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Canadian pipeline purchase

08 June 2018

On 29 May, the Canadian government announced plans to purchase the Trans Mountain Pipeline project for CAD4.5 billion (USD3.5 billion).

  • Anti-pipeline protests in Vancouver, Toronto, and Montreal are likely to increase in frequency and scope, resulting in traffic disruptions and localized government and corporate property damage.
  • Infrequent improvised explosive device attacks against energy infrastructure in western Canada are likely to take place as construction continues.
  • The divisiveness of the pipeline issue is likely to erode the Liberal party's support in the 2019 federal election, increasing the likelihood of a change of government.

On 29 May, Canadian federal Finance Minister Bill Morneau announced that the government had reached an agreement to purchase the Trans Mountain Pipeline project - located in the province of British Columbia - from energy firm Kinder Morgan for CAD4.5 billion (USD3.5 billion) if no private-sector purchasers could be found. Kinder Morgan is to begin work immediately while seeking other buyers. The government announced that if its purchase went ahead, it would proceed with the pipeline's construction and would sell the pipeline at the moment that it believed the project would generate the best return.

Kinder Morgan previously announced its intention to cancel the project if political opposition in British Columbia to its development was not bypassed or resolved by 31 May. The government's purchase of the project is aimed at ensuring that the scheme proceeds, blunting political opposition by invoking the principle that one level of government may not interfere with another's projects where this might attempt to challenge a private-sector operation. The purchase price does not include the cost of constructing the pipeline, which Kinder Morgan estimated in 2017 at CAD7.4 billion, an estimate that is likely to increase.

A difficult political moment
The decision comes amid declining poll numbers for the federal Liberal government. This decline probably derives from lingering resentment over several small-scale scandals and a perception of governmental arrogance; voter fatigue with the provincial Liberals in the electorally critical province of Ontario is probably also contributing to the federal Liberals' decline. In addition, the government faces a challenging environment in western Canada: the Liberal brand is not regarded as the sole or leading defender of Alberta's oil sector, while it is losing support from left-leaning voters who make a priority of environmental protection and oppose further development of the extractive sector.

Left-wing and indigenous activism
Although some aboriginal communities affected by the project support its development, militant opposition to the pipeline has emerged from First Nations. Despite an enhanced consultation program that attended the project's approval, the federal government's drive to ensure that the pipeline is built contrasts with a perceived lack of a process seeking meaningful consent; some activists, who have a long history of active but peaceful protest, have described the purchase as a "declaration of war".

Outlook and implications
Aboriginal and left-wing small-scale improvised explosive device (IED) attacks on energy infrastructure in western Canada are likely to take place as opposition to the project becomes further radicalized, and the prospect of direct action is first publicly acknowledged and subsequently actualized. Left-wing protests against the pipeline are highly likely in major cities; these are likely to involve several hundred to three thousand people and to remain largely peaceful. A small group of dedicated radical protesters are likely to use the larger body as a shield to attack police and corporate property; these are likely to involve attacks using Molotov cocktails and stones, and to result in moderate property damage to government and multinational corporations' property. In addition to protests, small-scale IED attacks against the pipeline are moderately likely. These may cause delays while the damage is repaired, but are unlikely to be intended to cause death or injury to personnel, who are at greater risk of physical harm if they engage in confrontations with protesters.

The decision demonstrates the government's willingness to make significant investments in projects that it favors; it also raises the likelihood of government change. Voter fatigue with the previous Conservative government led to Liberal gains in marginal seats across Canada in the 2015 Federal election that brought the Liberals to power, but a combination of scandals and bold policy moves will drive marginal voters away to the New Democratic Party (NDP) on the left and the Conservatives on the right. With this decision, left-wing NDP leader Jagmeet Singh is likely to emerge as the principal voice of the left on the environment and natural resources; the Liberals are consequently likely to lose support on the center-left, costing them marginal seats in British Columbia and Québec, where NDP participation in that province's provincial election is partially intended to lay the organizational groundwork for the coming federal campaign. The Conservative party is likely to gain support from a perception that the country's comparative advantage is being eroded by government policies, which will probably pull swing voters concerned about the economy away from the Liberals. The likelihood of government change is now higher than it has been since the most recent federal election in 2015.

Continued poll numbers indicating Liberal support levels below those of the Conservatives in Ontario through early 2019 would indicate that voter resentment is unlikely to dissipate ahead of the federal election, endangering important seats in the Greater Toronto Area and increasing the likelihood of government change in 2019. A low-probability, high-impact scenario of a constitutional crisis emerging over the rights of the federal and provincial governments to regulate trade - the opening salvos of which have already been exchanged, with the British Columbia NDP government launching a court case seeking recognition of its right to regulate the flow of energy products through its territory - would probably cause the business environment for interprovincial trade to become far more onerous, increasing costs for transactions across provincial borders.


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