The federal government will create a Crown corporation to take over Kinder Morgan’s pipeline effective in August, while, with Kinder Morgan’s help, Ottawa will look for another private sector buyer to take it on and build it.
And, according to a recent story by CBC, The smaller players in Alberta's oil economy — still battered by the bust — are expressing relief and guarded optimism at Ottawa's plan to purchase the Trans Mountain pipeline.
The pipeline may not bring the industry back entirely, but the federal buy-in could help turn business around, said Paul Chissell, president of Wynn Machine and Manufacturing, an Edmonton-based company that makes products for well drilling and completion.
Canada's federal government had to step in Tuesday to buy Kinder Morgan Canada’s Trans Mountain pipeline expansion project from Alberta’s oilsands to British Columbia’s west coast for $4.5 billion after the company walked away amid fierce bickering in the country over its environmental impact.
Finance Minister Bill Morneau told a news conference the federal government will create a Crown corporation to take over Kinder Morgan’s pipeline, and all the rights, assets and the Canadian management team associated with its planned expansion, effective in August. Meanwhile, with Kinder Morgan’s help, Ottawa will look for another private sector buyer to take it on and build it.
But if no buyer is found, Ottawa — and taxpayers — will foot the bill to build the pipeline. Morneau defended the decision, saying $4.5 billion is a “fair price” for a project with “significant commercial value.”
The deal ensures construction that was suspended in April by Kinder Morgan will now begin immediately, with the federal government agreeing to a loan guarantee for the company to resume building — a cost baked into the overall $4.5-billion purchase price.
Morneau said he is prepared for Ottawa to own the project outright for the “short-to-medium-term.” He said, however, he has no interest in owning it over the long-term and believes there will be interested buyers. Government officials say it is much harder for the BC government to regulate against a federal Crown-owned project than a private sector proponent.
Ottawa and Kinder Morgan reached a deal that would see Kinder Morgan Canada begin construction immediately on a proposal to twin the existing 1,150-km pipeline, build another 980 km of new pipeline, in order to triple the capacity to ship Alberta crude oil to BC coastal waters.
To sweeten the deal for any potential future buyer, the Canadian government will extend indemnity or insurance to cover any “extraordinary” politically-motivated delays caused by any province or municipality, and will even promise to buy back the project if it confronts losses in the courts or cannot complete the project despite “commercially reasonable efforts.”
Kinder Morgan has already spent about $1 billion on the pipeline expansion, and in December estimated the project expansion cost at $7.4 billion overall.
Experts say construction costs could run to another $6 billion to $7 billion, given what is described as an "overly ambitious” timeline to finish it by 2020.
Alberta Premier Rachel Notley, who committed Tuesday to put $2 billion into an “indemnity pool” to aid the federal government’s efforts, called the announcement a “major step forward for all Canadians.”
The BC government, however, said Ottawa’s move changes nothing. Premier John Horgan encouraged BC residents to oppose the project, saying they are “entitled” to protest, and adding “you need to do that in a way that is peaceful and civil.”
Prime Minister Justin Trudeau believes the only way to ensure that construction gets underway immediately and the project’s 2020 completion deadline is met is for Ottawa to step in, because the federal government is best placed to confront the BC government’s court challenge, which seeks to assert provincial jurisdiction to block it in the name of the protection of coastal waters.
Morneau again declared the pipeline expansion a vital strategic interest for the country — one that will create tens of thousands of jobs in BC and Alberta, and ensure Alberta’s oil sands exports are no longer sold at a discount mainly to US refineries, which Trudeau says is an annual $15-billion hit to the Canadian economy.