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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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New BC Government Could Jeopardize Canadian Oil Exports

Pipeline

The upcoming change in British Columbia’s government could stall the Canadian oil industry’s plans to compete globally by exporting crude to Asia—the world’s fastest growing refining market of which Middle Eastern producers, Russia, and now the U.S. are vying for market share.

On Tuesday, the day on which Kinder Morgan Canada welcomed the completion of its IPO and with that, the finalizing of the investment decision on the Trans Mountain Expansion Project, British Columbia’s New Democratic Party (NDP) and Green Party sealed a pact to form a new government and vowed to “immediately employ every tool available to the new government to stop the expansion of the Kinder Morgan pipeline, the seven-fold increase in tanker traffic on our coast, and the transportation of raw bitumen through our province.”

The Trans Mountain expansion project plans to increase the nominal capacity of the system from 300,000 bpd to 890,000 bpd by twinning the existing pipeline between Strathcona County near Edmonton, Alberta, and Burnaby, BC. The project includes expanding the Westridge Marine Terminal in Burnaby with three new berths.

Despite the fact that Canada’s federal government—which has the jurisdiction to rule on large pipeline projects--has approved the pipeline expansion project, the incoming government in British Columbia is now promising to put up a fight that could turn into a setback for Kinder Morgan’s plans, as well as Canada’s ambitions to grab a chunk of the prized Asian oil market.

Canada’s oil exports are currently almost exclusively bound for the U.S., where Canadian oil is sold at a discount to the WTI. The Canadian energy industry argues that by securing pipeline access to the Pacific Coast, Canada can compete for customers in Asia.

According to the Canadian Association of Petroleum Producers (CAPP), less than 1 percent of Canada’s oil is exported to markets outside North America, and additional pipeline capacity could potentially make Canada a player on the global market.

Cenovus Energy, for example, wants to continue pursuing opportunities to sell its oil on new markets.

This includes supporting proposed new pipeline projects as well as looking for other innovative solutions to get our oil to market and reduce transportation costs,” President and CEO Brian Ferguson saidat the annual general meeting in April.

Referring to the Trans Mountain project, RBC Capital Markets analyst Michael Tran told Reuters:

“It is by far the most important pipeline given we need to be able to unlock our barrels and move them to key demand growth regions like China and India.” Related: Has Permian Productivity Peaked?

Kinder Morgan—which received British Columbia’s environmental certificate in January—plans to begin construction on the expansion in September this year.

The project is currently in the phase of ongoing engagement with communities along the Trans Mountain route, and Canada’s National Energy Board says it is available to assist with disputes between landowners and the company.

Even though the grand scheme of the project is federally approved, there are a lot of details to discuss and compliance verifications to be made.

BC’s new government that will replace the more energy-friendly Liberals could delay the timeline by denying construction permits, legal experts reckon. BC could do very little to revoke previously issued approvals, but it could demand new assessments be made, and delay or deny permits for accessing roads or use of heavy construction equipment. In case of protracted delays, Kinder Morgan may even reconsider whether pursuing the project would be worth it, according to experts in law.

“There’s lots of room for the province to sort of complicate things, to drag things out… The more complicated this gets, then market forces take over, and this becomes a financial calculation — whether the project goes ahead,” University of British Columbia law professor Jocelyn Stacey told CBC News.

The whole game will be — can they make it difficult enough for Kinder Morgan that they don't actually want to go through with the project,” according to James Coleman, an energy law professor at Southern Methodist University.

In the wake of the BC election, Canada’s Prime Minister Justin Trudeau stood by the federal government’s decision to back the pipeline project. So did Alberta Premier Rachel Notley, saying that “There are no legal tools available to provinces to stand in the way of infrastructure projects that benefit all Canadians.”

Appeals and supreme courts will say what legal tools exactly are in the hands of BC’s new governing coalition. Still, the provincial opposition to Kinder Morgan’s project adds a headwind to the Canadian oil patch.

By Tsvetana Paraskova for Oilprice.com

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  • Deke on June 01 2017 said:
    Before the NDP/Green can form a government they would have to defeat the Liberals in a non-confidence vote. The Lt. Gov will first ask the Liberals to form a government and they could adjust their agenda to gain votes.
  • Earl Richards on June 01 2017 said:
    The toxic, tar sands are being exported and not conventional oil. A tar sands spill from Kinder Morgan's pipeline down into the Fraser River will kill most of British Columbia's sport and commercial salmon industries. The salmon are the lifeblood of BC. KM's pipeline is a stupid idea to begin with, because there is no equipment to clean-up a spill. To understand the destructiveness of a tar sands spill, Google and read, "Michigan oil spill effects could be repeated here", by Michelle Barlond-Smith. What happened to the Kalamazoo River, we do not want to happen to the Fraser River. Let's keep beautiful British Columbia.
  • NickSJ on June 02 2017 said:
    So the greens would prefer the oil be shipped by rail, which is far more subject to accidents and spills, and uses more energy. The oil will be produced either way - the only question is whether to endure more spills and accidents like the greens prefer.

    There have been a number of major oil train accidents in Canada in the past several years, including the Luc-Megantic disaster of 2013, when an oil-laden train exploded after a derailment in an urban area in Quebec, causing the deaths of 47 people. As always, the greens are willing to sacrifice human lives to worship their twisted religion.
  • Thiago on June 03 2017 said:
    That is a little alarmist. You are comparing a state of the art pipeline, with something built in the 70's. The cause of that spill was corrosion due to a defect in the pipe liner. The issue was caught during maintenance and reported to regulators 5 years before the spill. This was a failure of the regulator to enforce safe operation of the pipeline (should have been shutdown and fixed when the issue was reported).

    The key is to learn from the issues, improve and innovate. Pointing to a 40 year old wreck and trying to block everything at all costs is like pointing to the early Apollo missions and saying man will never go to the moon. A lot that we have today was due to failures and iterative improvements.

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