Pipeline giant Kinder Morgan (NYSE:KMI) Trans Mountain expansion plans have been in the headlines quite a bit in recent days. Approval seemed very likely after the Canadian Natural Resources Minister Jim Carr strongly indicated that the federal government supported the project. However, almost like clockwork, opposition to the pipeline has flared up.
Backlash against the Trans Mountain pipeline intensifies
While Canada's Prime Minister Justin Trudeau is widely considered to be in favor of the expansion, he is also starting to face challenges from members of his own party. Notably, Liberal MP Ron McKinnon took the rare step of speaking about the controversial issue noting "Governments give permits, communities give permission. And certainly, we don't have that from that community."
With the December 19 approval deadline fast approaching and the above mentioned favorable statements from key ministers, opposition to the Trans Mountain expansion has become newly galvanized. One of the leading pipeline critics, Vancouver Mayor Gregor Robertson, discussing the rising public opposition to the project, noted that "The temperature is already very hot on this," and "I think you'll see protests like you've never seen before on this one."
Indeed, recent protests against the pipeline were some of the largest since November 2014 when more than 100 people were arrested on Burnaby Mountain after they prevented crews from carrying out drilling and survey work related to the project.
Regardless of protests the pipeline is still very likely to be built
While the protests rage on, the Trans Mountain expansion is still likely to be built. The reasons for this are quite obvious. For starters, one of the main concerns raised by British Colombia has been addressed, namely via the national oil spill response plan. Kinder Morgan has also jumped through many of the environmental hoops and permitting challenges.
However, the main reason that the Trans Mountain expansion is likely to go through is simple economics. Canada is losing a ton of money since its oil is essentially trapped in North America. Outbound capacity from Alberta is extremely limited, resulting in huge discounts being applied to the production. This means lower revenues for both producers and lower tax revenues for the province. Getting more of the oil out of the oversupplied North American market is a must Canada's economic well being.
In addition, while the Trump victory in the US election opens the door for other pipelines such as the Keystone XL, only the Trans Mountain can bring Canadian oil into Asian markets. Lowering Canada's dependence on the US market is crucial while Asia, and especially China, also offer up much more demand growth.
While all signs point towards this project getting approved, it is interesting seeing how the company is being pulled through the political thicket in Canada. Nevertheless, at over 40% of the 2017+ capex budget, Kinder Morgan stands to benefit greatly once the Trans Mountain debate settles down after the final approval decision is made on December 19.
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Disclosure: I am/we are long KMI.
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