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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Disaster Hits Canada’s Oil Sands

Transmountain pipeline

Kinder Morgan said it would halt nearly all work on a pipeline project that is crucial to the entire Canadian oil sands industry, representing a huge blow to Alberta’s efforts to move oil to market.

Kinder Morgan’s Trans Mountain Expansion is the largest, and one of the very few, pipeline projects that has a chance of reaching completion. Alberta’s oil sands producers have been desperate for new outlets to take their oil out of the country, and the decade-plus Keystone XL saga is the perfect illustration of the industry’s woes.

Keystone XL is still facing an uncertain future, and with several other major oil pipeline projects already shelved, there has been extra emphasis on the successful outcome of the Trans Mountain Expansion. That is exactly why Canada’s federal government, including Prime Minister Justin Trudeau, has gone to bat for the project.

But, despite federal approval, Trans Mountain still faces a variety of obstacles that have bedeviled the project for some time. It appears that opposition from First Nations, environmental groups, local communities affected by the route, and the provincial government in British Columbia have forced Kinder Morgan to throw in the towel, at least for now.

Kinder Morgan said on Sunday that it suspended most work on the $5.8 billion Trans Mountain Expansion.

Environmental groups hailed the announcement. “The writing is on the wall, and even Kinder Morgan can read it. Investors should note that the opposition to this project is strong, deep and gets bigger by the day,” said Mike Hudema, climate campaigner with Greenpeace Canada, according to Reuters. Related: Russia Wants To Drop Dollar For Oil Payments

Kinder Morgan’s CEO Steve Kean said the project would be scrapped unless the legal challenges could be resolved by May 31. The announcement sparked a sense of panic among various Canadian politicians. “We are determined to find a solution. With all our partners, we continue to consider all available options. As our Prime Minister has said, this pipeline will be built,” Canada’s Federal Natural Resources Minister Jim Carr said in a statement.

Alberta’s Premier Rachel Notley, not surprisingly, sounded more alarmed. She took to Twitter to not only lash out at British Columbia, but also vow that her province would push the pipeline, even if it meant taking a public stake in the project.

However, Kinder Morgan actually didn’t sound all that optimistic, despite heavy support from Ottawa and Alberta.

“We will be judicious in our use of shareholder funds. In keeping with that commitment, we have determined that in the current environment, we will not put KML shareholders at risk on the remaining project spend,” Kean said in a statement. Kinder Morgan Canada said the project faces “unquantifiable risk,” noting the threats made by the BC government to kill the project. The company had already spent over C$1 billion preparing the project but hadn’t yet commenced construction. The beginning of construction would mean spending would jump to $200 to $300 million per month, a level of spending that the company says is too risky given the uncertainty.

“The fact remains that a substantial portion of the Project must be constructed through British Columbia, and since the change in government in June 2017, that government has been clear and public in its intention to use 'every tool in the toolbox' to stop the Project,” Kinder Morgan Canada’s Keane said in a statement. “The uncertainty created by BC has not been resolved but instead has escalated into an inter-governmental dispute.”

Kinder Morgan Canada saw its share price fall by 10 percent on the news during midday trading on Monday. Related: Continuously Rising Energy Costs Will Cripple The Economy

“This is not good. I think the key point is it shows a lack of confidence in our political and regulatory system,” said Tim Pickering, president of Auspice Capital in Calgary, told Reuters.

Western Canada Select (WCS) has traded at a steep discount relative to WTI, at times widening to as much as $30 per barrel. With WCS prices wallowing in the mid-$30s per barrel, heavy oil producers are missing out on some C$30 to C$40 million per day in revenues, according to Reuters.

The pipeline is critical for Canada’s oil sands. The IEA has forecasted that Canadian oil production already began to exceed takeaway capacity last year, and the pipeline shortage could last for several more years even if Trans Mountain Expansion moves forward. But, if Trans Mountain is killed off, that would be nearly 600,000 bpd of capacity that won’t come online. That raises questions about when and if the bottleneck will ever be addressed. That threatens to prevent new capacity from coming online in the years ahead.

