Trans Mountain Pipeline construction is suspended
Published by Lydia Woellwarth,
Kinder Morgan Canada Limited (KML) announced yesterday that it is suspending all non-essential activities and related spending on the Trans Mountain Expansion Project. KML also announced that under current circumstances, specifically including the continued actions in opposition to the project by the province of British Columbia, it will not commit additional shareholder resources to the project. However, KML will consult with various stakeholders in an effort to reach agreements by 31 May that may allow the project to proceed. The focus in those consultations will be on two principles: clarity on the path forward, particularly with respect to the ability to construct through BC; and, adequate protection of KML shareholders.
"As KML has repeatedly stated, 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," said KML Chairman and Chief Executive Officer Steve Kean. The project has the support of the Federal Government and the provinces of Alberta and Saskatchewan but faces continued active opposition from the government of British Columbia. "A company cannot resolve differences between governments. While we have succeeded in all legal challenges to date, a company cannot litigate its way to an in-service pipeline amidst jurisdictional differences between governments," added Kean.
"Today, KML is a very good midstream energy company, with limited debt. The uncertainty as to whether we will be able to finish what we start leads us to the conclusion that we should protect the value that KML has, rather than risking billions of dollars on an outcome that is outside of our control," Kean said. "To date, we have spent considerable resources bringing the project to this point and recognise the vital economic importance of the project to Canada. Therefore, in the coming weeks we will work with stakeholders on potential ways to continue advancing the project consistent with the two principles previously stated."
KML had previously announced a "primarily permitting" strategy for the first half of 2018, focused on advancing the permitting process, rather than spending at full construction levels, until it obtained greater clarity on outstanding permits, approvals and judicial reviews. Rather than achieving greater clarity, the project is now facing unquantifiable risk. Previously, opposition by the province of British Columbia was manifesting itself largely through BC's participation in an ongoing judicial review. Unfortunately, BC has now been asserting broad jurisdiction and reiterating its intention to use that jurisdiction to stop the project. BC's intention in that regard has been neither validated nor quashed, and the province has continued to threaten unspecified additional actions to prevent project success. Those actions have created even greater, and growing, uncertainty with respect to the regulatory landscape facing the project. In addition, the parties still await judicial decisions on challenges to the original Order in Council and the BC Environmental Assessment Certificate approving the project. These items, combined with the impending approach of critical construction windows, the lead-time required to ramp up spending, and the imperative that the company avoid incurring significant debt while lacking the necessary clarity, have brought KML to a decision point.
Kean continued: "We appreciate the support shown by the Federal Government and the provinces of Alberta and Saskatchewan, and are grateful for the strong endorsements among the majority of communities along the route and 43 Indigenous communities, as well as customers, contractors and unions. 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. The uncertainty created by BC has not been resolved but instead has escalated into an inter-governmental dispute."
Trans Mountain has spent CAN$1.1 billion (approximately half of which has been spent since the KML IPO) and made unprecedented efforts to develop the project since its initial filing with the National Energy Board in 2013. As a result of extensive engagement, a comprehensive regulatory process and detailed engineering and design, the project has changed in several, substantive ways during the intervening five years, including: thicker wall pipe in environmentally sensitive areas such as watercourses and aquifers; avoidance of several fish bearing streams; changes to the detailed route of the pipeline in consideration of community needs and concerns and environmental impacts; Burnaby tunnel construction, to avoid neighbourhoods and minimise impacts; changes to Burnaby Terminal tank design in response to risk assessments; and, enhancements to marine safety that will benefit all marine users.
In addition, in an unprecedented negotiated commitment, Trans Mountain agreed to provide financial benefits from the project, if completed, to British Columbia for a newly-formed BC Clean Communities Program to be accessed by communities for local projects that protect, sustain and restore BC's natural and coastal environments.
"While we are prepared to accept the many risks traditionally presented by large construction projects, extraordinary political risks that are completely outside of our control and that could prevent completion of the project are risks to which we simply cannot expose our shareholders," said Kean. "However, given the importance of the project to Canada and Alberta, to Indigenous communities, our shippers, our contractors, and working Canadians, we are committed to trying to find a way forward, working with stakeholders between now and the end of May on measures that may allow us to advance this critical project, but only if it does not subject KML shareholders to undue risk. If we cannot reach agreement by 31 May, it is difficult to conceive of any scenario in which we would proceed with the project. The time period for reaching a potential resolution is short, but necessarily so because of approaching construction windows, the time required to mobilise contractors, and the need to commit materials orders, among many other imperatives associated with such a large project."
Given the current uncertain conditions, KML is not updating its cost and schedule estimate at this time.
Read the article online at: https://www.worldpipelines.com/project-news/09042018/trans-mountain-pipeline-construction-is-suspended/
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