Sunday, September 30, 2018

Reflections on Premier Scott Moe’s Visit to China


I.                    Background
Canada is the first country in the west to initiate trade relationships with China, and established an official diplomatic relationship with China in October 1970. Not many people know that Saskatchewan played a crucial part in it as both Prime Minister John Diefenbaker and Agricultural Minister Alvin Hamilton (who are from Saskatchewan) promoted the export of wheat to China in 1961. With an uncertain future of the NAFTA negotiations, the US retaliation on China and Canada, and the complimentary economic structure between China and Saskatchewan, there is a growing importance to expand trade with China. Actually China is now the second largest trading partner with Saskatchewan, reaching $3.5 billion in the last 5 years. Also, Saskatchewan is a world leader in food, fuel and fertilizer production and exports, with some of them listed below:

Saskatchewan’s Food Production in Canada and the World
Agricultural Item
SK’s Exp in Canada’s Exp (%)
SK’s Exp in World Exp (%)
Canary Seed
87
71
Hyacinth Bean
98
65
Durum
87
39
Oats
62
36
Flaxseed
83
36
Leaf Mustard Seed
57
25
Source: Saskatchewan Trade and Export Partnership, updated Sept 30, 2018, http://ca.chinapulse.org/article/misc/2.html.

II.                  Overview of the Visit
A particular focus of the trip was on Saskatchewan’s value-added agriculture sector. The Premier met with Chinese government entities, including the Governor of Heilongjiang, the Chinese Ministry of Environment and Ecology, the Chinese Ministry of Natural Resources, and the Chinese Ministry of Science and Technology. The Saskatchewan delegation was also joined by more than 20 Saskatchewan companies at the STEP – Canada China Business Council Showcase focused on promoting Saskatchewan’s exports to China. Cameco CEO, Tim Gitzel, accompanied Moe in meetings with a number of Chinese nuclear agencies, including the China Atomic Energy Authority, China National Nuclear Corporation, and China General Nuclear Power Group, to advance efforts to enable additional exports of Saskatchewan uranium to China, a vital economic interest to Northern Saskatchewan[i]. Mr. Gitzel said China was Camecao's major market, and Cameco was the fastest growing nuclear producer in the world. Premier Moe and representatives from Canpotex and Mosaic also attended meetings and events that promoted the export and increased use of Saskatchewan potash, including meetings with major potash buyers and partners, including Beifeng Corporation and Sinochem/Sinofert. Beifeng Corporation, which is directly under Heilongjiang Supply and Market Cooperative, is the largest border potash importer both for China and Russia, and its imports from Saskatchewan now surpasses that of Sinochem. During the visit, the closest thing to a firm agreement out of the trip came in the form of a memorandum of understanding between the Regina-based Carbon Capture and Storage (CCS) Knowledge Centre and the China Petroleum University, “to advance our shared interest in using CCS for enhanced oil recovery.”[ii]



III.                Reflections
It should be applauded for Mr. Moe to visit China with a large delegation at this critical moment, and the relationship with Beifeng may bring forward unexpected fruits, as it is a breakthrough after the relationship with Sinochem. Nevertheless, something could be done to achieve a better result. More Chinese trade and culture experts should be consulted, and meetings may be arranged beforehand with Bardish Chagger, the current Leader of the Government in the House of Commons and the former Minister of Small Business and Tourism, who had visited China several times. Also, although food was a major topic for the visit, talk with China’s Ministry of Agriculture was not mentioned.

IV.                Conclusion
As everyone may hear the saying “no pains, no gains” and another “you reap what you sow”. Therefore, while we may not see any fruits right now, we have laid a relatively solid foundation.


[i] Premier Scott Moe considers recent Chinese trade mission a success, Naina Rishiraj, Global News, Sept 25, 2108, please click the link to view the whole article as shown below https://globalnews.ca/news/4486103/premier-scott-moe-returns-from-successful-trade-mission-in-china/.
[ii] D.C. FRASER: No trade deal but Premier Moe optimistic about China trip, REGINA LEADER-POST, Sept 25, 2018, please click the link to view the complete article as shown below https://leaderpost.com/news/saskatchewan/no-trade-deal-but-premier-moe-
optimistic-about-china-trip. 

