Kinder Morgan's economics case under fire

Intervenor says economic argument is 'fabricated and fictitious'

One of the intervenors in the Kinder Morgan pipeline hearing is claiming the economics case for the expansion project is bunk – based on arguments made by the company’s own consultant.

Marc Eliesen, a former deputy energy minister in Ontario and Manitoba, has reviewed Kinder Morgan’s economic arguments in the application submitted to the National Energy Board.

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“My own analysis and assessment of what they’ve put forward to the National Energy Board is this whole economic case is fabricated and fictitious,” he told the NOW.

Eliesen stated that Kinder Morgan’s main energy consultant, Steven Kelly of IHS Inc., presented evidence on higher netbacks. “Netback” is a term used to describe the revenue from a unit of oil after the costs of bringing it to the marketplace are deducted. It’s meant to give oil companies an idea of how much money they can make on each unit of oil.

However, using netback analysis is something Kelly himself argued against in an earlier NEB tolling application because of the institutional arrangement made between integrated oil operations, according to Eliesen.

“At that hearing, Mr. Kelly testified that netback analysis is unreliable and limited,” Eliesen said. “And now he’s giving contradictory evidence.”

The problem with using this analysis, according to Eliesen, is there arefewer “trickle down” economic benefits when the products are traded between oil companies and their own subsidiaries and not on the open market.

Furthermore, Kelly’s case for the Kinder Morgan pipeline only has one forecast scenario, according to Eliesen, and it’s lacking a sensitivity analysis.

Eliesen has four decades of experience in the energy sector and is the former CEO and president of B.C. Hydro.

The NOW contacted IHS for an interview with Kelly but did not hear back by press time. IHS is a U.S.-based consulting company that works with a wide range of clients, including defense analysts, global business leaders, military planners and international governments.

No one was available to comment from Kinder Morgan, but the company plans to address Eliesen’s concerns through the hearing process.

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