U.S.-owned Kinder Morgan Canada’s president has conceded that the cost of his company’s embattled Alberta-to-British Columbia pipeline will very likely rise above the $6.8 billion level at which signed-up shipping customers have the option of cancelling their purchase contracts.
The Energy Mix reported earlier this week that “the pipeline’s customers have the ability to back out of their contracts, or renegotiate rates with Kinder Morgan, if the cost [of its TransMountain project] goes over $6.8 billion, or the regulatory approval is pushed past the end of 2017.” That bombshell insight came from investment analyst David Alton Clark, after his examination of the company’s regulatory filings.
But last week, Kinder Morgan Canada President Ian Anderson acknowledged to the Vancouver Sun that “there’s a high probability we will exceed that ($6.8 billion). By how much? We’re adding up the numbers now.”
Anderson disputed suggestions that breaking through the project’s construction cost ceiling would lose it customers, however. “I think our shippers have committed with us,” Anderson told the newspaper.
Kinder Morgan has contracts with 13 shippers “to use up to 80% of the expanded pipeline’s 890,000-barrels-per-day capacity,” the Sun reports. Among them are some of the tar sands/oil sands’ biggest producers, including Suncor Energy, Canadian Natural Resources, and Imperial Oil. Under their take-or-par contracts, if the pipeline is completed on time and within budget, they must either use it or pay Kinder Morgan as though they had. If Kinder breaches its cost commitment, however, its customers will have 30 days to walk away from those contracts.
Anderson thinks that’s unlikely because his existing pipeline is overbooked, he told the Sun: Thanks in part to Washington State refiners buying Canadian crude to replace dwindling production from Alaska, “we’re turning away requests for service every day.”
But numerous hurdles—from still-pending approvals of Kinder’s plans to meet scores of conditions attached to its federal construction permit, to the outcome of nearly a dozen lawsuits—still challenge the company’s ability to uphold its side of the contracts. And according to Clark, a failure to complete the line “would essentially be a death knell for Kinder Morgan.”