Monday, September 3, 2018

Options for the Trans Mountain Pipeline: An Objective Third Perspective 跨山管道工程的选项:一个第三方的客观视角

Abstract: BC stated it did not support Trans Mountain Pipeline, partly due to its environmental concerns. Many First Nations in BC are also against the expansion project. As the dispute had put the line's financial viability at risk, Kinder Morgan Canada suspended work on the project in April of this year. As Ottawa has the constitutional authority to build inter-provincial projects like pipelines, the Federal government announced in May of this year a deal to buy the Trans Mountain pipeline, the expansion project and terminals from Kinder Morgan Canada for $4.5 billion with an intention to export this portion of crude oil to Asian markets including China as a "new way out" and to boost up oil prices and to protect the “national interest”. Opponents were more united than the supporters in their view that the government made the wrong decision by buying Trans Mountain. The federal government should do more to disclose how it arrived at the purchase price, what cost-benefits were conducted, what potential costs the public is exposed to, and whether Kinder Morgan attempted to sell the pipeline elsewhere. It seems China and other Asian countries have no plan to increase oil imports from Canada, and NAFTA is also at a bottleneck with Mexico reaching a mutual agreement with the US. Canada has to abide by various UNDRIP’s core rights, and the decision of Canada's Supreme Court. Nevertheless, there are other options such as BOT for the federal government besides the purchase. Though there may be many benefits for the project, and many rules and regulations are already in place to protect the environment, the project may still not necessarily be purchased.

Key Words: Trans Mountain Pipeline, the federal government, purchase, options


I.                    General Situation
A new Angus Reid Institute poll finds an equal number of Canadians (37 per cent) say the purchase was the right decision as the number who say it was the wrong decision. Opponents of the pipeline project were more united in their view that the government made the wrong decision by buying Trans Mountain. An overwhelming majority of that group — 80 per cent — said it was the wrong call. Only 56 per cent of Trans Mountain supporters, on the other hand, said the Liberals made the right choice in buying the project[1]. Trans Mountain Pipeline is a pipeline that carries crude and refined oil from Alberta to the west coast of British Columbia, Canada. As the only pipeline to run between these two areas, it has been owned by the Canadian division of Kinder Morgan Energy Partners (Kinder Morgan) up to 2018 and has been in use since 1953.

Trans Mountain has reported approximately 82 spills to Canada's National Energy Board since 1961. Although a majority have occurred at contained zones such as pumping stations, and a majority were below the mandatory reporting threshold of 1.5 cubic meters[2].

In 2013, Kinder Morgan filed an application with the Canadian National Energy Board to build a second pipeline under an expansion project with an investment of $7.4 billion. In 2016, BC stated it did not support Trans Mountain, partly because Kinder Morgan has not provided enough information about its proposed spill prevention and spill cleanup program. On November 29, 2016, Canada's federal cabinet approved the expansion project, subject to 157 binding conditions. On January 30, 2018, the B.C. government proposed a restriction on increases to the amount of diluted bitumen that can be imported into BC from Alberta, until the completion of studies on whether potential spillage could be mitigated. On April 16, 2018, the Alberta government introduced the Preserving Canada's Economic Prosperity Act, under which any party exporting crude oil, natural gas, or refined fuel from Alberta must obtain a license from the Minister of Energy, who would have the right to approve or deny any application, and this could be used to effectively ban the export of Alberta gas to British Columbia[3]. Many First Nations in BC are against the expansion project. Those who support the pipeline say that it will create jobs and that it has a lower risk of spilling oil than transporting oil by rail, which pipeline proponents say would otherwise have to be used. As the dispute had put the line's financial viability at risk, Kinder Morgan Canada suspended work on the project in April. As Ottawa has the constitutional authority to build interprovincial projects like pipelines, on May 29, 2018, the Federal government announces a deal to buy the Trans Mountain pipeline, the expansion project and terminals from Kinder Morgan Canada for $4.5 billion. This deal is supposed to be closed in August or sometime later[4]. The federal government may carry out the purchase and operate the pipeline via a crown corporation if it cannot find a buyer in due time. The eventual owner will be indemnified by the government for any delays or hindrances to the project that result from legal actions by provincial or municipal governments. The government will also have the option to cover costs or purchase the pipeline back if the new owner is unable to complete the project due to legal pressure, or, despite reasonable efforts, cannot complete the project by an established deadline. The head of Kinder Morgan Canada says work is to resume in August of 2018 to prepare a route for the Trans Mountain pipeline expansion. This attitude is shown to demonstrate to Canadians and to the prospective new owner that this project can be executed in a manner that serves the interests of everybody[5].

