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Keystone Redux Haunts Trans Mountain as Fight Shifts to Climate

September 02, 2014

Keystone Redux Haunts Trans Mountain as Fight Shifts to Climate

An aerial photograph taken above the Athabasca Oil Sands near Fort McMurray, Alberta, Canada. Photographer: Ben Nelms/Bloomberg

The next fight over oil pipeline development in Canada is starting to look like Keystone XL version 2.0. This time the target is a $4.9 billion project by Houston billionaire Richard Kinder’s energy empire.

Kinder Morgan Energy Partners LP (KMP:US)’s expansion of the Trans Mountain conduit linking the oil sands to the Pacific is facing the same kind of backlash that turned TransCanada Corp. (TRP)’s proposed line to the Gulf Coast into a proxy battle against climate change. As with Keystone, Trans Mountain’s opponents argue it would boost development of the oil sands, Canada’s fastest-growing source of carbon emissions.

Vancouver, with its declared goal of becoming the world’s greenest city by 2020, took Canada’s energy regulator to court last month over the exclusion of climate impact from the Trans Mountain review. Aboriginal groups meanwhile are challenging the board’s right to make a decision affecting their lands, and the Vancouver suburb of Burnaby’s attempt to prevent a land study contributed to a seven-month delay that pushed the estimated startup into 2018.

“For us to even consider approving the expansion of the Kinder Morgan pipeline through our territory, it is imperative that the Government of Canada take immediate, real steps to attack climate change in a meaningful way,” Aaron Sam, chief of the Lower Nicola Valley Indian Band in British Columbia, wrote in a letter to Prime Minister Stephen Harper on July 30.

The mounting opposition threatens Kinder Morgan’s largest project, which represents 30 percent of its investment plan. Customers including oil-sands producer Cenovus Energy Inc. are counting on an expanded Trans Mountain to tap Asian markets. While an existing pipe offers a right of way along most of the expansion, that’s no guarantee the project will get off the ground.

Climate Battle

“The environmental movement has realized that one front in the climate change battle is trying to delay or deny pipelines,” said Jason Stevens, a Chicago-based analyst at Morningstar Inc. who rates the stock a hold. “If it gets stymied out for a long, long time, it’s a big chunk of cash flow five years out that won’t materialize.”

While opponents aren’t able to stop Trans Mountain in the same way Keystone XL was halted by U.S. President Barack Obama, they can rely on court battles and public opinion to block it.

Vancouver, home to Canada’s largest port, is concerned global warming will affect the coastal city as studies such as a recent United Nations report show global sea levels could rise by as much as 7 meters (23 feet) with the melting of the ice sheet covering Greenland. About 70 percent of residents are opposed to the Trans Mountain expansion, with the risk to the environment cited as the top concern, according to a survey on the city’s website that started in June.

Long Fight

Bolstered by a recent Supreme Court ruling that native groups can be granted legal title to traditional lands no matter how intensively they use them, Burnaby’s Tsleil-Waututh argue the National Energy Board doesn’t have the right to review the project without their input, and that it poses risks including oil spills.

“We are still at the beginning of a long fight, but we are deeply committed to defending our territory,” Chief Maureen Thomas of the Tsleil-Waututh people said in July after a court agreed to hear the group’s challenge of the Trans Mountain review.

For Harper, Trans Mountain brings the climate change debate back to Canadian soil after he publicly criticized the Obama administration for punting its decision on the cross-border Keystone project.

Different Mandate

The federal government has committed to reducing emissions 17 percent by 2020 from 2005 levels, a target that will require stricter regulations for oil and natural gas, according to the Pembina Institute, an environmental research organization.

The National Energy Board’s mandate doesn’t include considering the climate impact of a proposed project, said Paul Lackhoff, a spokesman for the Ottawa-based regulator.

The strategy by Trans Mountain’s opponents to turn the debate into a Canadian version of Keystone XL may not work because Harper’s government supports increasing oil exports, said Peter Vanderlee, a portfolio manager at ClearBridge Investments LLC in New York who helps oversee $106 billion, including shares in Kinder Morgan.

“Canada is different” from the U.S., Vanderlee said. “A big component of the economy and economic growth is the oil sands and the success thereof.”

Kinder Morgan plans to almost triple Trans Mountain’s capacity to 890,000 barrels a day. The system, in operation since 1953, is the only pipeline from Alberta to the Pacific Coast and unique in connecting the oil sands directly to tidewater to reach markets outside North America. Requests by producers to ship on the line regularly exceed its capacity.

Chief to Chief

Kinder Morgan’s Ian Anderson, who runs the Canadian operations, has sought to steer clear of the climate debate by focusing on local issues along the Trans Mountain route since the company began promoting the expansion three years ago.

While it has become popular among pipeline companies to use social media including Twitter to fight campaigns from environmental groups, Kinder Morgan has focused on wooing communities along the route. Anderson talks of his “chief-to-chief” strategy of meeting in person with aboriginal leaders.

“Our focus is clearly not on advertising campaigns, it’s on the grassroots,” Anderson said in a May 2013 interview in Calgary. He wasn’t available to comment on this story.

Concerns about oil-sands development fall outside of the Trans Mountain project, Scott Stoness, vice president of regulatory affairs and finance for Kinder Morgan’s Canadian unit, said in a statement through a spokeswoman.

‘Happy Event’

“As part of our engagement efforts, we’re listening and seeking feedback, but are focused on what actions Trans Mountain can take to address the issues within the scope of our project,” Stoness said.

British Columbia Premier Christy Clark has said oil pipelines, including Trans Mountain, must satisfy conditions such as providing the province with economic benefits and addressing aboriginal rights.

The anti-pipeline sentiment in Canada’s westernmost province is in stark contrast to Trans Mountain’s reception more than half a century ago. It was hailed by W.A.C. Bennett, then the premier, as a “happy event” for British Columbia, which was heavily dependent on logging and fishing for economic prosperity.

To contact the reporters on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net; Rebecca Penty in Calgary at rpenty@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net Carlos Caminada, David Scanlan


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