CALGARY – The suspension of work on Kinder Morgan Canada Ltd.’s Trans Mountain pipeline expansion project will have a “chilling” effect on overall investment in Canada, industry observers say.
“Any slowdown or uncertainty regarding a pipeline is clearly a major factor impacting business investment in the energy space,” CIBC deputy chief economist Benjamin Tal said in an interview on Monday.
“Energy investment is a very important part of total investment in Canada especially when it comes to rate of growth. To the extent that we see some uncertainty there, it can have a macro impact.”
Shares in Kinder Morgan Canada were down about 10 per cent at $16.61, a day after it announced it was suspending all non-essential construction on the project.
The move came as the TSX/S&P Capped Energy Index, which tracks Canada’s largest oil and gas industry members, was up slightly on news of rising oil prices.
The pipeline company said it plans to consult with stakeholders to try to find clarity on the viability of its $7.4-billion project in view of continuing government opposition in B.C., setting a deadline of May 31 to reach a deal or consider cancelling the project.
The warning ups the stakes, but shouldn’t come as a surprise to those who have watched the company’s five-year struggle to win approval and build the pipeline, said analysts at Desjardins Capital Markets in a report on Monday.
“The bottom line is that the future of the TMX project remains cloudy, and yesterday’s announcement is only likely to further entrench opposition activists by providing a calendar target,” the report says.
It added that Alberta Premier Rachel Notley’s declaration that her province is prepared to invest in the project is comforting and suggests that the project might survive the company’s deadline.
Greenpeace campaigner Keith Stewart called the May 31 deadline a power play by Kinder Morgan, whose securities filings show that the B.C. government’s opposition is only one of many obstacles.
“Bad projects are bad projects, so if this redirects investment toward good projects that contribute to Indigenous reconciliation and meeting our climate commitments, then that’s a net benefit,” Stewart wrote in an email.
In a statement, the Canadian Energy Pipeline Association said uncertainties created by those “who seek to subvert the rule of law” undermine Canada’s ability to attract capital to grow the economy and provide jobs for Canadians.
Business investment in Canada is being diverted to the United States, Royal Bank CEO Dave McKay warned recently. He said the investment exodus is already underway, especially in the energy and clean-technology sectors, due to Ottawa’s lack of response to a U.S. tax overhaul.
In a report in February, Scotiabank said delayed construction of pipelines including the Trans Mountain expansion, Enbridge’s Line 3 replacement and TransCanada’s Keystone XL is causing discounts for Canadian crude prices that are costing the economy roughly $15.6 billion a year, with the impact expected to moderate as more rail shipping capacity comes on line this year.
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