Categories: Alberta NewsAnalysisB.C. NewsBusinessOpinionPolitics

No Premier Notley, Alberta Won’t Buy The Trans Mountain Pipeline

The ongoing battle over Kinder Morgan’s plans to twin the Trans Mountain Pipeline has reached the level of tragic farce.

Canada’s two NDP Premiers appear to be consciously trying to show who among them is more clueless about basic economics.

Alberta Premier Rachel Notley moved completely into the realm of socialist fantasyland with the ludicrous claim that she is looking at an outright government purchase of the Trans Mountain Pipeline.

No Clue About the Costs of A Project of this Nature

The NDP government are showing just how out of their depth they are in the basic fundamentals of economics with their outrageous claims.

As a CPA I am confident the following estimates of the total costs provides readers with a much more rigorous financial analysis than anything that was conducted to accompany Notley’s announcement.

The most recent estimate of the total costs for the Trans Mountain expansion is $7.6 billion, despite the $7.4 billion figure that accompanies the reporting on Notley’s announcement. Of the $7.6 billion total project costs, Kinder Morgan has already spent $1.1 billion. The Alberta government would have to spend $6.5 billion in additional cash to complete the project.

Buying More Than the Expanded Pipeline

There is no business case for Kinder Morgan to sell just the expansion project. No corporation acting in the best interest of their shareholders would sell the upgraded pipeline while continuing to operate the older pipeline with half the capacity. The only rational step for Kinder Morgan to take if the Alberta government wanted to enter into negotiations would be to buy all of the assets of Kinder Morgan Canada Limited (TSX:KML).

The scope of the assets involved in such a purchase is staggering.

In addition to Trans Mountain, KML operates the Canadian portions of the Cochin pipeline that originates in Fort Saskatchewan, just east of Edmonton. Cochin heads southeast through Saskatchewan and six U.S. states before terminating in Windsor. KML operates the Trans Mountain jet fuel pipeline to the Vancouver Airport and the Puget Sound pipeline to terminals in the Seattle area.  The network of KML’s terminals would be included in this sale.

KML’s current market capitalization is $5.6 billion. The valuation of the company has been depressed because of the ongoing regulatory struggles with the Trans Mountain approval process. A very conservative estimate of the cost to the Alberta government to purchase KML would be $6.5 billion. The share price of KML would undoubtedly rise if the Government of Alberta and Kinder Morgan entered into formal negotiations of for a sale of KML.

That valuation is truly conservative and could be much higher.

While Alberta Party MLA Rick Fraser rightly stated that the Alberta government has no idea about the full cost of a potential purchase.

The Numbers Make No Sense

Combining the costs of acquiring assets and construction costs to be incurred the most conservative estimate of the total costs of Alberta completing the Trans Mountain expansion is a staggering $13 billion.

This figure includes conservative estimates of $6.5 billion to complete the project and $6.5 billion to purchase KML.

To put this number in perspective the total financial assets of the Government of Alberta as at March 31, 2017, was $66.3 billion.

Notley cannot seriously believe her government would be prudent in completing a purchase for the sake of a single project that would be equal to approximately 20% of the provinces total financial assets.

What do you think? Let us know below!

Burt Schoeppe

Burt is a dedicated CPA based in Edmonton. When not at work assessing financial competencies he can be found cheering for the Oilers or the Redskins. In terms of the economy, he advocates for fiscal responsibility at all levels of government.

Comments

  • Act shocked, now! The original Keystone pipeline has spilled 407,000 gallons in South Dakota. It’s twice as big as what TransCanada originally told regulators, and it’s now the seventh largest onshore oil spill since 2010.

    The only pipelines that don’t spill are the ones that are never built in the first place. That’s why the climate community has united against the Trans Mountain expansion.

    There is no business case that make sense for our children future.

    • How clueless are you? What do you think your "children's" lives would be like w/o fossil fuels.

  • Get off your petroleum product computer edgemaster. The hypocrisy of the lunatics is beyond disgusting. And why, please tell us all is this one TWINNING of an already existing pipeline the lightning rod for all of the radicals? Amazing how TIDES, Sierra Club and LEADNOW outright interfered in our last election, are known for sending money north of the border to pay the usual "protesters" , while south of the border they are amping up the resource sector. Wake up fools, you are being played. And as for Trudeau FINALLY pretending to do something, I hope he pays dearly in 2019 for sitting on the fence while 2 provinces were at each others throats. And for the record, I am from BC, we are not all imbeciles, many of us are FOR the pipeline and many more. I feel bad, mad and sad for Alberta, they seem to have become the the rest of the country's go to place to bully, undermine and outright abuse.

  • What I don't understand is that if this pipeline is so vital to Canadian interests, why does an American company own it in the first place. If the pipeline was operated by a Canadian company there should be a much larger economic benefit to the Canadian economy over the long-term. Kinder Morgan is a US corp run by many ex Enron executives, and they take most of their profits outside of Canada and pay low taxes to boot. Here is a great article on the inner workings of Kinder Morgan and the pipeline: https://thetyee.ca/Opinion/2015/01/12/Trans-Mountain-Texas-Profits/

  • Xuamox. why is Kinder Morgan a USA company in Canada because the USA are the leaders in the Industry. They have the investment dollars to build pipelines. The big dollars ever invested in the industry has always been USA dollars. This is not unlike most of the large companies in Canada (regardless of the industry) and most large investments. This is one of the dumbest questions asked in a long while. Put your money up if you can match Kinder Morgan. Please take an Economics in Life 101 course before your next comment on how the economics of Canada should be run.

  • Bert Schoeppe, since when has going in debt frightened the NDP? 20 billion in extra debt has never frightened any politician.

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