II.                 Discussion
1.         Need or Necessity
As far as need is concerned, the purchase will gain access to the Asian market and higher global prices. There will be more than 400 permanent jobs to operate the line, and the vast majority of the pipe will come from Evraz Steel in Regina[6]. According to news from the US CNBC News, the Canadian government’s purchase proposal is to ensure that the amount of crude oil that Canada sends to the West Coast can be "doubled." By then, the Canadian government intends to export this portion of crude oil to Asian markets including China as a "new way out". It is in the “national interest,” as asserted by the federal government. It will create thousands of jobs, and delays in the project are costing Canada $15 billion per year[7].

The original owner of Trans Mountain Pipeline Kinder Morgan announced in April that it would suspend all expenditures on the expansion of energy pipelines across the mountain. The reason is that "the differences between the governments cannot be resolved." Canadian Prime Minister Justin Trudeau hoped that Canada could export crude oil to the new Asian market. Jackie Forest of ARC Financial Group said, the new pipeline expansion plan would help Canada transport more than 300,000 to 890,000 barrels of oil per day, and will earn another ten dollars per barrel of oil[8].
Annual operating revenues of some 200 million will accrue to taxpayers[9]. However, most of the jobs created would be for the construction of the pipeline and end with completion in late 2019 or 2020. According to some other source, with two other approved pipelines likely to be built in the same timeframe, Trans Mountain delays are not costing Canadians anything[10].

Moreover, the Organization of Petroleum Exporting Countries (OPEC), headed by the Persian Gulf countries such as Saudi Arabia, accounted for 56% of China's total crude oil imports in 2017, which has fallen from a peak of 67% in 2012. Russia and Brazil’s market share in China has grown faster than any other country. There will be more countries, and the share of Russia in China will increase from 9% in 2012 to 14% in 2017. The share of Brazil in China will increase from 2% in 2012 to 5% in 2017. In February of this year, Sinopec and the Chinese Academy of Sciences jointly issued the Oil Blue Book of 2018, saying that "China will further increase its crude oil imports from Russia, the United States, and Brazil." There is no mention of Canada[11].

2.         Morality and Acountability
According to a new filing with the United States Securities and Exchange Commission, two executives at the Canadian unit of Texas-based Kinder Morgan are poised to each cash in with $1.5 million bonuses[12] after Ottawa offered to bailout their west coast oil pipeline system and expansion project. Finance Minister Morneau said in an interview with Evan Solomon from CTV's Question Period that was aired on Sunday morning. The finance minister's office has declined to say whether he knew about these bonuses prior to the federal cabinet's decision to approve the offer to buy the Kinder Morgan assets[13].

With the growth prospects of the oilsands in the latter half of the next decade, Canada’s ability to sell the pipeline without a loss, is in doubt because it has already expressed explicitly it is a involuntary buyer. Morneau would not commit to a timeline on either when the expansion could actually be operational or how long the government could be stuck owning the project if it can’t find a buyer. The federal government should do more to disclose how it arrived at the purchase price, what cost-benefits were weighed, what potential costs the public is exposed to, and whether Kinder Morgan attempted to sell the pipeline elsewhere.

