A new report contributed by Robert Lyman © 2018, Ottawa energy policy consultant and former public servant, who also spent 10 years as a diplomat.
POLITICAL RISK AND THE TRANS MOUNTAIN PIPELINE EXPANSION
PERCEPTIONS AND FACTS
The U.S.-based Institute for Energy Economics and Financial Analysis (IEEFA) recently issued a statement that was picked up and repeated in various media in Canada, including the Canadian Broadcasting Corporation. The statement warned that the U.S. Administration must approve the sale to the government of Canada of the U.S. assets of the Trans Mountain Pipeline system now owned by the Kinder Morgan Corporation and that approval was “not a foregone conclusion”.
What was not reported is that the IEEFA is, in fact, an environmental organization funded largely by foundations such as the Rockefellers Brothers Foundation and the William and Flora Hewlitt Foundation. Through her extensive research of U.S. tax records, Vivian Krause has shown these foundations to be major funders of the “Tar Sands Campaign”. The goals of this campaign since the 1990’s have been to stop expansion of the Canadian oil industry, to reduce demand for oil sands crude oil in the U.S. and to stop or stall pipeline and port construction. The apparent objective of the IEEFA statement was to increase the political risk associated with the Trans Mountain Pipeline Expansion project – to undermine investor and public confidence that the Canadian government’s purchase will proceed and that the project will be built.
In fact, there are two approvals that may apply to the U.S. portion of the Trans Mountain System – the Puget Sound pipeline that transports crude oil from the Canada-U.S. border to the refineries in the state of Washington. The U.S. Committee on Foreign Investment in the United States (CFIUS) must approve the sale based on a review of its effects on U.S. national security. A Presidential permit of the same kind that is usually required for the construction of a new cross-border pipeline may also be required.
The CFIUS is an inter-agency review process led by the U.S. Department of the Treasury that serves the President in overseeing the national security implications of foreign investment, and especially the acquisition of foreign control of companies in the U.S. economy. The processes of review, investigation and decision are subject to statutory time limits of up to 90 days in total. CFIUS operates under defined terms of what constitutes “national security” and its procedures entail many internal checks along the way to ensure that it adheres to these terms. In fact, since CFIUS was established in 1975, U.S. Presidents have disallowed only four foreign acquisitions. The requirement to undergo this review is not a likely threat to the Canadian acquisition.
Presidential permits are required for the construction of major new cross-border oil pipelines. There are administered by the Department of State which, like the President, has significant discretion in terms of how it assesses projects according to the United States “national interest”. An Interpretive Guidance document issued by the Department of State in 2007 stated that a “change in ownership of a border crossing that is not encompassed within or provided for under an applicable Presidential permit” requires formal “notification” but left it unclear as to whether it would require issuance of a Presidential permit. This appears to be up to the discretion of the State Department and the U.S. President.
If, in fact, a presidential permit was required based on a review of the national interests involved, it would be made clear that the existing Trans Mountain pipeline system now transports crude oil that is used by refineries not just in British Columbia but also by those in Washington State to meet the needs of consumers in the Pacific Northwest. Crude oil delivered by the pipeline to the Westridge Terminal is also loaded on to tankers and shipped to export markets, now mainly in California. Much of the additional exports from Canada’s west coast ports will go to California or other parts of PADD 5 rather than Asia. As PADD 5’s existing crude oil supply from Alaska is steadily declining, the additional crude oil from Canada would both increase the region’s security of supply and increase competition in refined product markets, thus benefiting American consumers.
For the United States, these are genuine, not speculative, national interest considerations.