“If we cannot reach agreement by May 31st, it is difficult to conceive of any scenario in which we would proceed with the Project,” Kinder Morgan Canada said in a statement.

By Nick Cunningham of Oilprice.com

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  • Richard Graham on April 09 2018 said:
    There is ONLY ONE THING Canadians need to know about the pipeline, and Western Canada Select crude oil.

    The price for WCS is lower than any other crude because no one wants to buy it. 

    Western Canada Select sells at a discount because it is the worst crude to bring to market:

    Tar Sands Crude takes massive quantities of natural gas and water to separate from the sand. Current estimates suggest that our production uses 1 barrel of crude to produce 4 barrels of crude. The Saudi’s produce 70 barrels of crude for each barrel of input energy;

      Tar Sands Crude is the worst crude to make a profit because the diluent used to liquify the crude is worth twice as much as the crude;

      Tar Sands Crude is the worst crude to refine because it needs Shell’s Scotford upgrader facility just to make it approach normal heavy crude values;

    Tar Sands Crude needs two pipelines to get to market - one to get the diluted crude to tidewater, and another pipeline to pump the diluent back to the wellhead for reuse;

    Tar Sands Crude is the most dangerous to move by rail because the diluent used to liquify the crude is explosive;

    Tar Sands Crude is the worst crude for pollution because it produces huge amounts of CO2, petroleum coke, polluted water, devastated boreal forest, and catastrophic environmental damage when it spills at sea.

    The cold truth is that the Saudis have decided that they must sell their oil now, or they won't be able to sell it at all. They are planning an IPO for ARAMCO, which indicates that they believe the company's value has reached its maximum. They see no reason why they should provide price support for Alberta, their competition.


    SO IN WHAT BUSINESS FANTASY WORLD DOES INCREASING THE SUPPLY OF A DESPISED, POOR-QUALITY CRUDE, IN A MARKET FLOODED WITH MUCH HIGHER QUALITY PRODUCT, RESULT IN INCREASED DEMAND, AND HIGHER PRICES? 

    The same market forces that removed any chance of competitive, unsubsidized energy from coal and nuclear power are now going to peel off the lowest quality crude from the market. This process will continue until crude oil is completely replaced by natural gas and renewables.

    From a member of a family that worked in Turner Valley, and still works the oil fields, 
  • jeff on April 09 2018 said:
    "Environmental groups hailed the announcement. “The writing is on the wall, and even Kinder Morgan can read it. Investors should note that the opposition to this project is strong, deep and gets bigger by the day,” said Mike Hudema, climate campaigner with Greenpeace Canada, according to Reuters."

    Dream on you leftist clown. The rational thinking majority understand the importance of this project and will win the day.
  • Tony on April 10 2018 said:
    KM lost their project by being stubborn on the last 10 miles of their pipeline.
    Don't build a tank farm on the side of a mountain in the middle of a city and don't have your tankers in full view of the city in a narrow shallow inlet.
  • Justin on April 10 2018 said:
    @ Richard

    Couple of issues with your post.

    1. Its Bitumen, not tar sands. Tar is one potential product of it. Its like calling an aluminum mine a beer can mine.

    2. Western Canadian Select pricing applies to all oil produced in the Prairies regardless of if its bitumen, light or heavy. The price discount is a regional issue solely due to a lack of transportation to market. The irony being you are campaigning against a pipeline which would help elevate this issue.

    3. Heavy bitumen is quite prized in certain refining processes. Many Southern US refiners right now must rely on heavy oil from Venezuela to operate (you know, the corrupt country that can barely feed its citizens but still has the largest military budget in South America). This oil could supplement that oil.

