Analysis: Alberta Should Let Feds Lead On TMX Ultimatum

The CEO of Kinder Morgan Steve Kean said investment in the Trans Mountain oil pipeline expansion project (TMX) “may be untenable for a private party to undertake” during his company’s first quarter earnings call on April 18.

This is despite significant efforts by the Canadian, Alberta and less so Saskatchewan governments to get the project back on track since Kinder Morgan Canada announced on April 8 that it is suspending all non-essential activities and spending related to TMX, and its parent company indicated the next day that it would drop the project outright unless two “principles” (read: conditions) are met by May 31: clarity that the pipeline expansion can be successfully completed in British Columbia; and protection of Kinder Morgan’s shareholders.

There may be a degree of gamesmanship involved in Kean’s April 18 comment, with both the federal and Alberta governments now willing to provide some sort of financial support for TMX. But at the same time the first condition remains in doubt, less so because of the unconstitutional roadblocks B.C. Premier John Horgan keeps throwing in front of the project, and more so because of the potentially massive civil disobedience movement Kinder Morgan will face as Horgan’s roadblocks are pushed aside.

The deadline and conditions associated with the Kinder Morgan ultimatum has forced Prime Minister Justin Trudeau and the feds to take a more proactive role to keep the B.C. government from killing the TMX project through a thousand delays.

Following a hastily arranged meeting between the three main governmental protagonists — Trudeau, Horgan and Alberta Premier Rachel Notley — in Ottawa on April 25 to discuss the pipeline impasse, Trudeau said he had instructed his finance minister, Bill Morneau, to enter negotiations with Kinder Morgan to remove financial uncertainty hanging over TMX and also said his government would soon table legislation to “reassert and reinforce” federal jurisdiction over the interprovincial pipeline project. The feds chose to not bring the matter before the Supreme Court because jurisdiction is beyond doubt and for the sake of timeliness.

Shortly after Kinder Morgan’s ultimatum, Notley said the Alberta government would be willing to take a financial position in the TMX, and subsequently said the province would purchase the project in its entirety to keep it from being cancelled. This has led the leaders of the two main opposition parties in the Alberta legislature to question the premier’s negotiating acumen, suggesting Kinder Morgan may simply be posturing with its latest comments about the project. “I’d love to play poker with Premier Notley based on how she’s mishandled this whole thing,” said United Conservative Leader Jason Kenney.

In fact, rather than an equity stake, Kinder Morgan most likely wants Canadian governments to de-risk the TMX project by covering the cost of further delays. The company has estimated the direct cost of these delays to be between $30 million and $35 million a month, plus lost revenue of $90 million for each month the project is delayed. TMX is already years behind schedule.

On the other side of the ledger, Horgan said he did not hear anything during the Ottawa meeting with Trudeau and Notley to change his view on TMX. On April 18, B.C. Attorney General David Eby announced the province would be filing a so-called reference case with the provincial Court of Appeal before the end of the month to determine whether it has any jurisdiction over the TMX project.

Kinder Morgan is already waiting for a ruling on a lawsuit before the Federal Court of Appeal challenging the legality of the National Energy Board permit for the TMX project based on possibly inadequate consultation with First Nations along the pipeline corridor. A number of First Nations and environmental groups, the cities of Burnaby and Vancouver, and the B.C. government are backing this lawsuit.

The company has not commented on the Preserving Canada’s Economic Prosperity Act, tabled in the Alberta Legislature on April 16, which would allow the province to throttle back the export of crude, natural gas, and refined products to B.C. if the Horgan government continues to obstruct construction of the TMX, or similar legislation planned by the Saskatchewan government. But it would not be surprising if such punitive legislation contributed to Kinder Morgan Kean’s “may be untenable” comment for two reasons: it could negatively impact revenue from present Trans Mountain oil pipeline operations; and it could backfire and inflame anti-TMX sentiment in B.C.

Based on recent polling numbers from the Angus Reid Institute, support for the TMX project has increased in recent months in Canada as a whole, B.C. and even the city and island of Vancouver, the heartland of anti-TMX sentiment. But if Alberta, with the support of Saskatchewan, was to cut the flow of crude and petroleum products to B.C., causing shortages and price spikes until alternative supplies could be sourced from Washington State — roughly six weeks based on industry analysis — such bullying tactics could easily alienate some current supporters, and possibly further radicalize opponents, to TMX.

In February, Kennedy Stewart, the NDP MP for Burnaby South and one of the leaders of the anti-TMX movement, commissioned a public opinion poll looking at the attitude of B.C. residents to the pipeline expansion. The Insights West survey found 48 per cent support for the $7.4 billion project, 44 per cent opposing it — six percentage points lower and higher, respectively, than the recent Angus Reid poll — with nine per cent undecided. But more importantly for the sake of the TMX project successfully being constructed, one of Kinder Morgan’s two conditions, around a quarter of those opposed, or one-in-10 British Columbians, were already considering acts of civil disobedience to stop the project.

As of now, it appears civil disobedience associated with the anti-TMX movement may make Standing Rock, the failed attempt to stop the Dakota Access Pipeline, look like a picnic. “What we’re going to see is massive disobedience,” said Burnaby Mayor Derek Corrigan in mid-April.

Kinder Morgan has already experienced several bouts of civil disobedience directed against the TMX project in recent years, but these have focused on its Burnaby terminal. Bob Chamberlin, Chief Councillor of the Kwikwasut’inuxw Haxwa’mis First Nation and vice-president of the Union of BC Indian Chiefs is predicting protests will spread to “different locations,” including near Merritt. The route of the Trans Mountain pipeline crosses 10 First Nation reserves — six of which have provided at least conditional consent for the expansion to date. The North Dakota National Guard was required to help suppress the anti-Dakota Access Pipeline movement at the Standing Rock Indian Reservation early last year.

If Notley is a better poker player than she has let on to date, she would end the threats and political grandstanding and step aside and allow the federal government to financially de-risk the TMX project — Kinder Morgan’s second condition — because only the feds have the tools to force the B.C. government to submit and defeat a potentially massive civil disobedience movement to allow the successful construction of the pipeline expansion —  Kinder Morgan’s first condition.