4.5B to Buy Trans Mountain Pipeline System and Expansion

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By A Correspondent       

The Liberal government will buy the Trans Mountain pipeline and related infrastructure for $4.5 billion, and could spend billions more to build the controversial expansion.

Finance Minister Bill Morneau announced details of the agreement reached with Kinder Morgan at a news conference with Natural Resources Minister Jim Carr on May 29 morning, framing the short-term purchase agreement as financially sound and necessary to ensure a vital piece of energy infrastructure gets built, writes Kathleen Harris in CBC News.

The Kinder Morgan Canada Limited press release states as below
“the board will seek a third party buyer for the Trans Mountain Pipeline system and TMEP through July 22, 2018.  

As part of the agreement, the Government of Canada has agreed to fund the resumption of TMEP planning and construction work by guaranteeing TMEP’s expenditures under a separate Federal Government recourse credit facility until the transaction closes.  The parties expect to close the transaction late in the third quarter or early in the fourth quarter of 2018, subject to KML shareholder and applicable regulatory approvals.

“We are pleased to reach agreement on a transaction that benefits the people of Canada, TMEP shippers and KML shareholders,” said KML Chairman and Chief Executive Officer Steve Kean.  “The outcome we have reached represents the best opportunity to complete TMEP and thereby realize the great national economic benefits promised by that project.

Globe and Mail reports:

”The federal Finance Minister says Ottawa is open to bids in the near term, but will make sure any sale is a “financial deal that’s appropriate for Canadians.” The federal government won’t be looking to make a profit when it sells the pipeline, Morneau said. Instead, the focus is to ensure the expansion gets built. Kinder Morgan will continue to operate the project until the $4.5-billion sale closes in August.

Meanwhile, B.C.’s NDP government continues to oppose the project but says it expects Ottawa to honour a revenue-sharing pact if the project is completed. Under the terms of that agreement, the federal government would pay B.C. anywhere from $25-million to $50-million annually over a period of 20 years once the pipeline is operating.

Andrew Willis says no private company will touch Trans Mountain – yet: “The challenge for Ottawa − and Bay Street − is figuring out how much of the long-promised pipeline expansion must be built before the perceived risks begin to drop away and buyers step up with attractive offers. Opinions on this are all over the map.” (for subscribers)

Here’s John Ibbitson’s take on the Liberal approach to major issues: “One of the boldest and riskiest qualities of the Trudeau government is its resolve, on certain key priorities, to decide first and worry about ‘how’ later. So marijuana use will become legal. Canada will have a carbon tax. The Trans Mountain pipeline will be built. If this approach works, at the end of their first term the Liberals will have earned a well-deserved reputation for decisiveness. If it doesn’t, they will be condemned for their recklessness.”

KML says in its news release:

KML will continue to manage a portfolio of strategic infrastructure across Western Canada, including: 

  • An integrated network of crude tank storage and rail terminals in Alberta that is one of the largest in the region; 
    • The crude terminal facilities constitute the largest merchant terminal storage facility in the Edmonton market and the largest origination crude by rail loading facility in North America;
  • The Vancouver Wharves Terminal, the largest mineral concentrate export/import facility on the west coast of North America; and,
  • The Cochin Pipeline system that transports light condensate originating from the United States to Fort Saskatchewan, Alberta.

TD Securities is serving as financial advisor to KML and is rendering a fairness opinion on the transaction to the KML board.

Read the full news release here

Economic Benefits

The $7.4 billion  pipeline Project will increase the value of Canadian oil by unlocking access to world markets. A Conference Board of Canada report has determined the combined government revenue impact for construction and the first 20 years of expanded operations is $46.7 billion, including federal and provincial taxes that can be used for public services such as health care and education.

  • British Columbia receives $5.7 billion
  • Alberta receives $19.4 billion
  • The rest of Canada shares $21.6 billion
  • Municipal tax payments (not adjusted for inflation) total $922 million to BC and $124 million to Alberta over the first 20 years of expanded pipeline operations.

BACKGROUND

The Trans Mountain Expansion Project was proposed in response to requests from oil companies to help them reach new markets by expanding the capacity of North America’s only pipeline with access to the West Coast.

These shippers have made significant 15- and 20-year commitments that add up to roughly 80 per cent of the capacity in the expanded Trans Mountain Pipeline.

The Trans Mountain Expansion Project was proposed in response to requests from oil companies to help them reach new markets by expanding the capacity of North America’s only pipeline with access to the West Coast.

These shippers have made significant 15- and 20-year commitments that add up to roughly 80 per cent of the capacity in the expanded Trans Mountain Pipeline.

On November 29, 2016, the Government of Canada granted approval for the Trans Mountain Expansion Project (the Project). Earlier, on May 19, 2016, following a 29-month review, the National Energy Board (NEB) concluded the Project is in the Canadian public interest and recommended the Federal Governor in Council approve the expansion. These approvals allow the Project to proceed with 157 conditions. In addition, the British Columbia Environmental Assessment Office (BC EAO) issued an environmental assessment certificate for the Trans Mountain Expansion Project.

The original Trans Mountain Pipeline was built in 1953 and continues to operate safely today. The expansion is essentially a twinning of this existing 1,150-kilometre pipeline between Strathcona County (near Edmonton), Alberta and Burnaby, BC. It will create a pipeline system with the nominal capacity of the system going from 300,000 barrels per day to 890,000 barrels per day.

Here are some quick facts about the expansion:

  • It’s expected to cost approximately $7.4* billion
  • It will create benefits including new short- and long-term jobs, job-related training opportunities and increases in taxes collected by all three levels of government
  • During construction, the equivalent of 15,000 people will be working on the pipeline expansion. The expansion will also create the equivalent of 37,000 direct, indirect and induced jobs per year during operations.
  • The combined impact on government revenue for construction and the first 20 years of expanded operations is $46.7 billion; revenues that can be used for public services such as health care and education – British Columbia receives $5.7 billion, Alberta receives $19.4 billion and the rest of Canada receives $21.6 billion
  • It will be approximately 980 km of new pipeline
  • 73 per cent of the route will use the existing right-of-way, 16 per cent will follow other linear infrastructure such as telecommunications, Hydro or highways and 11 per cent will be new right-of-way
  • It will include 193 km of reactivated pipeline
  • 12 new pump stations will be built
  • 19 new tanks will be added to the existing storage terminals in Burnaby (14), Sumas (1) and Edmonton (4)
  • Three new berths will be built at Westridge Marine Terminal in Burnaby. Once the new berths are completed and in service, the number of tankers loaded at the Westridge Marine Terminal could increase to approximately 34 per month.
  • The existing pipeline will carry refined products, synthetic crude oils, and light crude oils with the capability for heavy crude oils
  • The new twin pipeline will carry heavier oils with the capability for transporting light crude oils
  • We plan to begin construction activities in September 2017 
  • Engagement with communities, landowners, stakeholders and Aboriginal communities have been ongoing since 2012 and will continue through to operation
  • Environmental protection plans have been developed along the entire route. Volume 5 and Volume 6 of the Facilities Application cover the environmental assessment and protection planning. We will continue to conduct field studies along the route as required.

JULY 2018

Vol. 12 - No. 12










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