Some People Haven't Done Their Homework

If Justin Trudeau is to be believed, the Canadian government is going to take an equity stake in Kinder Morgan's Trans Mountain Pipeline. Andrew Nikiforuk suggests that we should take a good look at Kinder-Morgan's history and balance sheet before making any such investment:

Kinder Morgan, which runs what founder and Texas billionaire Richard Kinder calls an “unsexy, dirty business,” started off as an offshoot of the U.S. corporate giant Enron in 1996. That’s when a pair of senior Enron executives, Richard Kinder and Bill Morgan, joined up to purchase a couple of pipelines from Enron. Kinder and Morgan parlayed that investment into a North American pipeline empire while Enron collapsed in a spectacular fraud scandal in 2001.

To this day Kinder rarely speaks about the Enron scandal even though Kinder Morgan’s senior management team includes many prominent Enron executives, including Jordan Mintz and Steve Kean.

Kinder-Morgan's balance sheet looks about as healthy as Enron's:

The company has been in the financial doldrums for years due to poor earnings (the smallest dividend yields in the industry) and high debt.

Originally structured as a master limited partnership, which doesn’t pay corporate taxes, the company restructured in 2014 and became a corporation. In recent years master limited partnerships have been big money losers “as the energy crash has exposed earlier excesses in terms of leverage and bad investments,” explained a recent article in Bloomberg.

Due to high debt levels ($37 billion, or nearly a third of the value of the company) and low oil prices, the company has lost half of its stock value since 2015. Analysts credit the company’s poor stock performance to “poor business execution and way too much debt.”

On top of that, the company's legal and environmental record is appalling:

Kinder Morgan has a long and detailed record of violating both environmental and financial laws resulting in penalties of $162 million since 2000 in the United States. Key offences include environmental violations ($119 million) such as pipeline spills and explosions, energy market manipulation ($20 million fine), pipeline safety violations and repeated labour violations. In 2011 the U.S. Department of Labor sued Kinder Morgan for underpaying nearly 4,600 workers for overtime for at least two years. The company resolved the lawsuit by paying out $830,000 in back wages.

And we're thinking of investing billions in this white elephant? Some people haven't done their homework.

Image: Last Real Indians

What They're Trying To Do

In the wake of the stand off over the Kinder-Morgan pipeline, Paul Krugman provides some important economic insights:

Not that long ago, calls for a move to wind and solar power were widely perceived as impractical if not hippie-dippy silly. Some of that contempt lingers; my sense is that many politicians and some businesspeople still think of renewable energy as marginal, still imagine that real men burn stuff and serious people focus on good old-fashioned fossil fuels.

But the truth is nearly the opposite, certainly when it comes to electricity generation. Believers in the primacy of fossil fuels, coal in particular, are now technological dead-enders; they, not foolish leftists, are our modern Luddites. Unfortunately, they can still do a lot of damage.

As recently as 2010, it still consistently cost more to generate electricity from sun and wind than from fossil fuels. But that gap has already been eliminated, and this is just the beginning. Widespread use of renewable energy is still a new thing, which means that even without major technological breakthroughs we can expect to see big further cost reductions as industries move “down the learning curve” — that is, find better and cheaper ways to operate as they accumulate experience.

Recently David Roberts at Vox.com offered a very good example: wind turbines. Windmills have been around for more than a thousand years, and they’ve been used to generate electricity since the late 19th century. But making turbines really efficient requires making them very big and tall — tall enough to exploit the faster, steadier winds that blow at higher altitudes.

And that’s what businesses are learning to do, via a series of incremental improvements — better design, better materials, better locations (offshore is where it’s at). So what we’ll be seeing in a few years will be 850-foot turbines that totally out compete fossil fuels on cost.

In the United States, the fossil fuel industry owns the Republican Party. In Canada, that industry has invested in both the Conservative and Liberal Parties. The smart money knows that it can't stop the transition to renewable energy. But it can slow it down.

And that's exactly what it's trying to do.

Image: National Observer

A Dark Future

Yesterday's meeting between Justin Trudeau, John Horgan and Rachel Notley does not bode well for the future. Michael Harris writes:

Whatever side you take on Kinder Morgan’s plan to triple its pipeline capacity from Alberta through B.C. to tidewater, a bomb is about to go off in Canadian politics.

There will be plenty of shrapnel to go around: Trudeau, Rachel Notley, Jagmeet Singh, John Horgan and a slew of other federal and provincial candidates are all in the blast zone. But the question is who, if anyone, will be fatally wounded?

