Kinder Morgan suspends Trans Mountain pipeline expansion

Company halts non-essential activities and spending on the project, says fate of pipeline twinning will be decided by end of May

BIV files

Kinder Morgan Canada Ltd. (TSX:KML) announced Sunday (April 8) that it is suspending all non-essential activities and related spending on the Trans Mountain expansion project. It said the fate of the pipeline twinning will be decided by the end of May.

Kinder Morgan Canada's stock dropped 10% at the opening of stock markets Monday morning.

Meanwhile, Alberta Premier Rachel Notley warned new measures will be forthcoming if British Columbia continues to oppose the pipeline twinning. Legislation will be introduced within days to formalize what she promised would be “serious economic consequences” for B.C.

The most powerful tool in Alberta's arsenal may be the ability to restrict the flow of oil and-or refined fuel to B.C.

“Premier Horgan believes he can harass this project without economic consequences for his province,” Notley said in a press release. “He is wrong. We will be bringing forward legislation in coming days giving our government the powers it needs to impose serious economic consequences on B.C. if its government continues on its present course.”

She also said the province is willing to take a new investment position with the project, although she was not specific about it.

In a conference call Monday April 9, Kinder Morgan Canada CEO Steve Kean welcomed Alberta's offer to essentially become a shareholder, and said the company will consider the offer, but said that would not give the company the “clarity” it needs.

That can only come from the B.C. government or the federal government, and given that B.C. Premier John Horgan made it clear Sunday night that his government is not backing down from threats to impose new conditions on the pipeline expansion project, it's now entirely up to the federal government.

“A private party simply doesn't have the power to resolve differences between governments," Kean said.

Without that clarity, the company said it cannot continue to move forward with the project.

“We cannot, should not and will not go forward without this,” Kean said.

Kinder Morgan announced that under current circumstances, specifically including the continued actions in opposition to the project in B.C, it will not commit additional shareholder resources to the project in the short term.

The company will consult various stakeholders to reach agreements by May 31 that may allow the project to proceed. It said the focus in those consultations will be on two principles: clarity on the path forward, particularly with respect to the ability to construct through B.C., and adequate protection of company shareholders.

The recently elected BC NDP government has proposed new restrictions on the amount of diluted bitumen that can be brought into the province from Alberta and has commenced studies to determine whether potential spillage can be safely mitigated. B.C. is pursuing a court reference on its capacity to pursue its actions. There have been extensive protests at the construction site.

The project still faces a federal Court of Appeal ruling on a challenge of the National Energy Board and federal Order in Council – a challenge to which the province is an intervener. The B.C. government has also asked the courts for a determination that will settle provincial-federal jurisdictional issues.

It’s one thing to deal with the uncertainty over court challenges to the project’s approval, Kean said.

But the new conditions that B.C. plans to impose won’t even be known until 2019, Kean said, by which time a significant amount of spending would have had to occur. The company has already spent more than $1 billion on the expansion project.

“We will not even know what we might be dealing with until well into construction,” Kean said.

B.C. wants to know if it has the authority to restrict any increased flows of diluted bitumen through B.C. and has asked the courts for clarity.

“That matter will be taken up in an unspecified court in a proceeding that still, two months on, has not been initiated," Kean said.

B.C. Premier John Horgan told a news conference Sunday that his province should have an equal say in whether the project proceeds, in an atmosphere without threats or ultimatums. He spoke with the prime minister and the head of Kinder Morgan on Sunday and continues to disagree with their view that B.C. is improperly blocking the project.

“I will not give up the right” to defend the interests of British Columbia, Horgan said. About the project, Horgan said “we believe the risk is too great” and that investors in Kinder Morgan have to be moved by the actions of British Columbia to block the project.

Kean said that substantial construction would bring the project's spend to $300 million to $400 million per month. By scaling back to essential spending, it brings the monthly spend down to $30 million per month.

Kean said his company would not even know what the new regulations B.C. plans to enact will look like until construction was well underway.

“The bigger question now is 'What's next?'” he said. “The action British Columbia initiated a few months may very well not be the last thing we see."

While the company is confident that the federal approval of the project that is being challenged in court will stand up to the challenges, Kean said, “We can't build a project in the courthouse.”

Notley spoke Sunday to the prime minister, who she said reiterated his support for the federally approved project. She is hopeful Ottawa will exert greater pressure. She said U.S. investors are growing tired of B.C. trying to undo a national project.

Alberta earlier imposed a ban on B.C. wine imports into the province, but has since lifted them.

Jim Carr, the federal natural resources minister, also restated Ottawa’s position that the $6.8-billion project must continue and called on B.C. to “end all threats of delay,” but provided no new indications of how the federal government might resolve the dispute between B.C. and Alberta.

The two premiers were scheduled to talk later Sunday or Monday, Horgan said.

Should Kinder Morgan abandon the Trans Mountain expansion, the signal it will send to the international investment community could have far-reaching consequences for Canada, warns the BC Chamber of Commerce.

 “The implications here are seismic," said chamber president Val Litwin. "If we can’t build this project it will show the world that government approvals and rule of law count for nothing in Canada - we can’t let this happen.”