Wednesday, May 30, 2018

They Got Snookered

For years to come, the Liberal government's purchase of Kinder-Morgan will be used in business schools to illustrate deeply flawed decision making. What the Liberals did yesterday was simply bad business. Andrew Nikiforuk writes:

Let’s parse the fantastic numbers, because they will affect all of us.
The $4.5-billion purchase price only buys a leaking 65-year-old pipeline, an aging tanker farm not built to withstand earthquakes, and a port facility as well as engineering plans and permits for the twinning of a high-risk expansion project.
In 2007, Kinder Morgan reported to the National Energy Board that it valued the Trans Mountain pipeline system at $550 million.
Let’s repeat that fact: the federal government will pay $4.5 billion for an old and compromised tanker and pipeline system that the company valued at $550 million in 2007.

That $4.5 billion could have been spent more wisely -- much more wisely:

Alberta’s tarry bitumen, which will always sell at a discount due to its poor quality, can’t move through a pipeline without being diluted with costly imported light oils or fracked natural gas liquids from B.C. or the United States.
It takes a third of a barrel of imported light oil to move one barrel of bitumen through a pipeline.
The more raw bitumen Alberta mines, the more pipelines it needs and the more diluent it must import to move that raw bitumen.
Alberta now produces about 2.3 million barrels of raw bitumen a day but only 40 per cent is actually upgraded or refined into easily pipeable products such as synthetic crude, gasoline or jet fuel.
If the federal government took just $9 billion from its proposed $20-billion bailout for Kinder Morgan, it could fund three partial upgraders in Alberta capable of upgrading 300,000 barrels of bitumen a day.

And, then there is the cost of twinning the pipeline, and insuring against spills. In the end, economist Robyn Allan estimates that the total cost of purchasing Kinder-Morgan will be between $15 billion and $20 billion.

That's simply bad business. Trudeau and Co. got snookered.

Image: Funny For


the salamander said...

.. I need to digest the indigestible here
Will get back to you.. after ingestion
Not sure I can do so.. ingest..

rumleyfips said...

I oppose the new pipeline but find your post misleading. You failed to include income from transportation contracts. Value assessment is useless if an important component is hidden.

Omitting facts to confuse people is a Right Wing Nut Job ploy that harms us.

the salamander said...

.. aside from being aghast..
Any Canadian should get informed
then ask what the motive is behind Trudeau's move

'Canada' is not buying Kinder Morgan's stuff
Its Canadians, (taxpayers) who without consultation, are..

Is this a feeble attempt at a 'Nation Building' fable ?

You are not Canada mr Trudeau
you are simply a most senior public servant
and your Liberal Party reminds of Stephen Harper

So mr Trudeau.. who are you servicing ?
Last I looked, we were doing OK
without Trans Mountain expansion/twinning..
or fracking Alberta and BC
so what is the quid pro quo.. follow the votes
follow the donations to captured government

It stinks of 'sellout' just as Stephen Harper stunk
and here come the garbage man Kenney
and Andrew Scheer - always the contrarians
They can bend & twist this stuff into pretzel 'logic'

And Mainstream Media will suck it up as 'news'
Just as they are hunters/seekers of polls
as if they are 'news' .. not paid propaganda

Owen Gray said...

Tar Sands oil is barely economical now, sal. As cheaper forms of energy come online, the stuff form Northern Alberta will be price out of the market.

Anonymous said...

Au contraire, mon ami. For years to come business schools will be using this as a case study in how to turn lemons into lemonade. It's the schools of public administration that'll be using it as a new baseline in poor decision-making and misuse of public funds.


Owen Gray said...

That's a fair criticism, rumley. In fact, former Parliamentary Budget officer Kevin Page believes that, if oil prices remain high, the pipeline will make money. However, as new sources of energy come online, the demand for bitumen will fall. Without product to transport, the income from those fees will also fall.

I have purposely avoided arguing the environmental case -- which I believe is stronger than the economic case. But the ongoing economic case against Tar Sands oil is pretty clear.

Lorne said...

All I can think of as I survey this mess, Owen, is the old Conservative attack ads in the last election, which posited that Trudeau was not ready to govern. Time seems to have borne out that assessment.

Owen Gray said...

I'd like to publish your comment, Anon. But it needs to be initialled.

Owen Gray said...

True, Cap. Milton Friedman said that the best way to implement his agenda was to create a crisis and then take advantage of it. Kinder Morgan did just that.

Owen Gray said...

I'm begiining to have the same thoughts, Lorne. Justin has been played -- and rather expertly at that.

The Mound of Sound said...

The lines have now been drawn and the fight, if there is to be one, can proceed. CSIS, that was formerly working for Kinder Morgan to identify and monitor dissent, will now come back in-house. I'm no student of civil disobedience but the opposition is multi-layered and now has not some sketchy Texas pipeline company but the government of Canada as its enemy and I use "enemy" quite deliberately. The state has turned on the people most imperiled by this pipeline, breaking many solemn promises that were once taken at face value but were ultimately worthless.

Trudeau has put a match to a fuse he may not be able to extinguish. I have decided that were I to learn of some non-violent effort to sabotage this pipeline or its infrastructure, I would do nothing to interfere.

Owen Gray said...

I read that the courts will not stop the pipeline, Mound. So the only option left is public pressure -- lots of it.

the salamander said...

.. there is another option, Owen
Its First Nations in the forest
and people like me joining them
Yes.. civil disobedience
in the face of public servant disobedience..
and who us actually disobedient ?
Who is actually acting for the public good ?
Who actually understands the public good ?
Who actually cares about the public good?

When elected government belly flops
the real deal Canadians show up
& First Nations always lead the way..

Owen Gray said...

I suspect, sal, that -- politically -- it's going to be a long, hot summer.

the salamander said...

.. in the forest ..

Owen Gray said...

They knew how to find their way out of the forst, sal. We just get lost.