Houston —
A Canadian court Thursday rejected government approvals for a 590,000 b/d expansion of the Trans Mountain pipeline, which according to a development analyst and traders has the potential to set the already delayed project back to more than a year.

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The Federal Court of Appeal said the National Energy Board’s assessment of the project was flawed and failed to consult Indigenous people. The decision said the court would quash a previous approval from November 2016 and remit the matter back to the Governor in Council so that the problems could be addressed.

Tudor, Pickering, Holt analyst Matt Murphy said Thursday the development was “not a knockout blow” for the Trans Mountain expansion, but that it could result in delays of more than 12 months. Murphy said the expansion had been expected to come online in the first half of 2021 but the construction has been delayed due to legal problems.

The developments “could keep Canadian egress challenged for some time,” Murphy said.

Another analyst at a Canadian investment bank who asked not to be named said the development would could push the project back for another nine to 14 months as the government conducts more environmental reviews.

“The bottom line is that it has already being delayed by years and years and this is not going to make it faster,” the analyst said. “We need pipe in the ground like yesterday.”

NEB spokesman James Stevenson said Thursday the agency would issue a brief statement on the ruling later today and then would “take the time we need to properly review the decision before we comment further.”

Kinder Morgan’s expansion of its Trans Mountain pipeline is one of three new pipelines Western Canadian producers are counting on to boost their ability to export crude. The Canadian government said in late May it will buy Kinder Morgan’s 300,000 b/d pipeline and 590,000 b/d expansion project for $3.5 billion.

The other expected projects are Calgary-based Enbridge’s Line 3 replacement and the 830,000 b/d Keystone XL pipeline of TransCanada. The Line 3 replacement is expected in the second half of 2019 and would increase capacity to 760,000 b/d from 380,000 b/d.

Trans Mountain is seen as key to exporting crude from the oil sands to Asia through the Westridge export terminal in Burnaby, British Columbia. The expansion was originally scheduled to start up in December 2020.

Market participants said Thursday that the court decision amounted to another setback to exporting heavy crude amid record inventories.

“It does make you wonder why anyone would want to do business here,” one crude trader said.

Western Canadian Select at Hardisty, Alberta, was last assessed at NYMEX WTI CMA minus $26.50/b, up from an almost five-yearlow of minus $31.25/b earlier this month.

–Pat Harrington, patrick.harrington@spglobal.com

–Edited by Pankti Mehta, pankti.mehta1@spglobal.com

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