It was a good day for Canadian heavy oil producers with the late afternoon announcement that the BC government gave conditional approval of the Trans Mountain expansion. This sets up the potential for the new Line 2 to potentially start in late 2019 and moving 540,000 b/d of heavy oil. The BC approval follows the Govt of Canada late Nov conditional approval and the NEB late May conditional approval.
The Trans Mountain expansion is essentially a twinning of the existing pipeline that will increase capacity from its current 300,000 b/d to 890,000 b/d. With the expansion, Line 1 will move to a capacity of 350,000 b/d, and would expected to be used for refined products and light oil, but could potentially shift to heavy oil depending on demand. Whereas Line 2 would have a capacity of 540,000 b/d and would be allocated to heavy oil.
BC gave conditional approval to the Trans Mountain pipeline [LINK] as its famous 5 conditions were met. The 5 conditions included the environmental review process, world leading marine oil spill, prevention and recovery system, world leading oil spill, response and recovery systems, addressing legal requirements re Aboriginal/treaty rights as well providing opportunities, and “British Columbia receives a fair share of the fiscal and economic benefits of a proposed heavy-oil project that reflects the level, degree and nature of the risk borne by the government, the environment and taxpayers”.
The big condition was BC getting its fair share and BC says it is satisfied. This was one of the key hurdles – how will BC get specifically paid and they did. At the bottom of the release is the
backgrounder on “Benefits agreement between Kinder Morgan and the Province of British Columbia”, which said “Benefits agreement between Kinder Morgan and the Province of British Columbia. In an unprecedented agreement between the Province of British Columbia and a private company, B.C. will receive significant fiscal benefits direct from Kinder Morgan worth up to $1 billion. The company will pay the Province between $25 million and $50 million annually for 20 years. The actual amount paid to the Province each year will depend whether the expanded pipeline is operating at full capacity on its spot market contracts”.
BC indicated the other conditions were met. BC did add 37 environmental conditions [LINK] in addition to the NEB conditions. We reviewed the 37 conditions in the backup material and there does not look to be any game breakers.
We have not yet seen a Kinder Morgan release, but we expect to see a positive release. On Nov 29, Kinder Morgan’s release [LINK] following the Govt of Canada sign off stated “this final federal approval triggers a number of next steps. Trans Mountain will continue to seek all necessary permits, and is planning to begin construction in September 2017, with an in-service date for the twinned pipeline expected in late 2019. Other next steps will include a final cost estimate review with shippers committed to the Project and a final investment decision by the Kinder Morgan Board of Directors. “This project has evolved substantially as a result of the scrutiny it has undergone and the input received from communities, Indigenous and Metis groups, and individuals. No voice has gone unheard, and we thank everyone who has helped make this Project better,” added Anderson. “We have approval from the NEB with 157 Conditions that we’re committed to meeting. We’ve seen all levels of government coming together to address issues raised over the course of our review, including newly announced enhancements to Canada’s marine safety regime, provincial and federal climate change strategies, and deeper consultations with Aboriginal communities. In today’s announcement the Federal Government commits to implementing the Recovery Plan for the Southern Resident Killer Whale and the establishment and funding for an Indigenous advisory and monitoring committee. Taken together, we’re confident we will build and operate this project in a way that respects the values and priorities of Canadians.” The key is that Kinder Morgan had the NEB 157 conditions for 6 months at this time and continued to see being able to meet the conditions. We would expect Kinder Morgan to move to try to get FID done before the May 9 election.
There are still two wildcards. The first wildcard is the potential impact of protests and that is a real risk given the success protests have had in stopping Keystone XL and Dakota Access Pipeline. One of the most visible opponents to the expansion is Burnaby Mayor Derek Corrigan. Burnaby is significant because Trans Mountain pipeline ends at the Burnaby terminal [see below Kinder Morgan map [LINK]] Post today’s BC announcement, the Vancouver Sun reported [LINK] “Burnaby Mayor Derek Corrigan said he’s still looking at legal options to block the pipeline coming through his community, where many people are passionately opposed. “I suspect that if they proceed with this despite that opposition, that people will very forcefully, make their opinions known,” he said.
Source: Kinder Morgan
There is a second wildcard that could potentially be a bigger issue – the BC provincial election, tentatively scheduled for May 9, 2017 and it is a toss up between the ruling Liberals and the NDP. The recent Insights West Nov 29 survey [LINK], which stated “When it comes to voting intention, six months before the next provincial ballot, the BC NDP and the BC Liberals are statistically tied (40% to 39%) among decided voters, with the BC Green Party at 14% (=) and the leaderless BC Conservatives with 5% (-5).” The CBC [LINK] and others reported this afternoon that BC NDP leader John Horgan reiterated his party’s opposition to the Trans Mountain expansion and that “This is a project that I believe is not in the interest of British Columbia, not in the interest of our marine environment, not in the interest of our economy”.
Today’s BC announcement is a big positive to Trans Mountain and ultimately Canadian heavy oil producers who will benefit when the 540,000 Line 2 is transporting oil. It is positive when a project is approved by the BC and Canada governments and the regulators (NEB). We have seen protesters in the US stop the Dakota Access Pipeline construction. But post a Kinder Morgan FID, the project has the legal legitimacy and it makes it more difficult for protesters to stop, forever, the ultimate construction of the approved pipeline. We expect Kinder Morgan will do all they can to have FID ahead of the May 9 election. And if the BC Liberals can win again on May 9 to eliminate the NDP risk, the Trans Mountain expansion will be picking up big momentum.