Risky business: Trans Mountain twist pits shareholders against taxpayers

Judging from the company's annual report, being a Kinder Morgan Canada shareholder can require nerves of steel.

The document — filed in February with the U.S. Securities and Exchange Commission — lists 22 pages worth of "Risks Relating to Our Business" that include every potential pipeline threat short of a full-on zombie apocalypse.

Change in government. Negative public opinion. Successful cyberattack.

So how did B.C. Premier John Horgan and his NDP government's active opposition to the Trans Mountain expansion become the one hazard Kinder Morgan decided shareholders shouldn't have to stomach?

'A bit of a turning point'

There is doubtless no small amount of posturing in the company's decision to publicly announce the suspension of non-essential spending on the controversial project pending "clarity on the path forward."

But it's hard to fault CEO Steve Kean on the position he's taking on behalf of his investors.

Lawyer to lawyer, the company knows the rules in a courtroom scrap; there's no guarantee of a fair fight against a premier who has vowed to use "every tool in the toolbox" to ensure Kinder Morgan's defeat.

"I'm not sure it's really bluffing to be honest," said James Tansey, a professor at the University of B.C.'s Sauder School of Business.

"Whatever you think about the pipeline itself, it is legitimate for them to say, 'we can't fix this when the province has been openly hostile to the idea both in the positions of the NDP and the positions of the mayors of the municipalities.'

"I don't think they can proceed easily without strong support from either the province or intervention from the federal government. I think it's reached a bit of a turning point."

But what are the rules?

It's tempting to view any high-stakes contest in terms of a poker match.

But drawn out against the long arc of history since Kinder Morgan first applied to twin the pipeline in 2013, the Trans Mountain saga looks more like a deeply involved role-playing game. 

New partners come and go. One moment, the B.C. Liberals are fighting you. The next moment, Prime Minister Justin Trudeau is your new best friend. Permission is granted to cross lush and fertile lands. Alliances are struck and wars declared. A strange overlord in the guise of the National Energy Board grants you the keys to the kingdom. Finally, a newly elected dungeon master threatens to upend the board.

All that's missing is a 20-sided die.

"This is different, and it could continue from here," Kean said Monday in a webcast conference call.

"So that's what we're focused on, some kind of pre-emptive action that stops that and reaffirms the project's entitlement to proceed. That's what we're looking at."

Blake Shaffer, an energy policy fellow at the C.D. Howe Institute in Calgary, said energy companies are used to factoring risk into their dealings with foreign governments in places like Yemen, Russia and Nigeria.

But he said the calculations involved with the Trans Mountain expansion are different. The risks are all up front. Once the pipeline is built, the diluted bitumen it carries will be a regulated federal asset and the rewards guaranteed.

"So this pre-construction risk that they're taking of whether or not this thing goes ahead, a lot of that risk is going to fall on shareholders," he said.

"I guess they're looking at it now and saying, no more — the risk doesn't reflect the reward at the end. So, they're seeking to reduce that risk. I think they've requested some clarity from the B.C. government to help reduce that risk. I don't really see that coming in the next month and a half."

B.C. shareholders

Of course, you could say Horgan has his own shareholders to answer to — taxpayers.

But the makeup of the premier's board is a little more complex than the one Kean has to deal with: half want the pipeline to go ahead and half oppose it; the ones who elected Horgan did so on a promise to thwart the project; and the Green ally who keeps him in power has predicted the pipeline will never be built.

Like Kean, Horgan claims he's looking out for his province's interests in the face of the risks outlined to Kinder Morgan shareholders in the annual report, including, "A variety of hazards and operating risks inherent in the transportation and storage of crude oil, refined petroleum products and other products such as: leaks, releases, the breakdown or failure of equipment, pipelines and facilities ... spills at terminals and hubs ... adverse sea conditions (including storms and rising sea levels) and releases or spills from vessels loaded at our marine terminals."

Horgan said those are risks he's not willing to accept. He appeared unfazed by news of the suspension.

"I profoundly believe in the rights of British Columbians to stand up and make sure that we're doing everything we can to protect the interests of our province,'' he said.

The NDP's position comes with its own separate set of risks: Alberta has already threatened to cut off B.C.'s power supply and to stop the import of wine.

As Tansey points out, the possibility exists for Kinder Morgan, Alberta — or both — to sue for lost revenue on a project that Ottawa approved.

And that's to say nothing — for Horgan — of the political risks inherent in either success or defeat.

Any investment is ultimately a bit of a gamble. A balance of risk and reward, which makes it tough to predict the path forward for the pipeline.

But that zombie apocalypse is starting to look like the better bet.