III.               Feasibility for the Purchase
1)        Economic
The cost to purchase the 65-year-old assets is $4.5 billion. David Hughes, a former federal government scientist and research expert with the Canadian Centre for Policy Alternatives, said it was $1.2 billion overpaid[14]. Also, other costs have to be added, like financial assurances for spills, it has been estimated that the real cost could be as high as $15-to-$20 billion. Kinder Morgan has long said it would cost $7.4 billion to build a second pipeline parallel to the first in order to triple its capacity, but the financial documents now say the company expects a $9.3-billion price tag. Ottawa said it hoped to find a partner from the private sector willing to come in on the deal alongside the Canadian government. The deadline to find such a buyer was July 22, 2018. No such interested party stepped forward[15].

2)        Technical
As admitted by Kinder Morgan Canada, there are many obstacles to the viability of this expansion scenario, including the availability of power along the route, as well as limited space for tanks and terminal infrastructure at Edmonton, Sumas, B.C., and Burnaby. Capacity of the company’s Puget Sound pipeline through Washington State and the ability of Burrard Inlet in Vancouver to accommodate additional vessel traffic would also present challenges[16].

3)        Legal
Various United Nations treaty bodies have tried to persuade states like Canada to abide by UNDRIP’s core rights, and have even recommended moratoriums on further pipeline approvals in both Canada and on the United States’ Dakota Access pipeline until Indigenous rights are properly addressed. The Treaty Alliance against Tar Sands Expansion is an alliance of Indigenous Nations in Canada and the U.S. against pipelines and have been active in protesting on the ground. Moreover, Trudeau also promised to implement all of the Truth and Reconciliation Commission’s 94 calls to action, focusing first on implementing the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) into law. UNDRIP’s Article 19 specifically provides that states must obtain the free, prior and informed consent of Indigenous peoples prior to implementing any decisions that would impact them[17].

Canada's Supreme Court recently dismissed an application by the City of Burnaby, British Columbia to appeal a regulatory decision that allowed expansion work on the Trans Mountain oil pipeline to skirt some bylaws. The Supreme Court decision removes some legal uncertainty about whether the Trans Mountain expansion can be built. The project still faces other legal challenges - particularly a federal court case on whether there was adequate public consultation[18].

However, the Federal Court of Appeal has on August 30, 2018 overturned the Trudeau government's approval of the contentious Trans Mountain pipeline expansion[19]. In a unanimous decision by a panel of three judges, the court says the National Energy Board's review of the project was so flawed that the federal government could not rely on it as a basis for its decision to approve the expansion. The court also concludes that the federal government failed in its duty to engage in meaningful consultations with First Nations before giving the green light to the project.

IV.               Other Options
Without Kinder Morgan Canada Ltd, producers are left with two main alternatives: TransCanada Corp’s Keystone XL pipeline and Enbridge Inc’s Line 3 expansion to Superior, Wisconsin. Neither is a silver bullet for Canada’s growing supply glut. The two projects would allow Canada to export more than a million additional barrels a day combined, which is “plenty of new capacity for growth” through 2023, according Mike Walls, a Genscape Inc. analyst[20].

As the federal government’s involvement deals mainly with BC’s opposition, there are several things that the federal government could do without buying the pipeline[21]. Ottawa could withhold discretionary funds from B.C. such as spending on regional economic diversification, innovation or other monies. Secondly, the federal government could, counter-intuitively, require further environmental controls on the project, say double-walled pipelines or increased marine protections to further address Indigenous and environmental concerns — beyond the $1.5-billion oceans protection plan it already promised to address the previous B.C. Liberal government’s concerns — in exchange for some kind of guarantee the B.C. government would cease its opposition. Thirdly, in theory, Ottawa could disallow a B.C. law or regulation that it declares as contrary to the national interest, but that kind of sledgehammer hasn’t been used since the 1940s, and legal experts say convention suggests it should not be used.

In order to secure the project, the federal government may also engage Kinder Morgan to a BOT project, which the federal government can stipulate certain conditions for KM to meet and yet not get financially involved.

Even if the federal government goes ahead with the purchase, the purchase offer may include certain conditions to meet, such as to complete the environmental assessment, a condition subject to financing, and a requirement for KM to top up the yearly construction cost if it exceeds the budget.

