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Kinder Morgan to make its final investment decision on the Trans Mountain pipeline by June 30

Prime Minister Justin Trudeau announces his Liberal government’s approval of the Trans Mountain pipeline on November 29, 2016.

The Board of Directors of Texas-based Kinder Morgan Inc. will reportedly make its final investment decision on its $7.4 billion Trans Mountain tar sands pipeline by June 30. But what are the potential costs of this 890,000 barrel per day pipeline in terms of long-term damage to the environment and even lives lost?

The Canadian Press reports, “A deal reached between British Columbia and Trans Mountain reveals new details about Kinder Morgan’s timeline to approve investments for a proposed oil pipeline expansion and requirements to hire local workers. The agreement, signed April 6, says the Kinder Morgan board of directors must reach a final investment decision by June 30 with news communicated by July 2 for the project to go ahead.”

That article adds, “A spokesperson for Trans Mountain said in a statement Saturday, ‘Next steps for the project include arranging acceptable financing and a final investment decision by Kinder Morgan.'”

On February 17, Reuters reported, “Kinder Morgan has held discussions with Canada Pension Plan Investment Board, the Caisse de depot et placement du Quebec and Ontario Teachers’ Pension Plan Board, three of the biggest Canadian pension funds, the people added. It was unclear whether talks with the three pension funds were still ongoing. …Kinder Morgan has hired Toronto Dominion Bank as an adviser to help arrange financing for the project and the bank is expected to run a so-called ‘dual-track’ process. Apart from a potential [initial public offering – the selling of shares in the pipeline], Kinder Morgan is also considering a sale of a 50 per cent stake in Trans Mountain by creating a joint venture. The formal process to attract joint venture partners is getting underway, the people said.”

At that time, a spokesperson for Kinder Morgan stated, “We’re confident in the interest from the investment community and we’re continuing to move forward with all aspects of planning in order to begin construction in September 2017.”

While the media has regularly reported the cost to construct the pipeline would be $7.4 billion, little attention has been given to the profit and costs of the pipeline. It has not been disclosed how much profit Kinder Morgan expects to make on the pipeline, but:

  • investors usually expect a return of 7-9 per cent on their investments (the pipeline is expected to cost $7.4 billion to construct)

  • given oil sells at about $50 a barrel now, and the pipeline would move 890,000 barrels a day, that would suggest the pipeline could move $44.5 million of product every day

  • if one were to calculate 890,000 barrels shipped each day over the course of 365 days that would amount to 324,850,000 barrels shipped in just one year

  • if Kinder Morgan made a profit of just $1 per barrel, that would be about $324.9 million a year, whereas $5 of profit per barrel would mean $1.62 billion a year

  • the company reported a gross profit on all their operations of $7.8 billion in 2014, $7.95 billion in 2015, and $7.26 billion in 2016.

On the other side of the balance sheet, Policy Options has reported, “The Insurance Bureau of Canada publishes a set of statistics each year. In its 2016 assessment, the Bureau noted that it has been ‘reporting on a rise in claims as a result of increases in severe weather events related to climate change’ for over a decade. From 1983 to 2004, insured losses from those disasters averaged $373 million a year (in 2015 dollars). But in the decade from 2005 to 2015, the annual average loss has more than tripled, growing to $1.2 billion a year. In 2011, the National Round Table on the Economy and the Environment calculated that the cost of climate change for Canada could grow to between $21 to $43 billion a year by 2050 — roughly 1 percent of GDP that year.”

In September 2012, The Guardian reported, “Climate change is already contributing to the deaths of nearly 400,000 people a year and costing the world more than $1.2 trillion, wiping 1.6 per cent annually from global GDP, according to [the 331-page study Climate Vulnerability Monitor: A Guide to the Cold Calculus of A Hot Planet written by more than 50 scientists, economists and policy experts]. By 2030, the researchers estimate, the cost of climate change and air pollution combined will rise to 3.2 per cent of global GDP, with the world’s least developed countries forecast to bear the brunt, suffering losses of up to 11 per cent of their GDP.”

The Council of Canadians is calling on the Canada Pension Plan Investment Board (CPPIB) not to invest in this future. To tell its CEO that, “As a CPP contributor, I urge the CPPIB to take a principled stance and publicly refuse to invest any money in Kinder Morgan’s Trans Mountain pipeline”, please click here.

Beyond the June 30 investment decision date, tree clearing and site preparation for the pipeline is expected to begin this September, while construction on the pipeline itself is scheduled to begin in January 2018.

The Council of Canadians is calling for a 100 per cent clean energy economy by 2050. The life span of the Trans Mountain pipeline could exceed that by decades.