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How can Justin Trudeau solve his pipeline problem? Here are his options

OTTAWA—Prime Minister Justin Trudeau will hug just about anyone. But he is about to drop the niceties.

He’s asked B.C. Premier John Horgan and Alberta Premier Rachel Notley — NDP leaders both — to meet him in Ottawa Sunday to grapple with what seem like irreconcilable differences.

Texas-based Kinder Morgan Inc. announced last Sunday it is suspending the Alberta-B.C. Trans Mountain pipeline expansion project and setting a May 31 deadline for reassurance that its construction can proceed as approved in the face of growing opposition in B.C. where the minority government is vowing to halt it.

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Alberta is apoplectic and threatens to throttle oil and gas supplies to B.C. residents, promising punitive legislation as early as next week in retaliation.

So forget “social licence.” Trudeau’s got his sparring gloves on.

The prime minister, who once campaigned on a more collaborative approach to federalism, says “the pipeline will get built” and has called on B.C. to stop “obstructing” it.

Trudeau says he has a “broad range of options” — legal, regulatory and financial — to assert federal jurisdiction over an interprovincial pipeline expansion that was already approved by the National Energy Board and the federal cabinet.

So just what is on the table?

The government won’t discuss any “options” under consideration, especially financial aid, given concerns about having an impact on the publicly-traded Kinder Morgan. But sources say a plan will be ready before the next cabinet meeting on April 24.

Here are some of the choices that a range of experts inside and outside government, most of whom agreed to speak only for background, suggested:

Legal and regulatory

The government could enact a new bill, call it, say, the Trans-Mountain Act to clearly define and assert federal jurisdiction on the project and hobble the B.C. NDP’s planned reference to a B.C. court on the question of its jurisdiction. The federal government could take over permitting and other regulatory approvals for the project. It could clarify its own powers and add other burdens or outline penalties for the province if it tries to stand in the way of the pipeline.

Ottawa could withhold discretionary funds from B.C. such as spending on regional economic diversification, innovation or other monies.

The federal government could, counterintuitively, require further environmental controls on the project, say double-walled pipelines or increased marine protections to further address Indigenous and environmental concerns — beyond the $1.5-billion oceans protection plan it already promised to address the previous B.C. Liberal government’s concerns — in exchange for some kind of guarantee the B.C. government would cease its opposition.
In theory, Ottawa could disallow a B.C. law or regulation that it declares as contrary to the national interest, but that kind of sledgehammer hasn’t been used since the 1940s, and legal experts say convention suggests it should not be used.

Ottawa could, however, invoke federal emergency powers to deal with protests if they were to block construction. However the RCMP already has lawful powers to enforce a B.C. court-ordered injunction against protests within five metres of two work sites, and last month arrested dozens of protestors.
Federal sources dismiss talk of calling in the military. “None of this uncertainty is about protests,” said one official. Rather, Kinder Morgan’s uncertainty centres on B.C.’s vow to put legal hurdles in the way of the project. “It’s making investors skittish,” the official said.

Financial

Finance Minister Bill Morneau said the government is looking to “de-risk the project so that it goes forward.” In plain language, that means underwrite or assume some of the project’s risk in some way.

Tim McMillan, president of the Canadian Association of Petroleum Producers, said “there are a 1,000 permutations” of what financial backstop could look like. Others inside government agree.

The federal government and/or the Alberta government could buy a partial or even a controlling stake (a highly unlikely, but not off-the-table option) in a project that is 30 per cent held by Kinder Morgan Canada Limited and 70 per cent owned by Texas-based Kinder Morgan, Inc., one of North America’s largest pipeline operators.
The upside: it would assure investors Canada is prepared to put its money where its mouth is to push the project through. The downside: the prospect of Justin Trudeau buying into an oilsands pipeline company would surely run counter to his party’s flag-waving on climate change.

Ottawa could provide some kind of financial guarantee to backstop or insure any part of the project, such as construction costs, on a look-back or a go-forward basis — a kind of insurance policy for the $1.1 billion Kinder Morgan has already spent or against future spending on a project estimated to cost $7.4 billion. Right now, because the project is not full-steam-ahead, construction costs are estimated at about $20 million a month, but if the green-light is given to start large-scale construction, that is expected to run as high as $200 million to $300 million a month.

The federal government’s options could include a loan guarantee. It could loan money to the project and collect interest or forgo interest in exchange for equity knowing the return on the investment would be secure. Kinder Morgan has secured commitments from 13 of Western Canada’s largest oil producers that they will ship heavy and light crude through the pipeline once its capacity is tripled.
“I think aside from words, actions are probably what’s going to give them the most certainty, and I think for investors, actions for them probably looks like a financial guarantee,” said one senior government official.

Kinder Morgan won’t say publicly what action it wants Ottawa to take, or whether it even wants the government to take an equity stake. The company won’t comment on Sunday’s summit in Ottawa.

In a statement to the Star, Kinder Morgan said it will continue to consult “with various stakeholders” to see if an agreement can be reached by June. “The focus in those consultations will be on two principles: clarity on the path forward, particularly with respect to the ability to construct through B.C.; and, adequate protection of KML shareholders.”

To be clear, Ottawa has already narrowed the range of “options” it is prepared to take.

Morneau dismissed outright B.C.’s request that Ottawa ask the Supreme Court of Canada to decide whether the province has any environmental or marine protection jurisdiction that would allow it to put new controls on oil flows in the proposed expansion of the Alberta-B. C. pipeline, in the name of defending B.C.’s coast.

“We don’t see a need to refer something to the Supreme Court of Canada when we already know that it’s a federal jurisdiction,” said the finance minister. “That from our standpoint is not a course of action that makes sense.”

A Supreme Court of Canada reference wouldn’t solve anything by May 31 in any case.

And for Justin Trudeau to claim success, let alone carry the banner of being a different kind of national leader — different than the polarizing figure that his father was — the answer would seem to lie in a political agreement to resolve differences, in the spirit of co-operative federalism, not in a judicially imposed resolution.

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