For Prime Minister Justin Trudeau and his government, the best-case scenario for the Trans Mountain pipeline always ran along these lines: Defeat the B.C. government’s legal challenges, use a charm offensive to win social licence for the project, get shovels in the ground and move quickly to find a corporate buyer for the whole works.
The worst-case scenario for the federal Liberals was what happened on Thursday.
After a Federal Court of Appeal decision effectively shut down expansion of the 1,150-kilometre pipeline, the government finds itself in the awkward position of paying Kinder Morgan Canada Ltd. $4.5-billion for a piece of infrastructure that’s worth a fraction of that price. You can almost hear the sighs of relief from the chief executives of utilities and pension plans across the country, who were all offered a chance to buy into Trans Mountain over the past few years, and who all said no to Kinder Morgan.
Trans Mountain is now a political millstone. Mr. Trudeau made reconciliation with First Nations a priority. On Thursday, the court said the government failed to adequately consult with them on the pipeline. Mr. Trudeau and his party ran on their green credentials. The courts ruled the government rolled over environmental considerations by overlooking the potential consequences of increased tanker traffic on the British Columbia coast once Trans Mountain is completed.
As owners of the pipeline, the government faces a whole new set of challenges to getting it built.
On Ottawa’s watch, work was halted on other major pipelines, such as Northern Gateway and Energy East. Trans Mountain was left as the one major conduit that could potentially carry Alberta oil to world markets, rather than the U.S. refineries that are the destinations for every other Canadian pipeline.
Trans Mountain is expected to reduce the persistent gap between international prices for oil and the price Canadian producers receive. Mr. Trudeau’s argument is that the cash this project generates will help fund Canada’s transition to a postfossil-fuel economy. When the government stepped up to buy the pipeline in May, this one project became symbolic of the country’s energy future. It’s no surprise that news of the court decision Thursday knocked the stuffing out of Canadian energy stocks, with big oil sands producers such as Canadian Natural Resources Ltd. and Cenovus Inc. immediately tumbling after it was released.
“Canada’s oil sands industry can’t catch a break,” said Houston-based analyst Danilo Juvane at BMO Capital Markets, who predicted that, at a minimum, the federal government now faces significant time delays and cost overruns on a project that was already expected to cost taxpayers more than $7-billion.
“We view the court’s decision as a decided negative for the Canadian oil sands inasmuch as it further delays much needed capacity to evacuate crude oil product in a market that has not only seen significant challenges to Trans Mountain, but also projects such as Energy East and Keystone XL,” Mr. Juvane said in a report.
Kinder Morgan opted to get rid of Trans Mountain because it feared there would be days like Thursday, when unforeseen, uncontrollable forces conspired to block an initiative that only makes economic sense if it is built on time, and on budget. By coincidence, shareholders in Kinder Morgan Canada voted Thursday on the sale of Trans Mountain to the feds, with 99.98 per cent giving the deal a thumbs up. You have to wonder what dissenting voters were thinking.
The likes of TransCanada Corp., Enbridge Inc. and the Canadian Pension Plan Investment Board opted to pass on this investment because they had exactly the same concerns – they couldn’t see a way to overcome the political and social opposition to the project. Only the federal government was willing to shoulder the risks that come with Trans Mountain, because Mr. Trudeau rightly believes this project is as important to this generation of Canadians as a railway was in 1867.
There are now even more formidable obstacles to overcome before additional Alberta oil flows into tankers in Vancouver’s harbour. Corporate concerns with viability of the project are clearly well founded. If Trans Mountain is the new national dream, that vision is now in doubt.