Federal Goverment's Kinder Morgan pipeline purchase

[jollyjacktar]

Is it good?  No.

Is it the disaster people are making it out to be?  No.

Not yet.  Maybe never, maybe it will be.  Too soon to call, not that it really matters as we've bought the cow now.

 

[Altair]

Not yet.  Maybe never, maybe it will be.  Too soon to call, not that it really matters as we've bought the cow now.

exactly. Nobody knows how this will turn out.

Could be the a great investment,  could be a multi billion dollar boondoggle,  I said that in my first post.

A lot seem to be taking the latter position.  I really didn't expect anything else. At least people can't say they are trying their best to kill it. They own it.

 

[jollyjacktar]

exactly. Nobody knows how this will turn out.

Could be the a great investment,  could be a multi billion dollar boondoggle,  I said that in my first post.

A lot seem to be taking the latter position.  I really didn't expect anything else. At least people can't say they are trying their best to kill it. They own it.

I would have wished it hadn't been nationalised as these affairs rarely come out well for the taxpayer.  But we've bought the cow now, hopfully her udders won't be dry or the milk sour.

 

[Remius]

I would have wished it hadn't been nationalised as these affairs rarely come out well for the taxpayer.  But we've bought the cow now, hopfully her udders won't be dry or the milk sour.

The national post shows a few of these types of things. 

http://nationalpost.com/news/politics/a-short-look-at-the-governments-long-history-of-investing-in-troubled-projects

Most of these actually turned out ok.

If the goal is to make sure it gets up and running and the government plans to let it go after then fine, let it happen. Just glad to see some sort of action on this.

 

[Edward Campbell]

There is a fairly long and, generally, favourable history of the sorts of public private partnerships (PPPs) that involve the public paying the up front capital costs to build, just for example, the Hong Kong and Singapore mass transit railway systems (subways) which are, arguably, the best in the world and infinitely superior in quality of service and profitability* to anything I have seen anywhere in Europe or America.

There is no way that the Hong Kong MTR could have been financed and built by the private sector ~ the land use issues alone would have made that impossible: public money and government power was needed (and used) to build the first lines. Once the system was up and running it was "sold" (at a fairly modest public offering) to a new, publicly traded company which, immediately sold shares on the HKX. Today the MTR Corp is one of the most important "widows and orphans" (safe) stocks and forms part of the base of almost every HK pension plan investment portfolio because it is well managed and consistently profitable.

As a general rule large infrastructure projects can be built by anyone, including governments, but managing an "enterprise" is, almost without fail, done 'better' by a private firm than by a government. The general rules of management and accounting that apply to public sector are designed, in large part, to ensure efficient, effective, transparent (to shareholders) operations; the same rules are not used, for very good reasons, by government where other drivers ~ beyond efficiency and productivity ~ are often most important.

If, and it's a HUGE IF, the feds can find suitable Canadian buyers for 'our' pipeline, ideally before they have to spend the $4.5 Billion that they're giving to KM ($1.2 B over appraised value I think I read somewhere?) and the guesstimated $7.5 Billion needed for the expansion, then we might see both a much needed pipeline expansion and a bit of a financial surplus ... if.

There are no economic reasons why this cannot work ... but there may be good reasons for Canadian entrepreneurs and investors to want nothing to do with this: fear of government actions. Look at Energy East, look at the fact that we are, simultaneously, expanding a pipeline to get (mostly) Alberta oil to tidewater and restricting tanker traffic in and out of Vancouver; why would a Canadian investor trust this government to make things work? Would you?

___
* Yes, both private subway companies make money for their shareholders, something that almost no public transit systems do in North America or Europe.

 

[Fishbone Jones]

So, if I have this right, the taxpayer builds the pipeline. Then, this government can sell it to recoup their costs.

Ì wonder if the PM has any friends that want to expand their oil business and then play monopoly with our supplies.

Ì wonder, if some opec country will buy it and shut off the taps in their own interest.

Why does this smell like the governments foray into PetroCan?

 

[daftandbarmy]

Why does this smell like the governments foray into PetroCan?

Because his Dad created PetroCan?

 

[Kirkhill]

Because his Dad created PetroCan?

From Petro Fina - which engaged his Grandad and in which his Grandma held shares?

 

[Colin Parkinson]

I think your judgement is clouded. In what world is a government owned pipeline good? How's all that government owned oil working for Venezuela? You even said months ago the easy solution was for 92(10) to be used and it would solve all these problems. Instead, the federal government now owns a political and financially risky billion dollar pipeline with legislation from their own party pushing for an oil tanker ban on the area for the outlet of said pipeline.

If Trudeau had used 92(10) months ago, I would have told you that it was a good call and we could move on with our day. In buying the pipeline, he tried to straddle the perfect middle road: delaying conflict with the environmentalists he courts for votes, and placating the party faithful that will claim he's moving an important economic project forward. I just can't wait for the Question Period where this whole mess is somehow the Harper government's fault.

