Oil-export hopes fade as Trans Mountain pipeline delays mount

Kinder Morgan gate sign

Kinder Morgan Westridge Marine Terminal gate – photo by Mychaylo Prystupa, Vancouver Observer.

by Jeff Lewis, Globe and Mail, October 27, 2017

Oil industry hopes for a major new export route to global markets are slipping into the next decade, forcing companies to seek alternatives as production swells in Northern Alberta.

This week, Kinder Morgan Canada Ltd. sought special clearance from the National Energy Board to start work on its Trans Mountain pipeline expansion project in Burnaby, B.C., accusing the city of failing to issue needed permits in a timely fashion.

Kinder Morgan had already warned that the $7.4-billion project could be delayed by as much as nine months, meaning oil deliveries would not commence until the fourth quarter of 2020. Now the company has raised the spectre that the expansion could by scuppered altogether.

“A delay of an indeterminate nature will create uncertainty regarding the project’s future and the in-service date of the project, potentially resulting in the failure of the project,” vice-president of operations Michael Davies said in an affidavit filed with the federal regulator.

Lengthy delays or a decision to scrap it would deal a major blow to the Alberta-based industry and could further inflame tensions between the province and neighbouring British Columbia, whose Premier, John Horgan, has come out strongly against the project.

Kinder Morgan aims to almost triple the capacity of its existing pipeline to carry as much as 890,000 barrels a day of crude from Edmonton to an export terminal in suburban Vancouver.

Prime Minister Justin Trudeau signed off on the expansion last year, but it has been challenged in the courts by environmentalists as well as cities and Indigenous groups along the West Coast.

Kinder Morgan transmountain BC mapIn Alberta, the upstart United Conservative Party has made much of the frustration over cancelled megaprojects, including TransCanada Corp.’s move this month to abandon its proposed Energy East pipeline.

Former federal cabinet minister Jason Kenney and other UCP leadership candidates have pledged to kill Alberta’s carbon tax and take a harder line with Ottawa and other provinces on pipelines and energy policy.

Energy East had been scheduled to start up in 2020 at the earliest, sending Alberta crude to refineries and export terminals on the Atlantic Coast.

TransCanada blamed an uncertain regulatory process for its demise, though analysts have said economics also played a role.

Its cancellation comes as a series of major projects near completion in the oil sands, threatening to dump more crude into a market already struggling with pipeline constraints. The excess production is bound to move by rail, eating into margins that remain pressured by weak oil prices.

“Most of the export pipelines out of Canada are running full right now,” said GMP FirstEnergy analyst Martin King. “That’s going to be the case probably for the next couple of years as the supply growth keeps coming at us.”

On Thursday, Kinder Morgan said Burnaby’s refusal to issue permits in a timely manner raises “serious issues of jurisdiction.” The mayor, a vocal opponent of the project, has said the city is not holding up the process.

The company also asked the NEB to establish an “expedited determination” to avoid future delays. Mr. Davies said each month of delay results in as much as $35-million in costs and more than $90-million in forgone revenue for the company.

In the affidavit, he said oil-shipper customers could seek alternatives for committed volumes of more than 700,000 barrels a day should the company miss its planned startup date of 2019.

Many of the project’s backers are also supporters of TransCanada’s rival Keystone XL pipeline, which would send Alberta crude through the U.S. Midwest to big refineries on the Texas Gulf Coast.

Shippers “may need to find alternate, and potentially higher-cost, transportation options for this production to other markets,” Mr. Davies said.

Data suggest that’s already happening.

Canadian crude-by-rail exports have steadily ticked up in recent months, from an average of 50,000 barrels a day in July to 66,000 a day in September, according to Genscape, an oil-industry consultancy.

https://beta.theglobeandmail.com/news/alberta/oil-export-hopes-fade-as-trans-mountain-pipeline-delays-mount/article36757989/

 

Posted on October 29, 2017, in Oil & Gas and tagged , , , , , , . Bookmark the permalink. Leave a comment.

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