January 31, 2019 / 5:32 PM / 16 days ago

Canada paid high price for oil pipeline, faces delay risks: watchdog

WINNIPEG, Manitoba (Reuters) - The Canadian government paid a high price for the Trans Mountain oil pipeline last summer, and delays in expanding it could reduce its resale value, a watchdog on the country’s public finances said on Thursday.

Steel pipe to be used in the oil pipeline construction of Kinder Morgan Canada's Trans Mountain Expansion Project sit on rail cars at a stockpile site in Kamloops, British Columbia, Canada May 29, 2018. REUTERS/Dennis Owen

Prime Minister Justin Trudeau’s government purchased the Trans Mountain pipeline and a related expansion in August from Kinder Morgan Canada, fearing the company might abandon the capacity expansion. The project and others like it have faced stiff opposition in Canada from environmental groups and some local governments.

The Canadian government paid C$4.4 billion for the pipeline, related assets and the expansion project and intends to eventually sell it. The pipeline, running from Alberta’s oil-gathering hub to the Vancouver, British Columbia area, is actually worth between C$3.6 billion and C$4.6 billion, the Parliamentary Budget Officer (PBO) said in an analysis.

Expansion is likely to cost C$9.3 billion for an in-service date at the end of 2021, the PBO wrote. Delays in construction, however, could reduce its value, it said.

Pierre-Olivier Herbert, a spokesperson for Finance Minister Bill Morneau, noted that the PBO’s analysis did not include the benefit that moving oil to new markets would have on Canada’s economy.

Most Canadian oil ships to the United States, but an expanded Trans Mountain may allow for greater Asian sales.

“When the political risks made it too difficult for the private sector to move forward, and after extensive due diligence, our government acquired the project,” Herbert said.

Congested pipelines depressed Canadian oil prices severely last year, causing the Alberta government to impose mandatory production cuts this month.

The opposition Conservative Party chastised Trudeau in a statement saying he overpaid for the pipeline. In the past, the Conservatives have criticized the Liberal prime minister for doing too little to help the struggling industry.

An appeals court last summer overturned the government’s approval for expanding Trans Mountain, saying the National Energy Board needed to address risks to marine life and government must better consult indigenous people. After a new review, the board is scheduled to report to Trudeau’s cabinet next month.

Reporting by Rod Nickel in Winnipeg, Manitoba; editing by Diane Craft and David Gregorio

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