Uncertainty Leads to Suspension of Trans Mountain Pipeline Expansion

On April 8, 2018, Kinder Morgan Canada Limited announced that it is “suspending all non-essential activities and related spending on the Trans Mountain Expansion Project.” Kinder Morgan noted that while it has the support of the federal, Alberta and Saskatchewan governments for the project, it faces continued active opposition from the government of British Columbia. This has led Kinder Morgan to determine that there is risk with continuing to spend money on the project.

Kinder Morgan’s Trans Mountain pipeline runs from Edmonton, Alberta to Burnaby, British Columbia. Kinder Morgan applied to the National Energy Board (NEB) in 2013 for an expansion of the Trans Mountain pipeline that would nearly triple the pipeline’s capacity from 300,000 to 890,000 barrels per day. The NEB undertook a lengthy review process culminating with a May 2016 Report. Subsequently, in November 2016, the federal government issued its approval of the project, setting out 157 conditions to be met. The federal government has confirmed its support for the project on a number of occasions since then. Recent news reports (see here and here), indicate that the federal government is “determined” to see the Trans Mountain expansion built because it is in the national interest.

While the Trans Mountain expansion project approval continues to be subject to numerous legal challenges (see here), the NEB has been proceeding with detailed route hearings for the project. According to the NEB, nearly two thirds of the entire detailed route has now been approved.

In contrast to the ongoing support from the federal government for the Trans Mountain expansion project, and the continued project review by the NEB, the B.C. government has indicated its concerns with and opposition to the project. The B.C. government is a party to ongoing appeals against the NEB project approval. Additionally, as we described in an earlier post, on January 30, 2018, the B.C. government announced that the province would introduce new regulations that will stop pipeline companies from increasing bitumen shipments. As highlighted in news reports (see here and here), a practical effect of any such regulations would be to stop the planned expansion of the Trans Mountain pipeline. This is made clear in statements by BC Environment Minister George Heyman.

The proposed regulations from the B.C. government would likely raise the question as to whether the B.C. government is acting within its constitutional authority. The fundamental question is around the province’s jurisdiction to impose environmental rules on interprovincial pipelines, especially where such rules amount to a denial of an approved project. This issue has previously arisen in relation to provincial environmental oversight of other pipeline projects in British Columbia (see prior posts here and here). In February 2018, the B.C. government indicated that it will bring a constitutional reference case on the question of whether it can impose regulations that would restrict the passage of bitumen through the province. It appears that this reference case has not yet been commenced.

As noted, the current uncertainty around whether the B.C. government might succeed in blocking or delaying the Trans Mountain expansion project has led Kinder Morgan to suspend project spending. In its announcement, Kinder Morgan indicates that: "A company cannot resolve differences between governments. While we have succeeded in all legal challenges to date, a company cannot litigate its way to an in-service pipeline amidst jurisdictional differences between governments.”

Kinder Morgan indicates it will continue to consult with stakeholders in an effort to reach agreements by May 31^st that may allow the project to proceed. According to Kinder Morgan, “the focus in those consultations will be on two principles: clarity on the path forward, particularly with respect to the ability to construct through BC; and, adequate protection of KML shareholders.”

This sets the stage for the federal government to respond, and set out how it will meet its commitment to ensure that the Trans Mountain expansion proceeds. To meet Kinder Morgan’s May 31^st deadline will require compromise and consent from the B.C. government. If that does not happen, and where the federal government takes steps to advance the project over the continued objections of the B.C. government, we can expect to see lengthy legal battles touching on interesting constitutional issues.