Pipeline politics increase flow of controversy in Canada

Trans Mountain expansion approved, Northern Gateway dead, but battle over moving energy in the country is far from done

Tsleil-Waututh spokesman Reuben George: “we always said we would do what it takes to win” | submitted 

Less than three years from now, in the lead-up to the next federal election, Liberal MPs seeking re-election in Greater Vancouver might be called upon to defend a major policy decision by their leader that they didn’t support: the approval of the Trans Mountain pipeline expansion.

Between now and then, Vancouver could become a battleground of civil disobedience, as environmental groups and First Nations ratchet up opposition.

And Prime Minister Justin Trudeau may not be able to count on support from one of his biggest boosters in Vancouver: Mayor Gregor Robertson, who has personally campaigned against the project.

But by then, provided Kinder Morgan Inc. (NYSE:KMI) can stick to its timelines, the $6.8 million expansion should be nearing completion, fuelling a job boom that could buy Liberal support outside the Lower Mainland.

“It will create 15,000 new middle-class jobs, the majority of them in the trades,” Trudeau said last week when he announced three major pipeline decisions: killing the Northern Gateway project but approving two pipeline expansion or replacement projects worth more than $14 billion (Trans Mountain and Line 3).

While the Liberal Party could lose support in B.C. over the pipeline, it might make inroads in Alberta, which is the big winner in last week’s approval of two pipeline projects.

George Hoberg, professor at the University of British Columbia’s Liu Institute for Global Issues, said he can only assume that Trudeau is using his energy policies to “play the long game” of redrawing Canada’s political map.

“The Trudeau Liberals must believe the net political benefit to them outweighs the cost in B.C.,” he said. “And there will be costs in B.C.

“What I see is that the Trudeau folks are playing the long game here, and they’re trying to rewrite the political geography of Canada so that they can win seats in Alberta. Maybe they do have a plan that could rewrite that political map and be the basis for a period of long-term political rule.”

Trudeau officially killed the $7.9 billion Northern Gateway project, but gave its proponent, Enbridge Inc. (TSX:ENB), a concession prize by approving its lower profile but equally capital intensive $7.5 billion Line 3 pipeline replacement project, which runs from Alberta to Wisconsin.

In rejecting Northern Gateway and announcing he would formalize an oil tanker ban on B.C.’s north coast, Trudeau earned the gratitude of some First Nations, like the Gitga’at and Gitxaala, which waged both legal and public opinion wars against it.

“We won the fight in the courts,” said Gitxaala Chief Cliff White. “We won the fight in the court of public opinion. Now, we have won the fight at the federal cabinet table. After years of advocacy, this federal government has listened.”

But Trudeau earned the ire of other First Nations opposed to the Trans Mountain pipeline, notably the Tsleil-Waututh of Burrard inlet, which will likely launch the kind of legal challenge that helped kill Northern Gateway.

“It’s likely that we’ll see a court case, but the bottom line, from the very beginning, we always said we would do what it takes to win,” Tsleil-Waututh spokesman Reuben George told Business in Vancouver.

Hoberg believes the legal challenges Trans Mountain will face will make it tough for Kinder Morgan to meet its timelines: a construction start in late 2017 and a December 2019 in-service date.

Kinder Morgan also needs to check off 157 conditions and must still earn an environmental certificate from the B.C. government, which has its own five conditions.

Most of B.C.’s conditions have been met, but B.C. Premier Christy Clark said last week she wants Trudeau to come to B.C. to defend his decision to British Columbians.

“I’ve always said from the very beginning, that if the five conditions on any of these projects are met, the project can expect British Columbia’s support,” Clark said.

But if the NDP happens to win a provincial election in May, all bets could be off. NDP leader John Horgan’s opposition to Trans Mountain is a matter of public record, and he did nothing last week to dispel the idea an NDP government would oppose the project.

Alberta NDP Premier Rachel Notley is scheduled to be in B.C. this week. Horgan said he plans to meet with her.

“I fully intend to make clear to Rachel, once again, when she arrives here, the view of the B.C. NDP, the view of the majority of British Columbians, that are concerned about a seven-fold increase in tanker traffic,” Horgan said.

Building up to his decision last week, Trudeau prepared the ground with the announcement of a national carbon-pricing scheme, a $1.5 billion investment in marine safety and a national plan to phase out coal power by 2030.

Trudeau said the pipelines could not have been approved without Notley’s climate change policies, which include a carbon tax, phase-out of coal power and oilsands emissions cap.

“We approved this project because it meets the strictest of environmental standards and fits with our international climate plan,” Trudeau said. “We could not have approved this project without the leadership of Premier Notley and Alberta’s climate leadership plan. Alberta’s climate plan is a vital contributor to our national strategy.”

Trudeau added his government’s decision to approve the Trans Mountain and Line 3 pipeline projects was based on “science and evidence,” not regional politics, and said he would not approve the project if he thought it posed a threat to the West Coast.

Combined, the Line 3 and Trans Mountain projects represent more than $14 billion in investment and would add roughly 960,000 barrels per day (bpd) of pipeline capacity for Alberta oil.

That additional capacity matches up with S&P Global Platts’ estimate for growth in Alberta’s oilsands production: from 2.6 million bpd to 3.72 million bpd by 2021. Without new pipelines, exports by rail would continue to increase.

The oil from Line 3 – which runs from Alberta to Wisconsin via Saskatchewan and Manitoba – will continue to serve the U.S. market, which currently is Canada’s only customer for oil.

The Trans Mountain expansion would be the first pipeline in Canada that would give Canadian oil producers access to a growing market in Asia. Critics have questioned whether there are even buyers for Alberta bitumen outside of the U.S.

While there might not currently be the refining capacity in Asia to process heavy oil, by the time the expansion is done, there will be, said Afolabi Ogunnaike, a Wood Mackenzie oil analyst.

“Asia Pacific [is] building new refineries,” he said. “Many of these new refineries are configured to process large amounts of heavy crude. Between now and 2020, the demand for heavy crude is growing in Asia Pacific, whereas demand for heavy crude in the U.S. is more or less flat.

“The growth in global heavy oil demand is greater than the growth in heavy oil supply. Our expectations are that at least 50% of it could be going to Asia Pacific.”

California is likely to be the other major export market for oil via Trans Mountain.

Kinder Morgan Canada president Ian Anderson estimates it will take a year to meet all the conditions required before construction starts in about a year from now.

Asked if Kinder Morgan would consider bringing First Nations in as equity partners, as Enbridge did on Northern Gateway, Anderson said the company is looking at joint venture options.

“We’ll look at a long list of potential partners, and I see no reason why a First Nation-based venture may not be part of those considerations.”