Alberta’s public pension manager is teaming up with one of the largest U.S. buyout companies to acquire a majority stake in the Coastal GasLink natural-gas pipeline from TC Energy Corp., a sign that major investors see a likely go-ahead for the contentious project.
Alberta Investment Management Corp. (AIMCo) and New York-based KKR & Co. will have a 65-per-cent stake in the pipeline, which is expected to cost $6.6-billion. Terms were not disclosed. Coastal GasLink is being constructed to ship northeastern British Columbia gas to the LNG Canada liquefied-natural-gas project being built at Kitimat, B.C.
Canada’s gas producers are looking to the export-focused project, expected to be completed in 2023, as one potential rescue for the low prices that they’ve struggled with for more than a decade, as North America has become glutted by supplies after the onset of the shale-gas revolution.
The project still faces opposition from environmentalists and the Office of the Wet’suwet’en, governed by hereditary house chiefs who oppose it, saying part of the route infringes on unceded traditional territory. In a court case slated for early 2020, the chiefs are seeking to stop construction in one region, saying that it would disrupt archeological finds.
However, the project has garnered the support of 20 Indigenous communities, and TC Energy said it is giving them an option to acquire a 10-per-cent stake in total, though the elected councils have not agreed on a funding plan.
TC, the former TransCanada Corp., also said that a syndicate of banks is now expected to set up a secured construction-debt facility to fund up to 80 per cent of the 670-kilometre pipeline’s costs. Coastal GasLink has all its necessary approvals and major construction is scheduled to begin in 2020.
For its part, KKR said it was making its investment, its third in Canada’s natural-gas industry, through a partnership it has with the National Pension Service of Korea.
The transaction marks AIMCo’s second big pipeline deal with TC Energy this year. In May, AIMCo announced that it was paying $1.15-billion for an 85-per-cent stake in the Northern Courier oil sands pipeline. The provincially owned corporation manages $115-billion in assets for Alberta government-sector pension plans and other endowments, including the Heritage Savings Trust Fund.
AIMCo’s investment in Coastal GasLink comes after its chief executive, Kevin Uebelein, sought to dismiss accusations that Premier Jason Kenney’s UCP government aimed to exert control over the arm’s-length manager by directing where it invests, such as cash-starved oil and gas companies. Union leaders and Alberta’s opposition NDP have been vocal on the topic as the United Conservative Party has proposed bringing other public-sector pensions under the AIMCo umbrella.
Mr. Kenney’s government is solidly behind the pipeline and the LNG project as a way to boost the fortunes of Calgary-based natural-gas producers. B.C.'s NDP government also supports the project, in contrast to its opposition to the Trans Mountain oil pipeline expansion.
Mr. Uebelein stressed in a statement to The Globe and Mail that the Alberta government’s enthusiasm for a project or industry has no bearing on whether AIMCo chooses to invest in it.
“The merits of the investment opportunity alone, including our expectation of its return potential on a risk-adjusted basis and suitability to our clients’ asset mix and diversification needs, are the key criteria against which we choose to invest or not,” he said.
Coastal GasLink is supported by long-term shipping contracts, is backed by industry leaders and meets environmental, social and governance criteria. Therefore, it fits the investment criteria, he said.
The Coastal GasLink pipeline is being built to carry 2.1 billion cubic feet a day of gas to the country’s first major LNG project, being led by Royal Dutch Shell PLC. The $18-billion terminal will export liquefied natural gas to Asia. LNG Canada made its final investment decision to forge ahead in October, 2018, and expects to begin LNG shipments in early 2025. Coastal GasLink has been clearing and grading along the pipeline route for the past year.
Early this month, Coastal GasLink said it was poised to start taking delivery of large-diameter pipe from Japan, India and Saskatchewan.
TC said it will use the proceeds from the sale to help fund $30-billion worth of other projects it has planned in North America. It will book a $600-million after-tax gain from the sale, expected to be completed in the first half of 2020.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.