Canada's National Energy Board Approves Construction on Large Sections of Trans Mountain Pipeline

Researched by Industrial Info Resources (Sugar Land, Texas)--To the ire of some and the applause of others, Canada's National Energy Board (NEB) has approved the construction of large sections of Kinder Morgan Canada Limited's (TSX:KML) (Calgary, Alberta) Trans Mountain Pipeline expansion, which will carry oil from Alberta's oil sands to Canada's west coast in British Columbia, to a lucrative export market.

The project would increase the existing pipeline's capacity from 300,000 barrels per day (BBL/d) to 890,000 BBL/d. The project has garnered the approval of Canada's federal government, which in May agreed to purchase to project from Kinder Morgan for C$4.5 billion ($3.4 billion). However, the project has caused tensions between the neighboring provinces of Alberta, which would like to increase the market scope for bitumen gathered from its oil sands, and British Columbia, where many citizens view the project as a cause of increasing environmental damage. Extracting oil from oil sands suffers the reputation of being much more energy-intensive than other forms of oil production.

In February, while British Columbia was ordering an environmental review of the project and threatened to make efforts to block it, Alberta threatened to block all wine imports from British Columbia. In June, several protests were held across Canada to protest the Canadian federal government's agreed purchase of the pipeline, which it did in order to ensure the project would be built. The government plans to eventually sell the pipeline to a third party, but many Canadian citizens see the purchase as an unnecessary subsidization of the country's fossil fuel industry. The controversy has also spread internationally. In April, Canada Prime Minister Justin Trudeau was greeted by pipeline protestors when he visited London, England.

Getting bitumen out of Alberta's oil sands has proven to be a problem, resulting in steep discounts for Western Canada Select (WCS) crude compared with the U.S. benchmark, West Texas Intermediate (WTI). At the time of writing, WCS was trading at around $36 per barrel, while WTI hovered around $65.50.

The other proposed pipeline to move oil sands crude, TransCanada Corporation's (NYSE:TRP) (Calgary) Keystone XL pipeline, has garnered protest in the U.S. and was recently ordered by a federal judge to face another environmental review by the U.S. State Department for its revised route through Nebraska.

Kinder Morgan has begun preliminary work on the $5.2 billion project, although major pipeline construction is not expected until spring 2019. While the project has an in-service date of December 2020, there are concerns that this could be delayed due to budgeting and permitting issues, although the NEB's authorization for large portions of the project may go some way in alleviating this. Ledcor Group of Companies (Edmonton, Alberta), Surerus Pipeline Incorporated (Calgary) and Midwest Pipelines Incorporated (Edmonton) have been designated as general contractors on the project. For more information, see Industrial Info's project reports on the Alberta and British Columbia sections of the pipeline.

A project of this size involves more than simply laying additional pipe in the ground. Kinder Morgan plans to increase terminal capacity on either end of the pipeline expansion. Near Edmonton, Kinder Morgan is adding five 263,000-barrel tanks to its existing terminal to raise crude oil storage capacity by more than 1.3 million barrels for a total storage capacity of 9.25 million barrels. WorleyParsonsCord (Edmonton) is providing engineering, procurement and construction on the project, which has an estimated total investment value of $100 million. For more information, see Industrial Info's project report.

In Burnaby, British Columbia, where the pipeline will terminate, Kinder Morgan will construct 14 tanks of 250,000 to 350,000 barrels each to add more than 4 million additional barrels of storage. In addition, Kinder Morgan has begun dock additions, which include constructing three new berths to accommodate Aframax-class crude oil tankers, which can carry up to 120,000 metric tons. Construction began this summer and is expected to be completed by the end of 2020. For more information, see Industrial Info's project reports on the tank additions and the dock additions.

The other proposed pipeline to move oil sands crude, TransCanada Corporation's (NYSE:TRP) (Calgary) Keystone XL pipeline, has garnered protest in the U.S. and was recently ordered by a federal judge to face another environmental review by the U.S. State Department for its revised route through Nebraska.

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