Anatomy of a stand-off: What lies ahead for Kinder Morgan?

Storm clouds are gathering for a massive public confrontation over Kinder Morgan's pipeline expansion Metro Vancouver.

Or are they?

As environmental activists plan strategies to stop Kinder Morgan, powerful corporate and political forces are working equally hard to out-manoeuvre them.

Few observers in Canada have as deep an understanding of the approaching storm as Max Fawcett, the former editor-in-chief of both Alberta Oil and Vancouver Magazine. Best known outside BC and Alberta for his in-depth Globe and Mail Report on Business profile of Canada's alpha oilman N. Murray Edwards, Fawcett knows the oil industry, its players, and their political, regulatory and media environment intimately.

Here's our conversation.

Sandy Garossino: What’s next for Kinder Morgan?

Max Fawcett: They’re going to want to get many of the pending lawsuits out of the way, so that they have certainty around the investments they’re going to be making.

The last thing they want is to put equipment and people on a job site and have it held up by a court injunction or something like that. They’re going to want to resolve the legal landscape around any concerns about inadequate consultation and First Nations treaty rights.

Kinder Morgan probably won't lay pipe in Metro Vancouver for several years

SG: When do you think they’ll plan to lay pipe in Metro Vancouver?

MF: I initially thought they would want it in service before the next federal election, but (now) I actually think that they’ll be in Burnaby afterwards.

The energy sector is going to get Enbridge's Line 3 replacement much more quickly. There’s no controversy around that. That will take some pressure off the backlogs in Alberta. And they might get Keystone.

Keystone and Line 3 together, I believe, are over a million barrels of additional capacity. So the 590,000 barrels that you would get on the (Kinder Morgan) Trans Mountain expansion are not urgent.

The oil sands is growing much more slowly than it was ever thought. There are no new projects being built up there right now. It’s unlikely you’ll see any new mega-projects anytime in the near future.

You don’t need the amount of pipeline out-take that you thought you did three or four years ago. So I think they’re going to slow down on Kinder Morgan a bit, and by late 2020, early 2021 that’s when you’ll see crews in Burnaby finishing it up there.

SG: Does the oil and gas industry in Alberta have a real comprehension and appreciation of the complexity of the First Nations environment in B.C., and the land issues which are markedly different from anywhere else in Canada?

MF: I think they do now, to some degree. It’s dangerous to attach a competency on this to the entire industry, because there are some companies that are very, very good at this. They absolutely understand the complexities.

I don’t think Enbridge learned that much. There’s something in that company culture, and I’m not quite sure I can put my finger on it. There are good people at Enbridge but as a company, there just doesn’t seem to be a recognition of the mistakes that they made.

Until they come to terms with that, it’s going to be hard for them to ever get anything built in B.C.

Harper's pipeline strategy a huge miscalculation, sullied NEB reputation

SG: Do you think the extremely heated opposition to Kinder Morgan is a result of Harper’s mishandling the Northern Gateway proposal?

MF: Hugely, hugely.

Stephen Harper made pipelines into a metaphor for his government and for the policies they espoused. He effectively invited everyone who was opposed to his government to use pipelines as the means by which to express their opposition.

People in B.C. were more than happy to take him up on that.

Once the Enbridge thing was bungled, people turned their attention to the one in their own backyard, as they naturally would.

I’m not saying that there wouldn’t have been opposition to Kinder Morgan, but Harper turned a simmer into a rolling boil by painting anyone who was opposed to pipelines as a radical.

Ian Anderson, the president of Kinder Morgan Canada, at a speech to the Petroleum Club back in 2013-2014, basically said that he wanted the Harper government to butt out and be quiet.

He had been going about his business, consulting with First Nations all along the line, and it had been going pretty well, and all of a sudden the federal government turned up the volume to eleven.

Anderson suddenly had to defend, not just his project, but an entire government.

As soon as the government and the National Energy Board stopped being viewed as fair dealers, as independent and neutral arbiters of various forms of interest, and instead were seen as advocates, the game was on.

I’ve talked to people at the NEB who have expressed frustration at how politicized their work has become. They weren’t the ones who politicized it, but they have suddenly become this crucible for this conversation about climate change and the environment.

I’m not sure that the damage there can ever be undone. I think the NEB’s reputation has been permanently sullied, which is unfortunate because they’re just bureaucrats, they’re just doing what they’re told and, and doing a reasonably good job of it.

It’s one of the greatest miscalculations of the Harper era, and it’s telling that his lieutenants and successors don’t appear to have learned that lesson.

Enbridge couldn't have made a bigger hash of Northern Gateway if they'd tried

SG: What’s your take on the Enbridge Northern Gateway project and how Albertans perceive it?

MF: I wasn’t surprised to see Trudeau put a stake in that project. In a lot of ways it had been dead for two to three years and had kind of been limping along.

Enbridge could not have made a bigger hash of that project if they had tried.

The consultation was wrong from day one. They went in there the way they’ve kind of always gone — with some trinkets and some promises — but not the the kind of consultation that First Nations in B.C. rightfully expect.

I’m not sure Enbridge ever understood that.

