Financial centre of oilpatch hails approval of Trans Mountain expansion, Line 3
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CALGARY — The financial centre of the oilpatch applauded Ottawa's approval of two massive pipeline developments, saying the decisions send a message that Canada is open to investment at a time when the economy sorely needs it.
"Canada's reputation as a place that can move projects forward took a step forward today," said Tim McMillan, head of the Canadian Association of Petroleum Producers at a press conference.
"We have seen today that our governments support energy projects that meet the high standards here in Canada, and that positions us well for the future."
For months, the energy sector had waited with bated breath for federal pronouncement on three projects: Kinder Morgan's Trans Mountain expansion and Enbridge's Northern Gateway and Line 3.
On Tuesday, Prime Minister Justin Trudeau responded, rejecting Northern Gateway while sanctioning the other two proposals.
"This is a defining moment for our project and Canada's energy industry," Ian Anderson, president of Kinder Morgan Canada, said in a news release.
The $6.8-billion Trans Mountain expansion would see the capacity of a pipeline that runs from the Edmonton area to Burnaby, B.C., nearly triple, to 890,000 barrels per day.
Trudeau also announced the approval of the $7.5-billion Line 3 replacement project, which would see that pipeline roughly double its current output to 760,000 barrels per day.
When combined with the Trans Mountain expansion, Trudeau gave the green light to close to a million barrels of crude exports a day in one fell swoop.
"This is exactly the good news the Albertan and Canadian economies need right now," Calgary Chamber CEO Adam Legge said in a statement.
Trevor Tombe, an economics professor at the University of Calgary, said that Trans Mountain would help oil producers reap higher prices by exporting to the Asia market, with even a $5 a barrel price increase translating to about $5 billion a year in extra revenue.
"Government revenue higher, corporate profits higher, employment, wages, higher, and it's all because the price will be higher for producers," Tombe said.
Analysts said that while the go-ahead on two major pipelines is a positive step, many in the industry are still concerned legal challenges and protests from the many groups opposed to the projects could hinder development.
"From an investor's perspective it helps reduce the risk, but until we actually see those pipelines under construction, I think most investors will still have some concerns whether the capacity's really going to happen," said Jackie Forrest, vice president of energy research at Arc Financial.
Enbridge has learned that lesson the hard way, after its Northern Gateway project gained approval from the previous Conservative government in 2014, only to see Trudeau reject the project Tuesday.
The Calgary-based energy giant said that while it was pleased with the government's approval of Line 3, it was disappointed with its dismissal of the Northern Gateway project, which would have shipped up to 525,000 barrels of crude per day from the Edmonton area to Kitimat, B.C., for export to Asian markets.
"Given today's decision, we'll need to assess our alternatives, which we'll do in consultation with our partners, including our aboriginal equity partners," Enbridge said in a statement.
Dirk Lever, head of energy infrastructure research at AltaCorp Capital, said the Northern Gateway decision shouldn't sway the investment climate too much, as many in industry had already anticipated a rejection of Gateway.
Overall, he said the pipeline approvals would be good for investments in the long term, but that the low price of oil is still a challenge for the short-term.
"New projects aren't going to turn on this decision, because at the end of the day they need the commodity price to work," said Lever.
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