Adding up the cost of pulling the plug on Trans Mountain pipeline

Loss to port from tanker traffic expenditures alone calculated at $127 million annually: conference board

An estimated 9,000 workers would be employed on the pipeline's construction. | Submitted

BC assumes most of the risks but gets few of the benefits.

That’s been the main argument against the $7.4 billion Trans Mountain pipeline expansion project in B.C. from the beginning – an argument that was used even by the former BC Liberal government, before it granted its support, after Kinder Morgan Canada (TSX:KML) agreed to a $1 billion revenue-sharing agreement with the province.

It’s not clear whether that offer is even still on the table now, although if it were, it’s just a fraction of the billions that won’t be coming B.C.’s way if Kinder Morgan decides to pull the plug on the pipeline expansion project.

On April 8, Kinder Morgan announced it was suspending all but essential work on the pipeline expansion project and has given the B.C. and federal governments until May 31 to provide “clarity” on whether the company can proceed.

Otherwise, the company said it will pull the plug on the project – something that is becoming all too familiar in B.C., which saw the cancellation last year of the $36 billion Pacific NorthWest LNG project and the cancellation of the $7.9 billion Northern Gateway project the year before that.

While it is true the Trans Mountain expansion would benefit Alberta more than B.C., should Kinder Morgan cancel the project, the loss for B.C. in potential jobs, direct spending, tax revenue and federal government funding for things like the $1.5 billion Oceans Protection Plan is significant.

Because $1.1 billion has already been spent, there is still another $6 billion that won’t be spent in B.C. and Alberta if the project is cancelled.

The main benefits to B.C. would be during the construction of the pipeline, although there would also be ongoing benefits.

For example, the Conference Board of Canada estimates that each Aframax tanker that would come to the Westridge Marine Terminal in Burnaby would result in $366,000 in spending in the Port of Vancouver. It estimates the annual spending for port activities to be $127 million from the increased tanker traffic alone.

At peak construction, Kinder Morgan would spend between $300 million and $400 million per month.

Kinder Morgan estimated that 9,000 workers would be employed on the B.C. section of the pipeline and terminals over a four-year period.

In addition to the pipeline itself, the Westridge Marine Terminal in Burnaby would be expanded, as would the tank storage facilities in Burnaby and Sumas.

B.C. would lose an estimated $5.7 billion in tax revenue over 20 years, according to the Conference Board of Canada. B.C. municipalities would lose close to $1 billion.

The total loss to Canada in tax and royalty revenue is calculated at $46.7 billion over 20 years.

Indirect investments in B.C. that are tied directly to the Trans Mountain project include the federal government’s $1.5 billion Oceans Protection Plan, the lion’s share of which the federal government had earmarked for B.C.

Earlier this year, Prime Minister Justin Trudeau made it clear that program is tied directly to the Trans Mountain pipeline and would not materialize without it.

Also lost would be the $150 million Kinder Morgan committed to improving B.C.’s marine oil spill response through the Western Canada Marine Response Corp. (WCMRC) – another investment that is contingent on the project.

Last week, the WCMRC put the construction of six new bases in Vancouver and on Vancouver Island on hold. If the bases are not built, the job loss would be 125.

Roughly $7 million in community benefits agreements signed with 11 B.C. communities would also evaporate, because the agreements are contingent on the project being approved and built. The City of Chilliwack, for example, signed an agreement under which Kinder Morgan would contribute $1.2 million to the Vedder Greenway pedestrian trail bridge; Abbotsford would get $1.3 million for the revitalization of a city-owned golf course.

When it comes to First Nations, there would be more losers in B.C. than in Alberta if the project were to be cancelled.

Of the 51 benefits agreements that Kinder Morgan signed with First Nations along the pipeline route, only 10 are in Alberta – the rest are in B.C. Those agreements would provide $400 million in benefits.

But B.C. First Nations that have signed benefits agreements haven’t been exactly vocal in their support for the project. Some resigned themselves to signing agreements that might benefit their communities rather than try to fight the project in court. Their support for the project has been lukewarm at best.

Steve Patterson, natural resources manager for the Yale First Nation, which signed a benefits agreement, does not expect that First Nations in B.C. will be all that troubled if the project never gets built.

“If it does not get built, we would just adapt and pursue other options,” Patterson said. “This project doesn’t fit squarely within the core of where we’d like to go in terms of economic development, but it’s something that we’ve had to accept, as it avoids other risky transport methods such as rail.”

Here is a tally of the taxation and other investment losses for B.C. if the project is cancelled:

•$1 billion revenue-sharing agreement with B.C.;

•$1.5 billion Oceans Protection Plan;

•$5.7 billion in provincial tax revenue (over 20 years);

•$922 million in municipal taxes (over 20 years);

•$127 million annually in oil tanker port spending;

•$150 million investment in marine spill response;

•$400 million in First Nations benefits agreements; and

•$7 million in community benefits agreements in B.C.

Less obvious, but just as important, is the billions that will be lost to the Canadian economy in general. Alberta has long made a disproportionate contribution to Canada’s economy because of its oil industry.

Between 2007 and 2015, Albertans paid $188.6 billion more in federal taxes than they received in transfers and federal programs, according to the Fraser Institute, and between 2004 and 2014, Alberta created 32% of all private-sector jobs in Canada, despite representing just 12% of the nation’s population.

It has been estimated that Canada is losing $15 billion a year due to the discount on Alberta oil, which is at least in part the result of a lack of pipeline capacity.

That discount doesn’t just hurt Alberta – it depresses Saskatchewan’s oil revenue as well, which explains why Saskatchewan’s premier recently announced that his province would join Alberta in a trade war against B.C. if it continued to try to block the pipeline’s expansion.

Saskatchewan also stands to lose steel making jobs if the project is cancelled. Kinder Morgan agreed to use Canadian steel for the pipeline, with much of the work being done at steel mills in the Evraz mill in Regina.

Stephen Hunt, director for United Steelworkers District 3, estimates that 900 jobs in Regina are tied to the Trans Mountain contract.

A Muse, Stancil and Co. analysis calculates that oil company revenue in Canada would rise $73.5 billion over 20 years if the Trans Mountain pipeline is expanded. The conference board estimates that would generate total fiscal benefits of $23.7 billion for Canadian and provincial governments.

Keith Sashaw, president of the Association of Consulting Engineering Companies of BC, said engineering accounts for 2% to 5% of the total budget for a project like Trans Mountain. Some of the engineering work is already done.

The association’s biggest concern, if the project is cancelled, isn’t the potential loss of work for B.C. engineering firms on this one project, but the loss of confidence in B.C. as a place to make large-scale investments.

“There is still a lot of construction, a lot of engineering yet to do obviously,” he said. “What’s a primary concern for us is the message this might have on future projects in the province of British Columbia.

“Here we have a project that received all of the necessary approvals, went through the steps, appears to be going ahead and now is gridlocked. Our concern is just, what will this be doing for investors in the future?

“We have some LNG plants under consideration right now, there’s mines, there’s pulp mills – there’s all sorts of capital projects. We’re just concerned that taking actions like this is just sending a message to potential investors that they have to be more cautious with B.C. than other places they could invest in.”

nbennett@biv.com

@nbennett_biv