This weekend, Kinder Morgan Canada Limited (KML) suspended all “non-essential activities and related spending” on its Trans Mountain pipeline expansion. They blamed “continued actions in opposition to the project.”
That’s only part of the story.
KML’s last financial statements reveal operating income declined in 2016 and again in 2017. The company has an accumulated deficit of $770 million and doesn’t have cash to build new pipelines to the west coast. They depend on new lenders and equity investors.
That is problematic because many potential backers are looking in other directions.
International Energy Agency (IEA), a Paris-based autonomous intergovernmental organization, says the world’s oil and gas industries suffered a 38% drop in capital spending between 2014 and 2016.
New strategies of energy investors are not hard to understand, although certain Canadian governments seem to be oblivious. IEA reports:
Renewables investment was 3% lower than five years ago, but capacity additions were 50% higher and expected output from this capacity about 35% higher, thanks to declines in unit costs and technology improvements in solar PV and wind.
In other words, there are better investments than fossil fuels. Smart money managers know that with renewables, they get more and pay less, with lower risk exposure.
IEA notes other important points:
Investment in energy efficiency expanded once again, despite persistently low energy prices, reaching USD 231 billion in 2016…
It is difficult to justify major energy policy decisions on the basis of their employment impact alone. Our analysis suggests that, in general, technological progress is leading to lower labour intensity across the energy system. For example, a 30% drop in jobs in US oil and gas upstream from its peak level in 2014 to its 2016 trough was accompanied by only a marginal decrease in production…
Despite the words of federal ministers and the Premiers of Alberta and Saskatchewan, Kinder Morgan knows investing billions in Trans Mountain is a high-risk path to follow.
While lower courts hesitate to apply them, decisions by the Supreme Court of Canada have strengthened the right of indigenous people to affect development on unceded traditional territories. Getting to Canada’s highest court may take years and the outcome for oil interests may be negative. Their political friends would be unable to overcome constitutional roadblocks and even the prospect of a years-long delay would cause KML investors to vanish.
Despite the pipeline company’s claims implying the contrary, most of British Columbia’s First Nations oppose pipeline expansion. If this were 1998, the project would be a done deal. Because this is 2018, without social license and indigenous support from British Columbia, it is not.
In Kinder Morgan’s own words, “The Project is now facing unquantifiable risk.”
Institutional investors, indispensable for the KML project, are not foolish. If financial risks become unquantifiable, they go elsewhere or seek protection from taxpayers.
In this case, Alberta Premier Notley was quick to throw a life ring.
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.
Put another way, Alberta is prepared to be an investor in the pipeline.
This pipeline will be built.#ableg #abpoli #KeepCanadaWorking
— Rachel Notley (@RachelNotley) April 8, 2018
Would Alberta taxpayers really convey billions to Kinder Morgan? Remember, it was born from the ashes of Enron, a company that proved no one guards the guardians of the public purse. Enron executives understand what motivates callow politicians.
Notley’s willingness to add to Alberta’s massive borrowings is an act of desperation by a Premier whose approval rating hovers around 30%. She watched Christy Clark turn likely defeat to victory in 2013 by promising fossil fuels would pave a road to provincial prosperity.
It hasn’t happened in the more than 70 years since Leduc No. 1 and it’s not going to happen because the age of oil is coming to an end. Sightless politicians east of the Rockies may be reluctant to admit the new reality but wasting billions of taxpayers’ dollars won’t change an inevitable course.
Alberta Govt's willingness to invest in Kinder Morgan's pipeline reminds of BC Govt's 1998 decision to invest hundreds of millions in Skeena Cellulose.pulp mill. The result? Taxpayers lost hundreds of millions to a dying industry. #bcpoli #abpoli #cdnpoli
— Norm Farrell – In-Sights.ca (@Norm_Farrell) April 9, 2018
Categories: oil and gas