Canadian Government to Buy Contentious Kinder Morgan Pipeline for $4.5 Billion

By Leyland Cecco, Guardian UK

29 May 18

Finance minister says ‘this is an investment in Canada’s future’ and says pipeline will and must be built

anada’s federal government has announced it will buy a controversial pipeline from the Alberta oil sands to the Pacific coast to ensure it gets built.

Finance minister Bill Moreneau said on Tuesday that Justin Trudeau’s government will spend C$4.5bn (US$3.45bn) to purchase Kinder Morgan’s Trans Mountain pipeline.

“It must be built. It will be built,” said Moreneau, who described the project as a “vital interest” for the country.

The contentious mega project, which involves tripling the capacity of the existing Trans Mountain pipeline, has been mired in uncertainty for months, amid fierce opposition from environmentalists and indigenous groups and a bitter feud between Canada’s two westernmost provinces over environmental risks.

The line would allow Canada to increase exports to Asia, where it could command a higher price. Canada has the world’s third largest oil reserves but 99% of its exports now go to refiners in the US, where limits on pipeline and refinery capacity mean Canadian oil sells at a discount.

The agreement to purchase the pipeline, struck after weeks of negotiations between company representatives and government officials, will mean the government takes over the existing Trans Mountain pipeline and terminal assets – with the aim of commencing construction in August.

“It’s a chess move that allows the project to proceede and positions it as a national interest. [But] it’s also highly risky because now the government bears the risk,” said Matti Siemiatycki, a professor at University of Toronto specializing in infrastructure finance.

Environmental groups and indigenous communities have long railed against the project, which they say contradicts the country’s climate commitments.

The project has also pitted Alberta against British Columbia, which has called for a review of the environmental hazards of the project.

A number of First Nations communities have argued they were improperly consulted during the review process and have pledged to bring their fight to the courts.

The battle with environmental and indigenous groups has tarnished prime minister Justin Trudeau’s image as an ally in the fight against climate change, say critics.

“Trudeau is gambling billions of Canadian taxpayer dollars on an oil project that will never be built – a project that Kinder Morgan itself has indicated is ‘untenable’ and that faces more than a dozen lawsuits, crumbling economics, and a growing resistance movement that is spreading around the world,” said Greenpeace campaigner Mike Hudema in a statement.

Pipeline supporters, including the province of Alberta and the federal government, argue the project is a critical piece of infrastructure, needed to help Canadian oil reach new markets in Asia.

Since being elected in 2015, the federal government has sought to balance a national climate change plan – including carbon pricing, emissions caps and investment in renewable energy – with the continued development of the oil sands, one of the country’s largest economic engines.

But Siemiatycki warned that betting on fossil fuels further elevated the uncertainty surrounding the project’s success. “The pipeline expansion presumes there’s going to be a high demand for oil going forward for decades – but there’s significant risk that that may not prevail because of changing technologies and changing demand.”

While the landmark deal covers the cost of asset purchase, it doesn’t cover the costs of expanding the pipeline – projected to be in the billions – nor does it cover the costs of future court battles over the project.

In an attempt to allay the worries of investors, Morneau had already promised the government would indemnify any losses incurred as a result of delayed construction. On Tuesday, he said that protection would apply to future investors in the project: “It’s not the intention of government of Canada to be a long term owner of project.

Morneau also promised to honour any previous profit-sharing agreements made between First Nations and Kinder Morgan.

Indigenous groups pledged to escalate their protests in the coming days. “The cost that they did not calculate in their $4.5bn purchase is that Indigenous frontlines will stop this pipeline,” said Will George, Tsleil-Waututh member and spokesperson for the Coast Salish Watch House in a statement.

“The Watch House will continue to stand in the way of pipeline development, and I will continue to meet the responsibility passed on to me by my ancestors to protect the water and land,” he said.