Trans Mountain expansion gets initial OK
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Kinder Morgan Canada has cleared its first regulatory hurdle in pursuit of approval to expand its Trans Mountain pipeline system to 890,000 barrels per day of capacity from 300,000 bpd.
Canada’s National Energy Board ratified commercial aspects of the proposal, rejecting claims by Suncor Energy and Total E&P Canada that the company was trying to squeeze monopoly profits from the industry by raising the price of shipping crude to the Pacific coast.
Ian Anderson, president of Kinder Morgan’s Canadian operations, said in a prepared statement that his company now has the necessary economic certainty to go prepare a formal regulatory application for the C$5.4 billion project.
“We look forward to working with the new British Columbia government and will remain committed to listening to questions and concerns as we develop our application to file with the NEB later this year,” he said.
Suncor argued during hearings in February that Kinder Morgan’s U.S. parent was leveraging its position as owner of the only Pacific outlet for Canadian crude to earn an “excessive” return on equity.
Kinder Morgan said it needed a higher return in exchange for bearing risks of potential cost increases during construction and operation.
Rail, alternative pipelines The federal regulator said existing pipeline constraints and deteriorating returns for oil sand producers gave Kinder Morgan an edge in negotiating contracts with potential shippers, but it stopped short of endorsing Suncor’s position.
“The fact that shippers are using rail and alternative pipelines suggests that, based on actual market behavior, these are alternatives to the Trans Mountain pipeline,” the NEB said, observing that Kinder Morgan “did not use market power to abuse a potential dominant position to negotiate tolls.”
The verdict allows the pipeline operator to submit a detailed facilities application to regulators, which would see Port Metro Vancouver be transformed into a major tanker terminal for Canadian crude — a prospect that is heatedly opposed by British Columbia’s New Democratic opposition party, municipal councils in the Greater Vancouver area, First Nations and environmentalists.
The International Energy Agency said in a new study that North America is destined to displace OPEC as the driver of global oil supply growth later this decade.
Pipelines projected after 2018 But it said pipelines to carry oil sands crude to the Pacific coast would not be built before 2018, beyond the targeted in-service dates set by Kinder Morgan and Enbridge.
Antoine Halff, head of the IEA’s oil industry and markets division, said that “given the capital requirements, the lead times in construction, the permitting process, large-scale pipeline development to the West Coast may be more likely beyond five years.”
Following a third open season in late 2012, Trans Mountain has received firm 15- and 20-year commitments from 13 shippers for 707,500 bpd, of which 588,000 bpd is directed to the Westridge dock in Port Metro Vancouver and 119,500 bpd to land destinations.
The remaining 20 percent or 180,000 bpd of would be reserved for uncommitted volumes.
Based on initial estimates, the indicated firm service toll for a 20-year contract for transporting less than 75,000 bpd from Edmonton to Westridge would be C$4.80 per barrel for heavy oil and C$4.73 for light oil.
—Gary Park
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