Trudeau's oil pipeline gamble faces major test in court ruling

VANCOUVER and CALGARY (Bloomberg) -- The Trans Mountain pipeline, which Justin Trudeau’s government is purchasing from Kinder Morgan, faces a major test on Thursday as a court decides if the conduit’s long-awaited expansion can advance or gets delayed for years.

Canada’s Federal Court of Appeal is scheduled to decide on a legal challenge brought by First Nations, the City of Vancouver and others, who say they weren’t adequately consulted on the National Energy Board’s approval of the project. The judgment will be announced in Ottawa.

The possible outcomes range from the court dismissing the case outright to the court siding with the plaintiffs and forcing the government to redo its consultations, meaning the restart of at least an 18-month process, said Gordon Christie, an expert on aboriginal law at the University of British Columbia in Vancouver. More likely it will be something in between where the court finds the government failed on some aspects.

Still, the court doesn’t have the ability to quash the project outright -- if any deficiencies are found, the federal government can address them, then proceed to build the pipeline.

“At the end of the day, that doesn’t necessarily mean the project’s dead -- it just means a significant delay,” said Christie. “I think it’s going to continue even if the government doesn’t get a good ruling.”

British Columbia Premier John Horgan’s office, in an emailed response to questions, declined to comment beyond saying that it’s watching the decision.

Shareholder Vote

Shareholders of Kinder Morgan Canada, the unit that owns the pipeline, are scheduled to vote on the C$4.5 billion ($3.5 billion) sale to the Canadian government on Thursday, about half an hour after the court issues its ruling. Investors are almost certain to approve the transaction, said Laura Lau, who manages about C$1.6 billion at Brompton Corp., which holds Kinder Canada shares in some of its funds.

“It feels like a done deal, and right now the question is more what are they going to do with the money,” Lau said. Kinder Canada has said it’s considering various options for the cash from the sale, including buying back shares, paying a special dividend or funding acquisitions.

The Trans Mountain expansion has been seen as a key project for Canada’s oil-sands producers, who have suffered through lower relative prices for their crude due mainly to a lack of pipelines. The project would nearly triple the capacity of the six-decade old line, helping carry almost 600,000 more bbl of oil and fuels a day to the Pacific Coast, where they could be loaded onto tankers and shipped to markets in Asia.

Tanker Traffic

Opponents of the project argue that the energy regulator failed to adequately review its risks and that the federal government neglected to consult properly with indigenous groups. Their concerns include an expected sevenfold increase in tanker traffic and the risk of a catastrophic spill. British Columbia’s new government vowed to use every tool available to it to thwart the project when elected last year.

When the sale to the government goes through, the continued opposition and court cases will no longer be a concern for Kinder investors, said Paul Bloom, president of Bloom Investment Counsel Inc. in Toronto. Still, Bloom intends to continue following the saga.

“As a Canadian, I’m interested in the appeal outcome and whether the feds might have bought a pig in a poke,” Bloom said.