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.
If we have to, Alberta is prepared to do whatever it takes to get this pipeline built - including taking a public position in the pipeline.
— Rachel Notley (@RachelNotley) April 8, 2018
Put another way, Alberta is prepared to be an investor in the pipeline.
This pipeline will be built.#ableg #abpoli #KeepCanadaWorking
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.
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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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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,
Dream on you leftist clown. The rational thinking majority understand the importance of this project and will win the day.
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.
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.
API, anybody home?