By Patrick O’Brien (AIMS On Campus Student Fellow)
Over the last few months there has been a major uproar in the Canadian energy industry and the Canadian economy as a whole. Kinder Morgan, a large oil and gas company with operations in Calgary halted construction of its Trans Mountain Pipeline project, due to political uncertainty which has put the company in tough spot. After major opposition of the continued construction of the pipeline from the B.C Government, the Federal Government has decided to take action and put up the funds necessary to purchase the Trans Mountain Pipeline project from Kinder Morgan. The sale of private assets to the Federal Government will close in August, assuming there isn’t action from a private company that is willing to step in and make a purchase. The total purchase price of the project is $4.5 billion, and will need another large capital injection to finance the completion of the project. When this capital is needed, the NDP Government in Alberta will offer $2 billion to cover any costs that were not initially considered. Although this comes with a twist: Each dollar that is potentially invested by the provincial government (Alberta) will be translated into partial ownership of the project once completed.
Why was Government intervention needed in this case, and what does it say about Canada`s Business environment? The tension between B.C and Alberta over the distribution of oil over B.C territory has caused protest by the inhabitants, and the First Nations as a portion of the Pipeline crosses over their land. In the midst of this, Kinder Morgan decided to stop the project due to high costs associated with the halt in operations and the Federal Government approved the purchase with Canadian funds. The problem is B.C is the only province that has not approved the go ahead. This presents a huge problem where Provincial jurisdiction is opposing/rejecting a Federal decision to move ahead with the project construction.
How might this affect Canada, and the economy? It is quite normal for a private company to be delayed permission to build in certain areas, although when it comes to one province fighting the entire Country, it is now on the center stage for the rest of the world to see. The acquisition of the project in the beginning from the Government show the international business community that we are not able to properly deal with situations and that regulatory bodies are not able to quickly resolve issues. A poll conducted by Global news found that fifty-six percent of Canadians support the expansion, with twenty-four percent reject the idea, and the rest being neutral. Even in the B.C, the Province that still rejects the idea, fifty-five percent of residents support the project and thirty-seven percent rejecting the idea. Political uncertainty of business operations like this situation, hinder the growth of our Country. The pipeline would allow for triple current production, and access to Asian and European markets, allowing Canada to distribute its oil on a much larger scale, gain international recognition, and therefore demand higher oil prices. Breaking into new markets, and generating business internationally creates new jobs for Canadians and attracts foreign direct investment into Canada.
There unfortunately is never all positives to one decision, and in this case there are a few major concerns. For starters, the pipeline needs to cross over Aboriginal land in order to function and impedes on the rights given to its owners. Another concern is oil spills. Although technology is advancing rapidly and the likelihood of an oil spill is much less than it used to be, there is still a huge environmental costs that comes with the chance. It will be interesting to see the development of the project going forward, and if differences can be resolved in order to boost the project. Look out for new developments in the project and what will be in store for Canada if it does not go through.