Not the same, Venezuela nationalized with little payout for the infrastructure and started milking the industry for every dime to pay off their friends, eventually it collapsed. Owning a pipeline, does not meaning owning the product moving through it, the product owners pay the pipeline owner to move product through the pipe. It's unclear why Canada proposes to buy the existing pipe, unless Kinder Morgan sensed an opportunity to squeeze the government by saying "both or nothing" which I am guessing is what happened. The Libs are in such a pickle they took the offer instead of walking. It's also not clear how Canada intends to manage the existing pipe or oversee the construction of the new one. I suspect they have to form a Crown Corporation in a hurry to run it. All the contracts KM had, now need to be renegotiated and if Canada runs the pipeline directly, then a whole hosts of federal regulations kick in. Plus Canada will have to try to take over the existing IBA's with the FN's who may want to tack on more demands. Plus it means if there is a spill, Canada is on the hook for the cleanup and to pay out the losses of the product owners and since we are "self-insured" that means you and me.   

 

[Kirkhill]

Fortunately, we don't hear too much about this First Nations led effort to save BC & Canada from itself:

First Nations pipeline has a plan to get around B.C. oil tanker ban — an old gold-rush town in Alaska
http://business.financialpost.com/commodities/energy/first-nations-pipeline-has-a-plan-to-get-around-b-c-oil-tanker-ban-an-old-gold-rush-town-in-alaska

Going "right flanking". 

Over, under, around or through. 

 

[Fishbone Jones]

Because his Dad created PetroCan?

Rhetorical question. PetroCan, Petro Fina, Power Corp and the Laurentian Elites. Oil for food scandal. All grit business in foreign oil.

 

[Cloud Cover]

Here's another question:will oil run through this pipeline fetch below market price like the way it is right now in Cushing? I happen to agree that if the oil extracted is to be refined into a non-fuel product, such as a raw material for 3D printing in China, then what are we doing exporting it as a raw resource instead of a finished product. Just asking...

 

[Altair]

Here's another question:will oil run through this pipeline fetch below market price like the way it is right now in Cushing? I happen to agree that if the oil extracted is to be refined into a non-fuel product, such as a raw material for 3D printing in China, then what are we doing exporting it as a raw resource instead of a finished product. Just asking...

its a good question.

I think its a matter of capacity. North america is already near capacity whrnnit comes to refineries. Canada has less than 20, america 140ish. Hard to make a business deal saying that we need more refineries when some refineries are closing as it is.

So we would need to refine it for export.

But doing that would require to try to challenge asian refineries who can do it cheaper than we can,  especially BC with its environmental policies.

Add to that, its hard to refine the type of oil alberta exports,  heavy oil. Looking at added costs both in initial start up costs and long term.

So its easier to export it raw and let others refine it,  but at least sell it at market price than it is to refine it then try to butt into the Asian market.

 

[Cloud Cover]

OK, but what's the problem with refining it in Alberta and using it for our own market needs. The uses for oil as I'm sure you are well aware go far beyond fuel energy. It is THE primary strategic ingredient in hardware coverings, new building materials and other products from emerging  manufacturing technologies.
It is disheartening to see that this country continues to de-industrialize and cede that space to Asia and others when we could lead.
Really, why was this not part of the backup plan of the feds?

 

[Altair]

OK, but what's the problem with refining it in Alberta and using it for our own market needs. The uses for oil as I'm sure you are well aware go far beyond fuel energy. It is THE primary strategic ingredient in hardware coverings, new building materials and other products from emerging  manufacturing technologies.
It is disheartening to see that this country continues to de-industrialize and cede that space to Asia and others when we could lead.
Really, why was this not part of the backup plan of the feds?

the Canadian praries are largely self sufficient. Alberta already supplies the needs of BC,  itself,  Saskatchewan,  and Manitoba,  although I think some of this is refined in the states.

There isn't much of a business case for refining any more oil in Canada for Canadians,  except in the central provinces. Energy east would have done the job,  but quebec,  and to some extent ontario didn't want the project.

The fact of the matter is that western Canada refines more oil that it needs as it is.  The rest must be exported.

 

[Colin Parkinson]

Actually no, BC has to import refined product, we have one 56,000bpd and one 26,000bpd refineries, not only do we have to import refined product, we also have to import feedstock from the US. Ironically a portion of the feedstock in the existing KM line is apparently diverted to the US, instead of Canada.

 

[Altair]

Actually no, BC has to import refined product, we have one 56,000bpd and one 26,000bpd refineries, not only do we have to import refined product, we also have to import feedstock from the US. Ironically a portion of the feedstock in the existing KM line is apparently diverted to the US, instead of Canada.

http://nationalpost.com/news/canada/tristin-hopper-why-canada-shouldnt-refine-the-oil-it-exports

Some food for thought.