V.                 Conclusion
Scott Simms mentioned, a few decades ago, the Government of Canada decided to invest to save the Hibernia project off the coast of Newfoundland and Labrador. It turns out that it saved the whole project, which has returned dividends since then, as it is now turning a healthy profit[22]. However, this is not the same as said by Elizabeth May[23]. As put by David Hughes and some other experts, pushing through this purchase based on a false premise in order to save face, win favor of Alberta and preserve political capital is a disservice to the long-term interests of Canada, and Canada needs an energy plan based on more than politically motivated rhetoric.

There is already some foundation laid. 89% of all new construction will take place within the existing right-of-way. A new Pipeline Safety Act and a $1.5 million Ocean Protection Plan are in place. The project fits within the terms and limits of Canada’s GHG/Climate Change Plan, including national carbon pricing. $363 million will go to Indigenous communities and their pipeline monitoring committee[24]. If the expansion goes ahead, it could mean oil transport by pipes other than by the more dangerous railway with the prospect of derailment, joint-venture projects for First Nations development agency, upgrades to the fire hall, security jobs and training for the band members, upgraded maritime protection, spill response and co-management of fisheries[25]. However, the project may not necessarily be purchased, let alone some conditions around it.

跨山管道工程的选项:一个第三方的客观视角(摘要)

部分由于对环境问题的担心,卑诗省表示它不支持跨山管道工程。卑诗省的许多原住民也都反对该扩建项目。由于争议使该线的财务可行性处于危险之中,加拿大金德摩根公司于今年4月暂停了该项目的工作。然而,由于渥太华拥有构建跨省管道项目的宪法权力,联邦政府于今年5月宣布以45亿美元收购加拿大金德摩根公司的跨山管道、扩建项目和码头,并计划出口部分原油到包括中国在内的亚洲市场,作为一个“新出路”,并提振油价和保护“国家利益”。然而,跨山管道工程的反对者比支持者更团结,他们认为政府收购跨山管道的决定是错误的。联邦政府应该做更多的事情来披露它如何决定其购买价格,进行了哪些成本效益比较分析,研讨了哪些公众面临的潜在成本,以及金德摩根是否试图在其他地方出售该管道。中国和其他亚洲国家似乎没有计划增加从加拿大进口的石油,而北美自由贸易协定在墨西哥与美国达成共识后也形成瓶颈。加拿大必须遵守各种UNDRIP的核心权利以及加拿大最高法院的决定。联邦政府除了购买之外,还有其他选项,例如BOT。虽然跨山项目可能有许多好处,并且已经有许多规则和法规来保护环境,但项目可能仍未必需要购买。