    4. No oil is good to ship by rail (Quebec has taught us that). Therefore a safe pipeline is a much better option.

    5. Where exactly are all the devastated boreal forests? The 1st 2 oil sand operations were open pit mines and they did tear up a fair bit of land (around 40 square miles out of about 1 million square miles of boreal forest in Northern Alberta and Saskatchewan). All subsequent development have been SAGD operations which have tiny aboveground footprints. It should be mentioned the land torn up was already saturated in oil before the mining occurred.

    6. The Saudis are looking at selling 5% of Aramco. That is hardly "selling out."

    7. You are concerned about the profitability of the oil sands. Why don't you let market economics sort that out. If you are right then the oil sands will be crushed by low cost production. There are tens of billions of investment dollars that have bet that it will work.
  • EdBCN on April 11 2018 said:
    This is as much about the uncertain future of oil in the age of the EV as it is about political opposition. Pipelines need decades to turn a profit and I doubt very much that anybody will be making gasmobiles after about 2025.
  • Danny Hangartner on April 11 2018 said:
    Someone trying to make a mountain out of a molehill by claiming that the pipeline might not go through. May 31, 2018 was the main start-up date set quite a long time ago. Our Prime Minister said it's going ahead. A B.C. judge ruled that persons can protest but cannot interfere with the work. In Alberta, we're very happy with the pipeline's progress.
  • Danny Hangartner on April 12 2018 said:
    Just to touch on the May 31st, 2018 date. Kinder Morgan had to have a certain amount of preliminary work completed by a specific date or have to hold off work for a period of time before completing it. Should any delays had happened, the main start up date was set for around mid September, 2018. As the brush clearing and other work was completed, the date reverted to the optimum start up date. As our prime minister allows one of the two asked for pipelines through the West, it gives Canada and the world insight to stringent environmental issues and to stringent environmental answers to pipelines in Canada. Already, B.C. is putting valuable insight into the pipeline. The main one is that they'd like to see Alberta process the crude first. Systems are in place for high capacity refineries. The next step would be to have a similar plan for the pipeline East. As two pipelines are needed, the lower one would likely be granted with more accountability for environment, similar to the accountability of B.C.'s issues. After that one proceeds, Canada should have no problem allowing both the northern East and the northern West pipelines to proceed. When it boils down to environmental issues, there exists no better person in charge than Canada's prime minister. One certain fact, the world can agree with that.
  • Danny Hangartner on April 13 2018 said:
    All the talk about both federal and provincial governments paying for pipelines is interesting in the sense that Kinder Morgan builds pipelines on proven, ready to ship reserves. This fact puts Saskatchewan between a rock and a hard place because Sask. has more oil reserves than Alberta ever did but mostly untapped. We can bet our shorts that they'd like to see the pipelines twinned; especially, the future eastern ones, running through their province.
  • Danny Hangartner on April 13 2018 said:
    Drive through Saskatchewan and see sporadic quarter sections full of drilling rig equipment sitting and waiting for the next little rush. Sask. oil companies have the ability to train the needed bodies to run the equipment. Workers are needed badly in those adrenaline crazy mini oil rushes. Anyone displaying a willingness to learn and to work is welcome. It doesn't matter if you're a Rohingya refugee, Mars refugee, or North Korean. If you're willing to adapt to the training, and want to earn about $75,000 a year starting, you can call the oilfield your home and live a normal life.
  • Larry Rasczak on April 19 2018 said:
    As a Texan, I fully support Canada's environmental activists, First Nations activists, Socialist Nitwits and Trudeau supporters. Your opposition to these pipelines is providing us jobs, and money, and an economic stimulus that is a great help in our continuing hurricane recovery efforts. Your support for Houston, and the rest of Texas is sincerely appreciated.
  • Tom on May 05 2018 said:
    If we could ever get the API to stop it's self-defeating ethanol wars with Nebraska and South Dakota Farmers, we might have a chance to build the Keystone XL Pipeline, and help out those US Gulf Coast Refiners.

    API, anybody home?

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