The federal and Alberta governments are exploring financial support and other rescue options after Kinder Morgan put the troubled $7.4-billion Trans Mountain expansion project on life support.
The company has set a number of tough conditions that must be met by May 31 for it to commence major construction on the project, including financial protection for Kinder Morgan Canada Ltd. shareholders and an end to the British Columbia government’s threats of obstruction.
As well, the company will proceed only if it gets an unconditional victory in a federal court ruling expected this spring arising from appeals by British Columbia’s government and some First Nations of Ottawa’s project approval, Kinder Morgan’s chief executive Steven Kean told a conference call on Monday.
In B.C., Premier John Horgan was forced to defend his opposition to the project in a testy exchange in the legislature on Monday, as pressure from Ottawa, Alberta and the province’s business community mounted.
Kinder Morgan’s Mr. Kean said the company has already invested more than $1-billion in the project and spending would increase to $300-million a month once construction starts. It won’t take that step without a clear path forward and cannot delay a decision past June 1 without losing an entire year owing to weather constraints.
“We don’t have the ability to just kick the can down the road,” Mr. Kean said. “We needed to make a decision, and we made it.”
The ultimatum by the Houston-based company and its Canadian subsidiary has sent the federal Liberal government and the Alberta government scrambling for answers as they look to rescue a project both have described as being in the national interest.
Both governments indicated on Monday they are considering some sort of financial package, although neither would provide details. Alberta Premier Rachel Notley plans to meet on Wednesday in Toronto with federal officials to pursue a joint strategy.
Ms. Notley spoke of increasing pressure and economic pain on British Columbia later Monday, when she disclosed she has asked Ottawa to withhold funding that would flow to B.C. under the umbrella of the Pan-Canadian Framework on Clean Growth and Climate Change.
In reaction to needling from Alberta United Conservative Party Leader Jason Kenney in the legislature, the Alberta Premier said “we’ve already made that request to the federal government and I believe that it is under consideration.”
Under fire in the B.C. legislature, Mr. Horgan was defiant, maintaining his government has been transparent about its opposition to the project and that it is appropriate to take that dispute through the courts.
“We stand with British Columbians, in court, making the argument that this project is not in the interests of British Columbia,” he told the House. “We’re not being provocative. We said in an election campaign a year ago this is what we would do. We’re now doing it. And a year later, somehow this is a crisis.”
In an exchange with BC Liberal opposition MLAs, Mr. Horgan dismissed suggestions, including in an editorial in The Globe and Mail, that his government’s conduct is creating an economic and constitutional rift.
“I’m grateful to know that the member still believes that The Globe is running Canada, but it’s not. It’s not. British Columbians are running British Columbia, and the federal government has its responsibilities. I had a very productive discussion with the Prime Minister on the weekend and again last week. These are issues of importance to all Canadians, and we take it very, very seriously.”
The expanded pipeline to Vancouver would increase the ability of Alberta-based oil companies to export to Asian markets and diversify Canadian sales away from the United States, which now accounts for 97 per cent of exports.
Prime Minister Justin Trudeau said his government is considering “a broad range of options” to get the pipeline construction back on track, without being specific. The Prime Minister said he spoke to Mr. Horgan to reiterate Ottawa’s position that approval of the pipeline falls within federal jurisdiction.
“This is a pipeline in the national interest and it will get built,” Mr. Trudeau told reporters in Montreal on Monday.
“We need to get our resources to new markets. It is in Alberta’s interest of course but it is in the interest of all Canadians and that’s why we’re moving forward with this pipeline in a safe and responsible way.“
Natural Resources Minister Jim Carr said the federal government will work with Alberta to address Kinder Morgan’s concerns, adding B.C.’s obstruction is undermining Canada’s reputation as a good place to invest.
“The federal government will use what is available to us to reinforce the decision we took in the national interest,” Mr. Carr said in an interview. ”And that includes financial and legal and regulatory issues. All of them will be examined and we’ll work with our willing partners to ensure that every reasonable step is take to make sure this project proceeds.“
He refused to discuss specifics, but in the past, Ottawa provided $7-billion in loan guarantees to the Muskrat Falls hydroelectric project in Labrador, and invested directly in the Hibernia oil project to keep its development on track.
It is unclear how the Trudeau government can force Mr. Horgan to reverse course on his opposition to the pipeline. Some opposition politicians have called for Ottawa to use the declaratory power under the Constitution by which the federal government can assert its jurisdiction over a project “for the general advantage of Canada.” However, such a move would likely prompt a lengthy court battle if Ottawa used it to remove from B.C. any role in environmental regulation of the project.
Ms. Notley confirmed her government is considering an investment in the pipeline to reduce the risk to Kinder Morgan shareholders and enhance the political status of the project.
She said she will introduce promised legislation next week that gives Alberta the legal powers to throttle back its energy shipments to B.C., a move that would send gasoline prices sharply higher. Ms. Notley said she had a “frank chat” with her British Columbia counterpart on Sunday and told him time is of the essence. “I made sure he knew our resolve.”
In addition to challenging the federal approval, B.C. has threatened to impose regulations preventing any increase in the flow of oil sands crude through the province, although it later offered to refer the question of jurisdiction to the courts.
While it remains unclear whether B.C. has the jurisdiction to enact such a rule, the very threat of it is causing Kinder Morgan to be reluctant to spend billions of dollars on a project that could be crippled by provincial regulations.
B.C. Environment Minister George Heyman said any action by Alberta to curtail the current flow of energy products as a retaliatory measure would be illegal and could be challenged by his province under Canadian trade laws. He said disputes over jurisdiction should be settled in the courts.
“The only thing that has changed here is decisions by investors in a Texas boardroom,” Mr. Heyman said. “So we are going to continue to seek to define and use British Columbia’s jurisdiction.”
Business executives complained on Monday that the prospect of Trans Mountain’s demise is a black mark on Canada’s reputation as a place to do business. The battle “is now challenging - in the full view of the international investment community - the very ability of our country to govern itself,” said Iain Black, president of the Greater Vancouver Board of Trade.
However, anti-pipeline activists and First Nations leaders are anticipating another victory after the demise of TransCanada’s Energy East pipeline and Enbridge Inc.’s Northern Gateway. “The era of massive new investments in fossil fuel projects is coming to an end,” said Karen Mahon, international campaigns director for Stand.earth, which has operations in Canada and the United States.