Kinder Morgan: That Ship has Sailed!

Kinder Morgan Canada is said by market analysts to have a lot of corporate hope pinned on the construction of its Trans Mountain pipeline expansion.  The project would increase its cash flow sixfold at a time when cash is in short supply.  So short is the supply of cash that the company is said to be seeking a joint venture partner to build the pipeline.  Potential partners in the pipeline will no doubt be influenced by the opportunities that a pipeline to “tidewater” offers for oil producers:  will they diversify and expand their markets by pumping oil to the Pacific coast, ensuring a further 60 years of fossil fuel profit for the pipeline investor?

Not very likely.

China was supposed to be the big new market for Canadian oil; the one that would pay a premium for our sour, heavy crude and have a boundless appetite for it.  But China today is awash in oil.  They spent most of 2016 exporting diesel, they had so much.  And they’re continuing to receive oil, as debt payment from countries like Angola, Nigeria, Iraq, Venezuela and Kurdistan. All of these countries borrowed billions from China when oil was valued at over $100 bbl.  Now that the price of oil is half what it was, debt repayment takes twice as much oil.

China also has oil deals with Iran and Russia, worth hundreds of billions.  It has been planning energy infrastructure for over a decade, to diversify its sources of fossil fuel and reduce dependence on deliveries by ship. China now receives oil by pipeline from Russia and Kazakhstan.  Pakistan is building a new pipeline to China from Gwadar Port that is intended to hook up with Iranian oil supply and could eliminate the costly and dangerous ocean route through the Strait of Malacca. China has also built strategic reserves of oil to shield it against price fluctuations.

Perhaps more important than the supply side is the outlook for oil demand:  China’s growth is slowing.  In September of 2015, Singapore Business Review first noted the slowdown, observing that Singapore’s port was backed up with upwards of 30 Aframax tankers being used to store fuel that would ordinarily be shipped to China or Japan.  China’s crackdown on the use of bituminous fuels by its independent ‘teapot’ refineries had also slowed trade, the Review noted.  Historically, the teapots were required to buy partially refined fuel oil from the state-owned oil companies, but when the country began to be flooded with oil-for-debt shipments, rules were relaxed and the teapots bought bituminous blends directly on the open market. China has now “clamped down” on the import of bituminous oils—particularly bad news for Canadian tarsands exporters.

In 2016, Blomberg reported the tanker Jag Lok loaded oil from Equatorial Guinea and set sail for the Chinese port of Qingdao, only to be forced to circle outside the port for 20 days waiting for offloading facilities.  Platts outlook for 2017 notes that the teapots will no longer be allowed to export oil products, further reducing the demand for imported bitumen.

At the same time as growth and demand for oil are slowing, China’s demonstrated concern for air quality and climate impacts is growing. It now includes energy conservation and efficiency measures in its assessment of new development projects.  The current five-year plan stresses green growth and sets targets for the reduction of airborne particulates, conservation of energy resources and the development of renewable energy.

It appears that, despite all its effort to get tarsands to tidewater, Kinder Morgan has missed the boat.  If the company does find the backing to build the pipeline and tanker project, producers may end up selling oil in Washington and California—two places they could as easily reach overland. Let’s hope the market is actually thinking this one through.

Update, February 27, 2017:  U of A Petroleum Engineering professor Bruce Peachy opines in Alberta Oil Magazine today that " Trans Mountain would also likely be used to supply any remaining California demand, in competition with Venezuela, Colombia, Mexico and Peru, before it would supply much to more distant Asian markets." read more>>

If, like me, you feel a little queasy about waiting to see if the market does its homework, you may be wanting to know, "What can I do to help stop the project?" Read on!

1. Help the court challenges with a donation. Living Oceans Society and Raincoast Conservation Foundation have teamed up with Ecojustice to challenge project approval. Several First Nations have also brought lawsuits and you can help them by visiting Pull Together to make a donation or organize your own fundraiser. The Pull Together campaign raised over $600,000 to help First Nations win the Enbridge court challenge that ultimately led to that project's rejection.  Together, we can do it again!

2. Make this a B.C. election issue. Ask questions at your all candidates' meeting, write to your local paper and talk about it with your friends:  this pipeline and tanker project is bad for B.C., Canada and the globe. [click here for a brief refresher on some of the reasons why the project should not proceed.] Prepare to vote for the party that promises to put an end to

3. Remind the federal government about its climate commitments.   Too often, our elected representatives get away with managing expectations through media moments, rather than dealing with issues. Let your MP know that you expect to see strong government leadership to encourage investment in renewable energy and a solid climate plan that will replace fossil fuels in the Canadian economy.

Regulatory approvals notwithstanding, this project still faces major hurdles in the market, in the courts, at the polls and in the streets.; Let's stay on the job, for the whales, the Salish Sea and the people of the B.C. coast!