Kinder Morgan president speaks
Dear Editor:
Re: City upset over Kinder Morgan pipeline fees, Burnaby NOW, Friday, July 4.
Over the past several days various media outlets have reported on a report prepared by Robyn Allan related to the development cost funding of Kinder Morgan’s proposed expansion of the Trans Mountain Pipeline.
The stories and the report in no way present a full explanation of the facts. Let me attempt to describe the fairly complex arrangement that is in place.
In 2008, Trans Mountain found itself facing a growing and unprecedented demand from its shippers for tanker loadings at its Burnaby facility. As our pipeline also serves the important Lower Mainland gasoline market, and the refinery market in Washington State, the amount of oil we can deliver to our dock in Burnaby is limited.
At the same time, our shippers were attempting to grow offshore markets, and the monthly bidding process that determined who got access to the limited dock space did not provide the certainty they needed to develop these offshore markets.
The solution Trans Mountain proposed, and was supported by our shippers, was we would “auction” space at the dock to the highest bidder for a 10-year period. This process resulted in five of our shippers securing this “firm service” at premiums over the normal pipeline toll. The fees collected by Trans Mountain for this service are on average $1.45/barrel, or roughly $28 million per year.
Rather than keeping this additional revenue, Trans Mountain agreed with its shippers, to put the money in reserve to help pay for system improvements, including expansion development plans. The real long-term solution to the pipeline constraints that lead to the firm service offering is the expansion of the pipeline as is currently being proposed.
The agreement we struck with our shippers was the firm service fees would cover development cost risk for the project, and they would be used to reduce the ultimate total cost of the project if it was approved and built by late 2017.
If we are successful in getting the project approved, approximately $136 million will have been set aside to credit against the total cost of $5.4 billion.
If the project does not proceed, the firm service fees will offset much of the anticipated development cost, and any cost in excess of fees collected will be shared with our shippers.
For large projects such as this, shipper backstopping of development costs is not uncommon.
In this case, we agreed to use the fee that shippers volunteered to pay for all important increased capacity to B.C., Washington State and tidewater towards the development cost.
Ms. Allan is correct in that the fees paid by those few shippers will be treated as an expense for them, and they are not considered revenue to the pipeline.
However, the important fact she overlooks is that the revenue realized by the shipper for those exported barrels will ultimately be higher than they could otherwise attract selling into the North American market.
Otherwise, they would never voluntarily pay more for the firm dock service. The shipper, and the Canadian economy, is net better off by exporting the barrel and accessing a world price that exceeds the North American price.
I have continued to attempt to convey the facts about our pipeline expansion plans and will continue to do so in the face of opponents who prefer to misrepresent the facts in order to sway the public’s opinion.
Ian Anderson, president, Kinder Morgan Canada
*Editor’s note: The Burnaby NOW contacted Kinder Morgan for an interview for the story and did not receive a reply.
