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Another pipeline debate kicks off as Kinder Morgan lines up shippers

A portion of Kinder Morgan's Trans Mountain pipeline, shown here being installed at Jasper National Park in 2007.

Kinder Morgan Canada

Oil producers have thrown their support behind the proposed Trans Mountain pipeline expansion to the West Coast, but the latest project aimed at providing much-needed shipping capacity for the oil sands industry now faces regulatory hurdles and growing resistance to pipelines.

Kinder Morgan Inc. $3.8-billion plan to double the amount of oil it can move from Alberta to the Pacific has garnered "strong" support from shippers and the company will now carry on with engineering and planning, it said Tuesday.

The momentum means the Trans Mountain pipeline expansion will attract greater scrutiny – something it has largely avoided as local communities and environmental groups turned Enbridge Inc.'s proposed Northern Gateway pipeline into an international debate. The federal government supports greater access to the West Coast, but arm's-length regulators must deliver their verdicts before the projects can proceed.

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Kinder Morgan wants to build a twin pipeline on the existing Trans Mountain system, doubling its capacity to 600,000 barrels of oil a day. Trans Mountain already reaches Port Metro Vancouver in Burnaby, B.C., where most of the oil from the pipeline heads to California. But energy producers are desperate to send more oil westward to feed Asian markets, where their crude is in strong demand and can fetch higher prices. Cenovus Energy Inc., for example, sold its first half-tanker full of bitumen directly to China earlier this month, after the raw crude was shipped through the existing Trans Mountain line. Kinder Morgan will make a final decision later this quarter whether to build the new line.

Environmental and political opponents are already lining up against the project. Kennedy Stewart, New Democratic MP for Burnaby-Douglas, called the Trans Mountain expansion "Enbridge south," referring to the furor that has greeted the Enbridge's pipeline proposal to Kitimat, B.C.

"I've called every household in my riding, talked to mayors and first nations, and everybody is against this," he said in an interview.

While dissent is growing, it is not nearly as widespread as the opposition Northern Gateway faces.

"Trans Mountain flew under the radar because the line already existed," said Chris Lee, head of Deloitte LLP's national energy and resource group. "Now that they've announced shipper commitments, this thing becomes more of a reality."

Oil sands companies are on pace to produce 2.16 million barrels of oil a day by 2015, an increase of roughly 50 per cent over 2010's output, but Canada's export capacity will peak around 2014. TransCanada Corp.'s stalled expansion of its Keystone XL line in the United States has further added concern about Canada's ability to export crude, as well as the industry's nearly exclusive dependence on the U.S. market.

The Trans Mountain system has quietly been in operation for decades taking oil to the West Coast port, but a pipe rupture in 2007 led to a high-profile 1,400-barrel spill that leaked into waters off Vancouver. Enbridge's project, which would load tankers in a northern wilderness community, would be built from scratch.

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Although the search for shipper commitments lasted longer than expected, Kinder Morgan Canada president Ian Anderson said the ultimate response signalled the depth of energy ambitions to move their crude to the Pacific.

"The encouragement we've continued to receive as a sector and as an industry towards more market access to the West Coast has proven itself out," he said. "We need to now match up what we got with what we can do."

In other words, the expansion of the Trans Mountain system may not be the additional 300,000 barrels initially described by the company – it may be more or less. Further details are expected by the end of March, Mr. Anderson said.

And even then, the process will only have just begun. Defining the project's size will lead to engineering, and then a regulatory review. The earliest the company could have the project in service is late 2016.

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