Canada already exports more refined products than it imports
In December 2017, Canada imported 1.4 million cubic metres of refined products while exporting 2.4 million cubic metres — meaning that Americans are burning way more of our gasoline than we’re burning of theirs. It may seem strange that Canada is simultaneously importing and exporting refined products, but keep in mind that we are essentially a one-dimensional country splayed along a 6,400 kilometre border with the United States; gas stations in Thunder Bay are generally going to have an easier time getting their fuel from Minnesota rather than Alberta. Either way, Canada’s relatively robust export market should make it clear that we have absolutely no problem refining our own oil when it is profitable to do so. As the points below will note, it’s the “profitable” part of the equation that’s the tricky part.

Even the refineries we already have aren’t running full tilt. In 2017 Canada’s refineries only ran at 84 per cent capacity, according to the National Energy Board. The story is a bit different in Alberta, where refinery utilization impressively topped 101.5 per cent in 2017 — but that still means eastern refineries are sitting on their hands up to one fifth of the time. There’s even some wiggle room in U.S. refineries, who worked at only 91 per cent capacity in 2017. It’s for this reason that Husky Energy CEO Rob Peabody said last month that North America is effectively maxed out on refineries. What’s more needed, he said, are new pipelines to connect Alberta’s oil with some of the continent’s more underused refineries.

Last year, Canada exported $67 billion in oil. As with prior years, most of that exported oil ended up in the United States. Pretend that, tomorrow, Canada shut off all its oil exports and informed the Americans that if they wanted our petroleum, they’d have to start ponying up for some made-in-Canada gas, diesel and kerosene. The likely result is that U.S. oil importers would give us a blank look before immediately calling one of the hundreds of other places that could sell them crude oil instead. “They’re not going to idle all of their refining capacity to suit Canada’s needs, they’re going to do what’s best for them, which is to continue to run their refineries,” said Jason Parent with Kent Group, a leading Canadian oil industry analyst. One major problem is that Canada has a pretty hard time making gasoline cheaper than anyone else. The United States is the world’s most prolific refiner of oil — and most of its refineries are already paid off. China benefits from a one-two punch of lower labour costs and lax environmental standards. Against those odds, there are only so many ways in which a brand-new Canadian refinery could expect to make competitively priced diesel and gas.

Generally, it makes sense to refine close to market
A refinery is a bit like a brewery: You can put it anywhere. Alaska is famous for its beer, and yet the barley and hops to make it is almost exclusively imported from abroad. Similarly, Japan’s coast is littered with refineries despite the country not having a single domestic oil well. There are a couple reasons for this. First off, refined products expire: From the time it comes out of the refinery, a litre of gasoline can have as little as a few months before it goes stale. Secondly, every market decides to use its petroleum differently. For instance, about half of the transportation fuels burned in Europe are diesel, while in the U.S. it’s as low as three per cent. The advantage of selling crude oil is that it can be sold to anyone, anywhere and at anytime. Once it gets refined, however, it turns into a perishable product with a much narrower group of people willing to buy it. Think of oil like lentils. Canada is the world’s largest exporter of lentils, and most of those leave our borders in their rawest possible state as dried, split grains. Canada could try “value-adding” those grains by insisting that they be processed into Bavarian lentil soup before export — but that’s going to be a problem if an Indian freighter pulls up looking for dal ingredients.

 

[Colin Parkinson]

Our big refinery had to close recently for a 2 month upgrade, that drove the price up here by around 10cents a litre, there has been a persistent diesel shortage, now slightly eased by BC Ferries going to Natural Gas. All the refined product for anywhere north of Vancouver has to come from the US or Alberta, the refinery in PG meets the local need.

 

[daftandbarmy]

Our big refinery had to close recently for a 2 month upgrade, that drove the price up here by around 10cents a litre, there has been a persistent diesel shortage, now slightly eased by BC Ferries going to Natural Gas. All the refined product for anywhere north of Vancouver has to come from the US or Alberta, the refinery in PG meets the local need.

The great pipeline debate: Why isn’t more oil refined in B.C.?


About half of the refined products B.C. uses travel from Alberta: 50,000 bbls/d via the existing Trans Mountain line and a similar amount by rail and truck, the fuels association says.

The rest, 30,000 bbls/d, including biofuels, comes from beyond Canada’s borders, mostly from Washington state’s five refineries. There are four within 60 kilometres of Victoria — the Phillips 66 refinery at Ferndale, near Bellingham, the nearby BP refinery at Cherry Point, and the Shell and Tesoro refineries at Anacortes — with a combined capacity of 590,000 bbls/d.

Note that none of the product from Washington’s refineries is shipped overseas; almost 90 per cent is sold in the U.S., the rest in Canada. Also note that just over half the product travelling through the existing 300,000 bbl/d Trans Mountain pipe is crude that gets diverted to the Washington refineries via the Puget Sound spur line from Sumas. Effectively, they’re buying our oil and selling it back, refined, at a premium.

http://www.jwnenergy.com/article/2018/4/great-pipeline-debate-why-isnt-more-oil-refined-bc/

 

[Brad Sallows]

It's a hard sell to convince the clamouring classes in BC to accept more pipeline capacity.  Good luck finding a place to park a refinery close to markets in the lower mainland.