Canada continues Transmountain pipeline construction

The Kenney government announced it will backstop the Canadian portion of the Keystone XL with a $7 billion commitment — $1.5 billion in equity and $6 billion on loan guarantees.

Both pipelines are vital to the Alberta oil sector, which is being hammered by oil prices at levels that make it uneconomic for the sector to continue to produce.

Pressure has been growing on federal and provincial officials to shut down pipeline construction projects over concerns that workers may be at risk of spreading the covid-19 virus amongst each other.

Anti-oil lobbyists have also suggested the Trans Mountain pipeline no longer makes economic sense in a world where Alberta oil is selling at $5 per barrel.

On Monday, Prime Minister Justin Trudeau was asked if his government would suspend construction on the Trans Mountain pipeline. He said he would offer an answer on Tuesday.

This morning he indicated that his government has no plans to shut down the Trans Mountain expansion project.

“I can assure you that Crown corporations — all Crown corporations — are following all the best medical advice,” was all he had to say about the Trans Mountain pipeline.

“I am confident that the company is … taking all necessary steps to ensure safety.”

He referred to the fact that the Trans Mountain Corporation is now owned by the Canadian government, and therefore a Crown corporation.

B.C.’s public health officer Bonnie Henry on Monday announced guidelines for major projects like Trans Mountain to limit the possible spread of the virus. Trudeau said he is confident that Trans Mountain is “taking all necessary steps to ensure safety.”

Trans Mountain CEO Ian Anderson says the company is taking a number of precautions to limit workers interaction, including staggering shifts and lunch breaks, and minimizing in-person meetings by contractors.

“We are well underway with project construction in several areas of B.C. and Alberta and we plan to continue construction as long as we can do so in a way that protects all of our people and the broader community,” Anderson said in a statement.

There are thirteen shippers committed to long-term capacity on the pipeline. But what if some of those companies go bankrupt?

A sharp fall in demand for oil in a world that has voluntarily shut down, compounded by a price war between Saudi Arabia and Russia, has reduced global oil prices by 60% to levels not seen since the 1990s.

Western Canadian Select is trading at $5 per barrel. No company in Canada can continue producing at that price. But the American shale oil sector is being hit just as hard as the Canadian oil sector, and U.S. President Donald Trump is lobbying to get Russia and Saudi Arabia to halt their price war.

In the meantime, both American and Canadian governments have been offering help to the oil sector to help it stay afloat during the current crisis.

The Trudeau government announced Monday that a wage subsidy his government has offered to businesses — one that covers 75% of worker wages — will also be offered to the Canadian oil patch.

More than 2,000 workers were employed on the Trans Mountain project in Alberta and B.C. by the end of 2019. Those numbers may fall due to spring breakup, which typically limits the amount of work that can be done when snow and ice begin to melt.

(This article first appeared in Business in Vancouver)