project was abandoned by TransCanada Corp. amid outcry in Quebec -- and no government move to save it.

“We think that today’s announcement is based on extraordinary circumstances,” Tim McMillan, chief executive officer of the Canadian Association of Petroleum Producers, said in a press conference Tuesday. “We don’t want to find ourselves in this situation again.”

Taxpayer Money

The fact that Trans Mountain needed tax payers to purchase the project has exposed “fundamental flaws” in Canada’s regulatory system, the Business Council of British Columbia said in a release.

“It shows that Canada is not very business friendly because the only way this could be done is that the federal government has to step in and buy it,’’ Laura Lau, who helps manage C$1.5 billion in assets at Brompton Corp. in Toronto, said by phone.

Alberta’s oil sands, the world’s third-largest crude reserves, are a crucial part of Canada’s economy. The existing Trans Mountain line has been operating since the 1950s, carrying as much as 300,000 barrels a day of oil and refined fuels from Alberta to the Vancouver area, where it connects with a line carrying crude to refineries in Washington state.

The planned expansion to 890,000 barrels a day could open up exports to growing markets in Asia, lessening Canada’s almost exclusive dependency on the U.S. as a market for its oil and reducing the discount energy companies receive from the crude.

Critical Infrastructure

Suncor Energy Inc., Canada’s biggest oil company, welcomed the government’s move, saying it “reinforced the criticality of this infrastructure to all Canadians,” Chief Executive Officer Steve Williams said in a statement. “We support improving market access to ensure Canada achieves fair recognition and full value for its energy resources.”

Cenovus Energy Inc.’s Chief Executive Officer Alex Pourbaix said in an emailed statement that the government’s purchase of the line is a departure from normal process but “not without precedent” as the project is of national interest.

Alberta Premier Rachel Notley, who has threatened to curtail petroleum exports to British Columbia in retaliation for the neighboring province’s battle against Trans Mountain, said “sometimes, on a big national project, the government has to step in and play a role.”

“That does not in any way, shape or form, mean that we are not a good place for private investment,” she said. “In fact, I would argue that we are a more stable place for private investment because we make sure the job gets done.”

©2018 Bloomberg L.P.

Bloomberg
Stay Updated With Stock Market News on BloombergQuint