The National Energy Board Guaranteed Kinder Morgan a Fund to Push Pipeline Expansion Through Regulatory Review

30 June 2014


A report: The National Energy Board Guaranteed Kinder Morgan a Fund to Push Pipeline Expansion Through Regulatory Review

Kinder Morgan Energy Partners Limited Partnership—a Texas based Master Limited Partnership—wants to build a twin pipeline from Edmonton, Alberta to its Westridge Dock in Burnaby, BC. The pipeline is designed to carry 840,000 barrels a day of Alberta diluted bitumen. Eventually this means more than 1.1 million barrels a day of crude oil and petroleum products flowing across BC’s fresh waterways with much of it destined for export by oil tanker through Burrard Inlet and the Salish Sea.

Kinder Morgan has been pursuing its expansion in stages since it bought the Trans Mountain system from Terasen in 2005. This piecemeal approach allows the company to avoid full environmental assessment and public interest scrutiny for much of its expansion.

In a precedent setting NEB decision in 2011 the Board granted Kinder Morgan the right to pre-fund future expansion applications from five firm shipping customer contracts to its Westridge terminal. Two of the five companies funding Kinder Morgan’s pre-development costs are Chinese National Oil Companies PetroChina and Nexen, while the remaining three are US Oil, Astra and Cenovus. These companies pay an average premium of $1.45 per barrel to guaranteed $28.6 million per year is allocated to the special account.

Over a ten year period, Kinder Morgan will amass \$286 million to push its expansion plans through regulatory review. Pre-funding through shipper charges means that the Canadian public and the Canadian economy bear the risk and the cost of Kinder Morgan’s pre-development process, rather than the risk and cost being borne by Kinder Morgan’s US based shareholders.

On December 16, 2013 Kinder Morgan submitted an Application to the National Energy Board (Board or NEB) for a certificate of public convenience and necessity (CPCN) to allow the company to finish construction of its second pipeline, expand storage capacity at its tank farms and build 3 new berths at the Westridge dock capable of loading three Aframax oil tankers in a 24 hour period.

Kinder Morgan has confirmed that \$136.3 million of its special fund has been allocated to finance the current NEB public review process.

Although the Trans Mountain 36” twin pipeline is designed to carry 840,000 barrels a day, the applied-for capacity in its current application is 540,000 barrels a day. Kinder Morgan downplays the likelihood of expanding its system to transport 1.1 million barrels a day, but with “deep pockets” guaranteed by the NEB, if Kinder Morgan is successful in obtaining approval for its current application, it will have \$150 million remaining in its slush fund to finance the approval process for the next phase of its expansion plans.

I have prepared a report that reviews previous NEB hearings and explains the steps Kinder Morgan has taken—enabled by the NEB—to advance its interests while the risk and the cost is borne by the Canadian economy and Canadian public.