The leader most damaged by this stand off will be Rachel Notley:

Despite the brave face in Ottawa Sunday, the drowning politician of the group is Alberta Premier Rachel Notley. Facing an election against a united right under Jason Kenney, she is desperately clutching at anything to show that she is the greatest petro-politician Albertans could ever hope to find. In the process, she is making Ralph Klein look like a tree-hugger.

From threatening to cut off British Columbia’s supply of oil, to musing about buying the entire Kinder Morgan project with taxpayer’s money, Notley has jettisoned crucial parts of the NDP’s policy mantra in the name of surviving Kenney’s political resurrection.

There is a reason for Notley’s mania to get Trans Mountain in place now. Simply, there may not be a tomorrow. If, as expected, demand for oil peaks in the next decade because of rapidly falling prices for clean energy options, Alberta could be saddled with vast reserves of unsellable oil. There is a shrinking window of opportunity and Notley is trying to get through it before it closes. In a nutshell, there is more bitumen than there is time to sell it.

Notley finds herself sitting on a resource that will soon be obsolete. She did not greenlight the massive investment in the Tar Sands. It was Klein who spearheaded that operation. Peter Lougheed, with his Harvard MBA, knew that the Tar Sands was a money pit. He refused to stake Alberta's future on bitumen.

But, now that Alberta has made that black goo its lifeblood, the future looks increasingly dark.

Image: Newsroom

The Law And Wisdom

Tom Walkom writes that, when it comes to the Trans Mountain pipeline, the Trudeau government has the law and the constitution on its side:

The proposed Trans Mountain heavy-oil pipeline from Alberta to the Pacific coast has law, economics and the Constitution on its side.

It has been approved by the National Energy Board and okayed by the federal government which, under the constitution, has the ultimate authority in such matters.

First Nations along the right of way may not all agree. But they have been consulted, which is all that the law demands.

The project would boost Alberta’s economy and, by opening up new energy markets in Asia, reduce Canada’s unhealthy reliance on the U.S.

Barring one thing, it is a no-brainer.

But that one thing is the planet:

While the oilsands accounted for just under 10 per cent of Canada’s greenhouse gases in 2014, they are the fastest growing source of carbon emissions in the country.

In climate terms, the most sensible course of action would be to gradually shut the oilsands down. Thanks to the growth of cheaper forms of energy, they are already headed in that direction. It wouldn’t take much of a nudge to finish the job.

Economically, the Tar Sands' days are numbered. When oil was selling for $100 a barrel goo from northern Alberta was pulling in a healthy profit. The break even point for a barrel of bitumen was somewhere in the $70 range. But nobody is making any money when oil is selling for $65 a barrel. And, with new green sources of energy coming on line, that price will go down. That's why -- with an eye to the future -- Royal Dutch Shell sold off its Tar Sands operations several years ago.

Wisdom -- with an eye to the future -- would shut down the pipeline. But the law could keep it going. Sometimes, the law and wisdom are on opposing sides of the argument.

Image: The Economist

What They Don't Want But Need

The standoff between Alberta and British Columbia has put Justin Trudeau in a bind. But he put himself in that bind before the governments of the two provinces decided to go to war over the Kinder-Morgan pipeline. Trudeau argued that pipelines could be built if Canadians paid a carbon tax. Tom Walkom writes:

Notley brought in a carbon tax. Trudeau approved Kinder Morgan. This was supposed to be the model of how measures to reduce greenhouse gases could coexist with economic growth.

The bargain didn’t work. In part, this was because opposition to Kinder Morgan was based on more than climate change. But in part it was because the premise behind the bargain was false.

Seriously battling climate change does carry a cost. True, ignoring climate change carries a greater cost. But it is naïve to think that the transition away from a high-carbon world will be painless.

The rub is that Canadians don't want to pay the real cost of kicking carbon:

The Trudeau government announced a national carbon tax to reduce emissions. But experts say that the tax as planned is far too low to get the job done — that it won’t discourage Canadians from high-emission activities, such as driving gasoline-powered cars.

The federal government tabled its formal carbon tax bill last month. But here too it backtracked, allowing big breaks for large industrial emitters.

The government’s caution is understandable. Fighting climate change carries a political as well as an economic cost.

But if climate change is as dangerous as scientists say, then boldness is required. Compromises, like the one behind the ongoing Kinder Morgan political soap opera, just don’t cut it.

And Mr. Trudeau refuses to tell Canadians what they may not want but need to know.

Image: The Tyee