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.
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