While living in Calgary, the headquarters of Canada’s oil and gas industry, I occasionally heard people in the business say their pipelines were cursed. The country was brimming with oil and gas, and yet battles over proposed pipelines had limited the ability of producers to get those resources to market.
The story of the latest controversy, an expansion of the Trans Mountain pipeline, took a significant turn on Tuesday when Prime Minister Justin Trudeau’s government announced it would nationalize it. The government’s purchase of Trans Mountain from the Houston-based energy infrastructure company Kinder Morgan for $4.5 billion in Canadian dollars underscores just how difficult it has become to build fossil fuel projects, at least in wealthy, democratic countries, long thought to pose fewer political and social risks than developing countries.
The Trans Mountain project has turned this calculation on its head, mainly because of growing environmental opposition. Kinder Morgan’s chief executive, Steven Kean, seemed to foresee the sale when he said on April 18, “It’s become clear this particular investment may be untenable for a private party to undertake.”
The Trans Mountain expansion will nearly triple the capacity of the existing pipeline that runs from the province of Alberta to the west coast of British Columbia. In early April, Kinder Morgan Canada suspended most work on the project, despite having spent hundreds of millions of dollars on it and receiving approvals from Canadian regulators. It cited grass-roots resistance and opposition from British Columbia’s provincial government as the primary reasons.
In response, Alberta’s premier, Rachel Notley, vowed that her oil-rich province would work with Kinder Morgan “to establish a financial relationship that will eliminate investor risk.” Prime Minister Trudeau reaffirmed his government’s support for the pipeline and promised financial aid to make it happen. That ultimately led to the federal government’s decision to buy Trans Mountain and force the pipeline’s expansion.
“Our government’s position is clear: It must be built and it will be built,” the finance minister, Bill Morneau, said on Tuesday.
I was the United States consul general in Calgary in 2013 when Kinder Morgan first announced this project. At the time, the high price of oil was spurring big investments in Alberta’s oil sands, also known as the tar sands, the extensive deposits of crude oil in the province’s northeast. The Trans Mountain expansion would largely follow the route of the existing pipeline, theoretically minimizing environmental and community concerns. Kinder Morgan also had a reputation as a company willing to go the extra mile in its outreach to communities. Many assumed it would move along without much trouble.
But today, all of the big Canadian pipeline projects of that era are either delayed or dead. Northern Gateway, a pipeline from Alberta to the west coast, and Energy East, a pipeline from Alberta to Canada’s east coast, have been canceled. The future of Keystone XL, perhaps the most notorious of pipeline projects, is still mired in court battles. And Enbridge’s Line 3 expansion, from Alberta to Wisconsin, is in limbo because of concerns in Minnesota.
When I lived in Calgary, the words “social license” dominated conversations about fossil fuels development. In other words, what combination of deeds and words from the oil and gas industries would persuade society to allow them to expand as much as they wanted? Now one of the questions being debated is whether oil and gas should be allowed to expand at all.
Of course, plenty of Canadians and Americans favor oil and gas production. A poll conducted by the research firm Abacus Data for the Ecofiscal Commission, an independent group seeking to align Canada’s economic and environmental aspirations, found that 60 percent of Canadians wanted to develop their fossil fuel resources while transitioning “to a lower carbon future.” Today’s pipeline difficulties do not spell the end of fossil fuels in Canada, but they do suggest their growth may be constrained. It is hard to imagine that the oil and gas industries will ever receive the broad societal approval — social license — that they had in the 1950s when the original Trans Mountain pipeline was built.
Traditional considerations like jobs and royalties now compete with the fear of oil spills, pollution and of course, climate change. There is no more telling example of the impact of these environmental concerns than Kinder Morgan selling its prized Trans Mountain pipeline.
Political and societal risks are on the rise for fossil fuel companies in Canada, the United States and Europe. These risks are rooted in opposition from environmental and indigenous groups, communities suing over the costs of climate change, and some local and regional governments, even as the Trump administration advances a fossil fuel agenda.
Some companies, like Total and BP, are responding by adding more clean energy to their portfolios or by acquiring clean-energy start-ups. They will look for ways to embrace the transition to a cleaner energy future, figuring that they’ll do well as long as they keep supplying energy that the world needs, no matter what form it takes.
Some major banks have announced they will curtail financing of carbon-intensive projects like coal mines or developing the oil sands region. The latest to do so was the Royal Bank of Scotland, which announced its decision the same day that the Canadian government said it would nationalize the Trans Mountain pipeline.
Companies that focus exclusively on high carbon energy production increasingly will find themselves on the wrong side of a shifting society. Their social license is being withdrawn. This will not happen overnight, but there is no doubt it is happening.
Peter Kujawinski, the United States consul general in Calgary from 2012 to 2015, is a Chicago-based writer and consultant.