oil and gas

Inevitable change

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…

asimovDespite 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.

life ring.PNG

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.


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11 replies »

  1. China’s trillion dollar national debt may stop the Site C Dam.
    The Chinese Government is smart enough to know fossil fuel and hydro dams have a limited future. The LNG fracking will stop and the electricity for freezing LNG will not be required. China, through innovation will punish North America for supplying dirty oil and polluted LNG.
    Notley and Trudeau will also learn that the taxpayer is not their Bank. These two will likely lose their next election.
    Wind, solar, geothermal, conservation and innovation will aide the changing climate.
    It is the most cost effective pathway and the Governments will then have to honour the First Nation Treaties.
    Is the provincial NDP smart enough to harness the winds of change?

    Liked by 1 person

  2. The age of oil is ending and like the age of coal, there are those who will deny reality.

    On the radio, blaring for all who can hear, that the feds of kicked in $1.5 billion in case of oil spill.

    Exxon Valdez: Inflation adjusted – $6.3 billion

    Amoco Cadiz inflation adjusted – $3 billion

    Major oil spill in Salish Sea, estimate $10 billion+

    Trudeau the Youngster’s $1.5 billion – peanuts!

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  3. “The age of oil is ending and like the age of coal, there are those who will deny reality.”

    Watch this video if you have time but watch the first 2 minutes if you don’t;

    First find the car.

    Then find the horse…

    What did Kodak have to say about digital cameras? Where is Kodak today?

    Tony Seba’s Clean Disruption;

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  4. what ever it takes. Its the amount of tar/oil which would be going up and down our coast which is the real worry for me. no pipeline, no extra oil tankers on our coast.

    it was “funny” when the Mayor of Burnaby advised he wasn’t interested in paying for the cost of the RCMP’s presence and you can bet Kinder Morgan wasn’t interested either.
    Nice to know about the debt load, makes me think the west coast might be safe from those extra spills.

    it wasn’t like we were going to benefit from the lower cost of gas or some such thing. Here we export oil/tar and then pay a bomb to put it in our vehicle tanks. If it were kept in Canada, for Canadian use, at a much lower cost than right now, there might be something in it for Canadians, but as the system works right now the only thing that is there is a destruction of our land, water, human rights, and First Nations’ right.

    I can understand why Notley is taking the position she is. She has an election coming up and if she doesn’t take the positions she does, she will definitely lose to Kenny and that isn’t a pleasant thought either. Of course what applies to Alberta now, will apply to them later and Albertans can figure out even if they switch political parties, they will still not get that pipeline. Its just unfortunate they will have an unpleasant person like Kenny as their premier. That of course will be their problem to learn about. The obviously didn’t learn enough while Harper was in office.

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  5. Just watched the Torn Thunder(an oil carrier) moving into Haro Straits, almost certainly bound for Burnaby. Trailing along behind was a tug attached via a cable. If it is carrying condensate then I can only hope it makes the passage safely as condensate is deadly.
    Because of the gross disparity in mass between these two, does anyone know how effective the tug would be in controlling the high windage, high momentum tanker in the event an emergency occurred in Storm to Hurricane force winds?

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    • yes I certainly do. sort of like a grain of sand stopping a tidal wave. A pipe line may be able to be built and monitored, if they wanted to do it right, but all those ships up and down the inlet to get to Burnaby, not a good thing and it never cAn be made safe because there is no way to control the weather or those tankers. those tankers are foreign owned. The crews are foreign. They don’t live here and they don’t care about our west coast.

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  6. Bitumen does not float …. it sinks to the ocean seabed and sticks on everything down there. It seems that the ‘”World Class Bitumen Clean-Up Response ” touted by the corrupt Liberal government would consider the a 10% retrieval of bitumen a successful cleanup. What then happens to the 90% that is not cleaned up. If you need hard evidence, check out the Enbridge bitumen spill into a tributary of the Kalamazoo River. There, the bitumen is ” Stuck ” on the bottom, and, after two years of try all sorts of clean up technology, Enbridge is finally having to DREDGE the river bottom. Reports have the cleanup costing $2 Billion US. Nothing is worth the risk of a major bitumen spill on the fairly turbulent coast.

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