A single talisman has defined Jason Kenney’s time as premier of Alberta: oil.
When he campaigned in last year’s election, he traversed Alberta in a blue pickup truck, like a roughneck heading out to work on a rig. His slogan was: “Jobs. Economy. Pipelines.” Pipelines were pitched as the foundation of it all. The province’s oil output had surged in recent years, leaving existing lines jammed.
Mr. Kenney was smart to pitch progress on pipelines as a measure of success, since that meant promising something that was already happening. The federal government had already bought Trans Mountain and is committed to getting it built. Another line, Enbridge’s Line 3, is making progress.
And then there’s Keystone XL. The biggest of the three, it aims to nearly triple the flow of Alberta oil to refineries in Texas. That project, long delayed by American political and legal roadblocks, also looked to be moving ahead. TC Energy in January readied to start construction this year. What wasn’t known then was that the project had a new backer.
Last week, Mr. Kenney announced a surprise $7.5-billion investment in Keystone XL. With cash and loan guarantees, the province will effectively pay the majority of construction costs. The deal landed during the coronavirus pandemic and an oil price collapse, but Alberta said it had been in the works since last September. The Premier declared the investment “a solid bet” and called it Alberta’s “last chance” to get a big pipeline built.
All of which may turn out to be true. All that can be said with certainty today, however, is Albertans are taking on more risk than the Premier suggests.
The model for Mr. Kenney’s move is the Trudeau government’s $4.4-billion purchase of Trans Mountain. But that project’s risks were all domestic, and subject to Canadian law and regulations. Even so, with construction costs soaring to $12.6-billion, it is unclear whether Canadians will get all their money back.
Unlike Trans Mountain, Alberta is a bystander to any trouble ahead for Keystone XL. It has already been held up by a decade of political and legal challenges in the United States. The pipeline’s future is in American hands.
The bond-rating agency Moody’s says it faces further protests, continuing legal issues and the immediate challenge of construction during a pandemic. “Political risk,” according to Moody’s, “may ultimately lead to project cancellation.”
While TC Energy has long been working to clear the hurdles and get approval to build the pipeline, the company in February maintained the project was still too risky. Moody’s analyst Gavin MacFarlane said it is “highly unlikely” TC Energy would have forged ahead without Alberta’s money. Mr. Kenney made the same case. “Without this investment by Alberta, I don’t believe the pipeline would be built, at least any time in the foreseeable future.”
TC Energy reduced its risk. Alberta taxpayers have assumed it.
As Mr. Kenney unveiled his investment, we couldn’t help but think of the fiasco at Muskrat Falls. Newfoundland and Labrador is currently in dire financial straits, saddled with a crippling debt. Much of it is attributable to a huge bet the small province made on the Muskrat Falls hydro project.
The relative level of failure at Muskrat Falls is far greater for Newfoundland than even a total loss on Keystone XL would be to Alberta. But the decision making is similar.
Newfoundland was convinced Muskrat Falls was a good idea from the start, and rejected criticisms and alternatives. A scathing review found the province overstated benefits and ignored pitfalls.
As for Mr. Kenney, there is no indication he weighed how else Alberta could invest $7.5-billion. In years past, Mr. Kenney regularly inveighed against using taxpayer dollars to anoint winners and losers. And it’s important to remember that Alberta taxpayers have not put up $7.5-billion to build a pipeline. Construction is the goal, not a certainty. The pipeline’s fate remains dependent on legal and political decisions made in another country.
If the project was a slam dunk, it would not need government money.
The Keystone XL investment may yet pay off, and if it does, all Canadians should cheer. The province needs a break, as does the oil industry. But Albertans’ $7.5-billion is very much at risk. Mr. Kenney’s bet is just that.