Canada approves Kinder Morgan’s Trans Mountain pipeline

The Canadian government on Tuesday approved Kinder Morgan’s $5.4 billion Trans Mountain oil sands pipeline.

Prime Minister Justin Trudeau signed off on the pipeline by Houston-based Kinder Morgan, while rejecting the competing Northern Gateway pipeline project by Calgary-based Enbridge.

The 715-mile Kinder Morgan project would ship oil sands crude from Edmonton, Alberta to Vancouver-area ports in British Columbia. Trans Mountain represents nearly 40 percent of Kinder Morgan’s $14 billion project backlog.

“If I thought this project was unsafe for the BC coast – I would reject it. Period,” Trudeau said in a prepared statement. “This decision was based on debate, science and evidence.”

The project, which has been pending for more than three years, is opposed by environmentalists, indigenous tribes and many landowners. The controversy, to some extent, became Canada’s version of the Keystone XL pipeline expansion that was ultimately rejected last year by President Barack Obama.

The Trans Mountain expansion would almost triple its existing capacity from 300,000 to 890,000 barrels of crude oil per day. The pipeline project extends near Vancouver ports, where the oil can be shipped to Asian markets that typically pay steeper prices. The expansion would lay another pipeline next to the company’s existing one, which began operations in 1953.

“This is a defining moment for our project and Canada’s energy industry,” said Ian Anderson, president of Kinder Morgan Canada, in a statement. “This decision follows many years of engagement and the presentation of the very best scientific, technical and economic information. We are excited to move forward and get this project built, for the benefit of our customers, communities and all Canadians.”

Vancouver Mayor Gregor Robertson reiterated his continued opposition on Tuesday, arguing the project “could bring seven times the number of oil tankers to our waters.”

Kinder Morgan originally hoped to have the pipeline in operation next year, but that was pushed back until the end of 2019. Construction is expected to begin in September 2017.

Tuesday’s ruling is a big deal for Kinder Morgan because the Houston pipeline giant can move forward with its biggest project, said Brandon Blossman, energy analyst for Tudor, Pickering, Holt & Co. in Houston. The pipeline will rake in money even at its expensive price tag and even with lower oil prices.

“This is a project that’s essentially fully contracted,” Blossman said. “It’s not speculative at all.”

The challenge for Kinder Morgan though is financing the project, Blossman added, and finding a financial partner probably makes sense. Kinder Morgan can’t afford to both fund Trans Mountain and increase its dividend payments to investors without getting financial assistance, he said.

Kinder Morgan in December cut its dividend by nearly 75 percent to pay down much of its debt. In October, Kinder Morgan’s co-founder and executive chairman, Rich Kinder, said the tentative plan is to “substantially” increase the dividend again, but he did not provide a timetable.

The ruling from Trudeau’s cabinet is mixed news though for Enbridge. It’s Northern Gateway project was rejected, but its Line 3 project was approved. The Line 3 pipeline would send oil from Alberta to Wisconsin, where it would connect to a pipeline network that extends to Freeport, Texas.

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