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Canadian government considers financial backstop for Trans Mountain oil project

Canada's government is prepared to give Kinder Morgan Inc. a financial backstop if British Columbia delays the C$7.4 billion Trans Mountain oil pipeline expansion project.

About two weeks before a company-set May 31 deadline for Canada's various levels of governments to agree to stop efforts to stymie the expansion, Canadian Finance Minister Bill Morneau said his government is working diligently to remove "the politically motivated investment risk" associated with the project.

In an Ottawa press conference May 16, Morneau declined to give details of his government's negotiations with the Houston-based Kinder Morgan but blasted British Columbia Premier John Horgan and his New Democratic Party's attempts to stop the project with court challenges and permitting delays. Canada's federal government is prepared "to indemnify the project against any financial loss derived from Premier Horgan's attempts to delay or obstruct the project," Morneau said. "This indemnification would allow Kinder Morgan to finish what they started, what they received federal and B.C. approval to do."

Kinder Morgan Canada Ltd. wants to boost the capacity of the Trans Mountain pipeline to 890,000 barrels per day from 300,000 bbl/d to allow exports of oil sands bitumen from a port on Canada's west coast. Horgan's government is a coalition of left-leaning parties that was elected in 2017, after the expansion had already been approved.

While interprovincial pipelines fall under the jurisdiction of the federal government, the British Columbia government has launched a so-called reference case in provincial court to test its authority to limit shipping of oil sands crude within its boundaries. The federal government could ask the Supreme Court of Canada to validate its constitutional authority over pipelines, a process that could take up to a year. Kinder Morgan said in April that it would stop most work on the line until the governments resolve their differences, setting the May 31 deadline.

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"Premier Horgan's stated intentions are to do whatever it takes to stop the project, which is unconstitutional in its very purpose," Morneau said. "These are challenges that frankly put the livelihood of thousands of Canadians and their families at risk."

The Trans Mountain expansion received federal approval in 2016 after one of the most exhaustive regulatory reviews in Canada's history. In addition to the normal regulatory process, the project was subjected to extended consultations to consider environmental and First Nations impacts. By allowing increased exports of Canadian heavy oil, producers expect to receive better prices than they get from U.S. buyers.

"We believe in this project. We believe that it's in the best interests of Canada and Canadians to get this project built," Morneau said. "It means thousands of good, well-paying jobs for Canadians. It means greater investor confidence and a fairer price for our natural resources, and it's clear that we have the jurisdictional authority to insure that it's completed."