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The Canadian government said on Tuesday it will buy Kinder Morgan Canada’s Trans Mountain pipeline project for C$4.5 billion ($3.5 billion) but does not intend to be the long-term owner of the project, which has faced fierce environmental opposition.
Finance Minister Bill Morneau said that buying the existing pipeline and its planned expansion project, which will carry crude oil from landlocked Alberta to a port in the Vancouver area, is the only way to ensure the halted project gets built.
The government will also offer federal loan guarantees to ensure construction continues through the 2018 season as part of the deal with the company, a unit of Houston-based Kinder Morgan.
Kinder Morgan Canada’s shares jumped as much 8.5 percent in Toronto.
Morneau said the purchase of the pipeline gives the project the federal jurisdiction needed to overcome the provincial opposition of British Columbia, but he did not say how it could force the province to allow the pipeline to be built.
“So our message today is simple: when we are faced with an exceptional situation that puts jobs at risk, that puts our international reputation on the line, our government is prepared to take action,” Morneau told reporters.
Kinder Morgan halted the project in April due to permitting delays and political opposition in British Columbia, and set a May 31 deadline to decide if it would proceed with the expanded line.
The pipeline would give Canadian crude greater access to foreign markets, but is opposed by environmental groups and some aboriginal groups.
“We have agreed to a fair price for our shareholders and have found a way forward for this national interest project,” said Steve Kean, chief executive officer of Kinder Morgan Canada and its parent, Kinder Morgan.
Kean did not say why he decided to sell rather than absorb the risk of further delays to Trans Mountain. Kinder Morgan Canada will continue to own the remaining assets, including crude storage, rail terminals and a condensate pipeline, and look to expand, he said.
Canada’s oil sector has been stung in the past year as foreign energy companies retreated amid concerns about the environmental toll, high production costs and a risky regulatory regime.
Morneau said more investment will be needed to complete the construction of the pipeline expansion, and that in the long term the project “has commercial value” and should be in the private sector.
Source – cnbc.com