Federal intervention in the Trans Mountain oil pipeline indicates these types of projects carry risk, an advocacy group warned. File Photo by Heinz Ruckemann/UPI |
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June 1 (UPI) -- With the federal government in Canada taking over the Trans Mountain oil pipeline effort, critics and investment analysts warned of credit implications.
On Tuesday, the federal government announced plans to purchase Kinder Morgan's pipeline and terminal assets for $3.5 billion, two days before the company was set to shelve the project. Kinder Morgan has been steering efforts to triple the capacity of a pipeline to Canada's west coast amid bitter provincial divisions.
Ahead of the federal intervention, Moody's Investors Service said oil-rich Alberta could face a significant loss in revenue if the project were cancelled. Alberta's budget forecast is pegged to an average price of West Texas Intermediate, the U.S. benchmark for the price of oil, at $63 per barrel by 2020.
WTI was trading around $69 per barrel on Friday, but at a steep discount to the global benchmark, Brent. Without more pipeline capacity, much of the extra oil coming from North America would be landlocked, leaving WTI at a discount.
Moody's warned that if Alberta's price forecast for WTI could be a source of risk. Alberta Premier Rachel Notely said not moving ahead with the project could cost the Canadian economy around $30 million (USD) per day.
For Kinder Morgan, Moody's said the federal decision was credit positive because it removes "significant risk" for the company and eliminates the need for another $4.9 billion in costs "and the uncertainty of construction scheduling and completion given the opposition to the project from the province of British Columbia, environmentalists and some First Nations."
Amid concerns about Kinder Morgan's loan package for Trans Mountain, and given the federal intervention, advocacy group Rainforest Action Network said major pipeline projects are risky investments.
"This debacle should prove once and for all that tar sands oil is an unbankable sector," Patrick McCully, the group's climate and energy director, said in a statement emailed to UPI.
British Columbia Premier John Horgan said his government, which has moved to thwart the project, would continue to defend provincial interests. For the western province, projects like Trans Mountain present a source of environmental concern.