关键词:跨山管道、联邦政府、收购、选项




[1] Jessica Chin: Canadians Divided On Government's Purchase Of Trans Mountain Pipeline: Angus Reid Institute Poll, Huffington Post, June 19, 2018, please click the link to read the whole article https://www.huffingtonpost.ca/2018/06/19/canadians-trans-mountain-purchase-poll_a_23462799/.
[2] Trans Mountain Pipeline, please click the following link to view the entire article:
https://en.m.wikipedia.org/wiki/Trans_Mountain_Pipeline?from=groupmessage&isappinstalled=0.
[3] Trans Mountain Pipeline, please click the following link to view the entire article:
[4] John Geddes: Who will build the Trans Mountain pipeline—and at what cost? MacLeans, May 29, 2018.
[5] The Canadian Press: Trans Mountain pipeline work to resume in August: Kinder Morgan Canada boss, July 27, 2018, please view the entire article by clicking the link below: https://www.ctvnews.ca/mobile/politics/trans-mountain-pipeline-work-to-resume-in-august-kinder-morgan-canada-boss-1.4031023?from=groupmessage&isappinstalled=0.
[6] Decisive Federal Action to Expand the Trans-Mountain Pipeline, the Goodale Report, Summer 2018, Page 2.
[7] David Hughes: The faulty math behind Trudeau.s reasoning for buying Trans Mountain from Kinder Morgan, MacLeans, May 29, 2018, please view the article by clicking the link below:
[8] Qi’ang Xu: the Canadian government intends to enter Chinese oil market by repurchasing the controvosial pipeline project, June 8, 2018, please also see the article in Chinese by clicking the link http://www.guancha.cn/internation/2018_06_08_459476.shtml.
[9] Decisive Federal Action to Expand the Trans-Mountain Pipeline, the Goodale Report, Summer 2018, Page 2.
[10] David Hughes: The faulty math behind Trudeaus reasoning for buying Trans Mountain from Kinder Morgan, MacLeans, May 29, 2018, please view the article by clicking the link below:
[11] Qi’ang Xu: the Canadian government intends to enter Chinese oil market by repurchasing the controvosial pipeline project, June 8, 2018, please also see the article in Chinese by clicking the link http://www.guancha.cn/internation/2018_06_08_459476.shtml.
[12] Mike De Souza: Kinder Morgan execs Ian Anderson and David Safari offered $1.5 million bonuses under Trudeau bailout, National Observer, June 1, 2018, please click the link as below: https://www.nationalobserver.com/2018/06/01/news/kinder-morgan-execs-ian-anderson-and-david-safari-offered-15-million-bonuses-under.
[13] Dylan Weisman: Andrew Scheer slams Trudeau's 'bailout' for Kinder Morgan millionaires, Canada’s National Observer, June 3, 2018, please view the article by clicking the link below: https://www.nationalobserver.com/2018/06/03/news/andrew-scheer-slams-trudeaus-bailout-kinder-morgan-millionaires.
[14] MATT MCCLURE: Experts say feds overpaid by $1.2 billion for Trans Mountain pipeline, StarMetro Calgary, May 30, 2018.
[15] Cost to expand Trans Mountain pipeline now $1.9 billion higher, Kinder Morgan says
National Post, Aug 7, 2018; Travis Lupick: Canada fails to find a private-sector buyer for Trans Mountain, set to purchase pipeline alone, Straight, July 23, 2018.
[16] Jeff Lewis: Kinder Morgan blueprint for Trans Mountain pipeline allows for another 240,000 barrels a day, Financial Post, May 27, 2018, please click the like to view the whole article https://business.financialpost.com/commodities/energy/kinder-morgan-blueprint-for-trans-mountain-pipeline-allows-for-another-240000-barrels-a-day.
[17] Pam Palmater: By buying Trans Mountain, the Trudeau government breaks an array of promises, MacLeans, May 30, 2018.
[18] Julie Gordon and Rod Nickel: Top Canadian court quashes city's challenge of Trans Mountain pipeline, Reuters, August 23, 2018.
[19] The Canadian Press: Appeal Court quashes approval of Trans Mountain pipeline expansion, August, 30, 2018, please also view the article by clicking the link attached below:
[20] Robert Tuttle: With or without Trans Mountain pipeline expansion, Alberta has oil shipping options, the Star, April 11, 2018, please also view the article by clicking the link attached below: https://www.thestar.com/business/analysis/2018/04/11/with-or-without-trans-mountain-pipeline-expansion-alberta-has-oil-shipping-options.html.
[21] TONDA MACCHARLES: How can Justin Trudeau solve his pipeline problem? Here are his options, the Star, July24, 2018, please also view the article by clicking the link attached below: https://www.thestar.com/news/canada/analysis/2018/04/13/how-can-justin-trudeau-solve-his-pipeline-problem-here-are-his-options.html.
[22] Debates of May 31, 2018, please click the following link to view the comment https://openparliament.ca/debates/2018/5/31/elizabeth-may-2/?page=13.
[23] Zi-Ann Lum: Elizabeth May Calls Liberal Government's Kinder Morgan Deal 'Completely Insane', Huffington Post, May 29, 2018, please click the like to watch the video of Elizabeth May https://www.huffingtonpost.ca/2018/05/29/elizabeth-may-kinder-morgan-trans-mountain-pipeline-insane_a_23446352/.
[24] Decisive Federal Action to Expand the Trans-Mountain Pipeline, the Goodale Report, Summer 2018, Page 2.
[25] Jason Markusoff: Warning: Pipeline Pressure Rising, MacLeans, June 2018, Page 26-28.