So it, it was a mercy killing in a lot of respects. Most Albertans who are plugged into the energy sector get that.

SG: I remember a Vancouver Board of Trade event a few years ago where forestry and oil interests met to talk about the about the BC resource environment. When it came to the issue around social license, the forestry people strongly advised the oil and gas folks, “You’ve got to get this piece right. It will be fatal to you if you ignore social license.” And there was some feeling on the panel from the oil interests — not everyone, but some — that social license is a ridiculous concept, and they just rejected it.

MF: Yeah, there’s a certain amount of arrogance that was at play back then.

You have to remember that it really wasn’t that long ago, although it feels like a different world, that people were talking about peak oil. Oil prices looked like they were going to be above $100 forever. Everyone was making lots of money, and it was good times in Calgary.

It bred a bit of a swagger in many of those companies that made them assume that they could do things the way they’d always done things.

In fairness, if you look just at Trans Mountain, there’s been a lot of change.

When they went through the regulatory process for the NEB for the first leg of the expansion of that pipeline, an incredibly delicate and precious ecosystem, there might have been six interveners at the public hearings, and most were there for very technical and non-inflammatory reasons.

So to go from that to less than ten years later what they went through in Vancouver — it’s really a remarkable shift in the world in which they lived, and they just weren’t ready for it.

Part of the other problem is that the energy sector has a diversity challenge.

It has a lot of guys who are all the same and all come from similar backgrounds. Anytime you have an industry where everyone comes from roughly the same place, you can walk into trouble without seeing it coming.

SG: If Keystone and Line 3 go through, how necessary is Kinder Morgan?

MF: So there are competing opinions on this. I defer to Trevor Tombe at the U of C. He’s the most sensible energy economist. He had a really interesting chart the other day that showed that we will need by approximately 2025 Keystone and Trans Mountain and Line 3. And maybe Energy East as well, although that one’s sort of in a little bit of a grey area.

We do need them. We don’t need them in the sense that oil will back up behind pipe if we don’t get them, but it’s much more efficient to move oil by, by pipe than it is by rail. It’s much safer, it’s much less expensive, and because it’s less expensive, that means more profits for the companies and more taxes, more tax revenue for the provincial and federal treasuries.

It’s all to the good from that perspective to get those pipelines built.

But jamming up a single pipeline does nothing to achieve CO2 reduction. The concerns that I think are fair are the ones around, you know, certainly the whale population in the ... the Strait of Juan de Fuca and the spill concern.

I think the spill concern is being overstated. The risks are pretty insignificant. But if it happens, it’s a disaster, no question.

Easier to write off real Alberta concerns when they're delivered by Ezra Levant and right wing commentators

SG: And then there’s the fact that we are importing oil in the east. Is there equal objection to oil coming into our ports rather than going out?

MF: Yes, I happen to think that the best project in this country is Energy East because it displaces that foreign oil that’s coming to refineries in New Brunswick. It replaces it with Canadian oil.

People in Alberta, I think, have a frustration on that, that deserves to be heard.

It’s easy to write off a lot of the arguments that are made, because the arguments have not been delivered by good communicators, they’ve been delivered by people like Ezra Levant and right wing Conservative commentators who present it in a way that no one who’s not a right-wing Conservative really wants to listen to.

There’s a kernel of truth in the argument that Alberta has been a net contributor to confederation for a very long time, and it’s in pain right now and it’s asking the rest of the country to give it a bit of a shoulder to lean on and that’s not happening.

But I don’t see a lot of hope for Energy East for the same reason that I thought Kinder Morgan got built, which is the political calculus.

Carbon taxes and political calculations

SG: The political calculus is one of the really interesting pieces to this story. Tell us about the future for Rachel Notley, for Alberta, what Trudeau’s objective is, and are there things that British Columbians are missing?

MF: The relationship between Notley and Trudeau is very interesting because obviously she’s a New Democrat, he’s a Liberal. By all rights, they’re theoretical opponents, but she behaves very much like a Liberal. A lot of New Democrats have been disappointed by how centrist Rachel Notley’s been since they formed government.

They wanted her to go further, be more aggressive on the climate, but they have to be mindful of just how far the government has come in less than two years. I think Notley's vision for Canada’s energy sector and Justin Trudeau’s vision are very closely aligned.

You know, Alberta now has a carbon tax, which was unthinkable two years ago. That was heresy. It has hard cap on emissions in the oil sands, and she managed to get the support of the biggest oil sands companies in the province for that.

All of that is in jeopardy, because if she doesn’t get re-elected in 2019, the right has promised they’re going to roll all that back.

Jason Kenney, if he unites the right, is going to scrap the carbon tax, cut taxes for corporations, and get rid of any environmental regulations on the energy sector.

But if Trudeau imposes a national carbon tax and environmental policy, it may all be a moot point.

I think he’s prepared to lose three to five seats in BC. The Liberals elected two MPs in Calgary for the first time since 1968 in the 2015 election, which was huge.

Their calculus is that they’re willing to put seats in B.C. at risk in order to secure a generational beachhead in Alberta.