Trans Mountain project no industry game-changer but may get federal funding anyway

Canadians shouldn't be surprised the federal governmentis considering financial assistance for energy giant Kinder Morgan to build the Trans Mountain expansion pipeline.Ottawa has invested in large oilpatch projects before.

But some experts question why the government would back the proposed pipeline in Alberta and B.C., which is hardly as significant as past projects that helped kick-start both the oilsands in Alberta and the offshore drilling industry in Atlantic Canada.

There should have been no reason for the federal government to have to get involved.- Jim Davidson, GMPFirstEnergy

Federal cash was also instrumental in construction of TransCanadaCorp.'s natural gas Mainlinein the 1950s one of the country's most important pipeline projects because it allowedAlbertato reach new markets for its natural gas, while Eastern Canada would access a substantial supply of the heating fuel. At the time, the main hurdlewas digging a ditch and laying pipe through the jagged, unyielding terrain of the Canadian Shield in Northern Ontario.

TransCanadaconstructed the pipeline from Alberta to Ontario, while a federal Crown corporation took care of the real challenge completing the line through Ontario to reach the Toronto area.

Without Ottawa's involvement, there was little chance the companywould have built the project.

To the 'detriment' of Canadians

Fast-forward to today, andonce againa pipeline likely won't be built without government help, but Trans Mountain won't be breaking any new ground, says Jim Davidson, deputy chairman of Calgary-basedGMPFirstEnergy, an energy-focused investment bank.

"This is the twinning of an existing 50-year-old pipeline that already had all of the right-of-ways in place," Davidson said.

Jim Davidson says the oilpatch is happy that Ottawa may give Kinder Morgan financial assistance, but he says Ottawa should have taken other steps much sooner.

6 years ago

Duration 1:30

The deputy chairman of Calgary-based GMP FirstEnergy, an energy-focused investment bank., says he believes Kinder Morgan will move ahead with the Trans Mountain expansion pipeline.

"There should have been no reason for the federal government to have to get involved."

• If proposed pipeline fails, Kinder Morgan could take Canada to court
• Alberta unveils bill that could wreak havoc on B.C. gas prices

The Trans Mountain expansion would bean incremental improvement for the Alberta oilpatch, not a game-changer. Western Canada already has pipeline space to ship out about four million barrels of oil a day. Kinder Morgan's new pipeline would only add 600,000 barrels per day. Other projects, like TransCanada's Keystone XL and Enbridge's Line 3 replacement, would also add capacity if constructed but won't need federal funding.

"In a perfect world, I believe a private company would not want the government as its partner," Davidson said. "And as a citizen of Canada and the province of Alberta,I would not necessarily want to be a partner of a private company that has already proven its wherewithal to carry the project financially on its own accord."

Kinder Morgan tried to build the project on its own, but after ongoing regulatory delays and court challenges from First Nations and the province of B.C.,the company suspended construction. Losingmillions of dollars every month as the project drags on, Kinder Morganimposed a May 31 deadline to seek assurances there won't be further risk to its shareholders if the project proceeds.

• UBC law professor questions Ottawa's jurisdiction on planned pipeline expansion
• Kinder Morgan 'open to' Alberta investing in pipeline

Davidson said the only reason the federal government is considering financial help for the project is because Ottawa failed to act sooner to ensure the project's success.

"This could have, should have, been dealt with in a different manner earlier on so we didn't have to back ourselves into the corner that we are now in, of which the provincial government and federal government might have to backstop this project to the benefit of the Kinder Morgan shareholders and to the detriment of the citizens of Canada," he said.

Spend elsewhere

One expertsuggests federal governmentmoney would be better spent investing in refineries and upgrading facilities rather than installing new pipes.

"Canada has never had that strategy or mentality," Andrew Nikiforuk, author of several books critical of the oil industry, said in a phone interview from his home in Campbell River, B.C.

Nikiforukhimselfhas protested the construction of the pipeline. He opposes it primarily on economic and environmental grounds, describing the expansion as a "high-risk project any way you look at it."

• Notley's Bill 12 'shows bold leadership,' say Alberta oil and gas producers

Somehave said the Trans Mountain expansion is less like TransCanada'sMainline and more like the QuebecOka Crisis in 1990, when violent protests erupted as Indigenous groups opposed development of a golf course and condominiums.

"The people who have made that comparison are First Nations leaders, so I think they know what they are talking about," said Nikiforuk.

'Good return' on investment

Others argue any investment in the energy sectoris worth it: large resource projects create jobs, generate higher tax revenues and boost government royalties.

"Governmentsget a good return on those investments," saidPeter McKenzie-Brown, an oilsands historian."There's a long tradition of governments supporting these kinds of projects, and when you are as resource-rich as Canada is especially in this area, especially in energy it seems to me that it is to everyone's benefit that we support this."

• Theoilsandsat 50: Will they still be producing in 100 years?

In the1990s, Brian Mulroney's Progressive Conservative government came to the rescue of Newfoundland's first offshore drilling project as Hibernia was nearing collapse.Ottawa had already provided more than $2 billion in grants and loan guaranteesbut had to provide more cash for the project to be completed and launch the country's offshore drilling industry.

When construction oftheSyncrudeoilsandsproject was in jeopardy during the1970s, federal and provincial aid was needed after construction costs doubled to $2.3 billion. That Alberta facility bailed out by then-prime minister Pierre Elliott Trudeau,has operated for 40 years and has the capacity to produce350,000 barrels of oil per day.

Peter McKenzie-Brown on the tough task of building the TransCanada mainline pipeline in the 1950s through Ontario.

6 years ago

Duration 0:39

The oilsands historian says Alberta continues to need more pipelines as oil and gas production increases.