Quote:
Originally Posted by GGG
Can you expand on this?
I’m only vaguely familiar with how pipeline tolls work.
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Midstreamers for long-haul massive investment pipelines require security of investment. This is a guaranteed volume of product multiplied against a fixed toll. Sometimes contract's commercial terms differentiate but this is the standard model. If the producer can't deliver the volume on a given month they still have to pay the contracted volume minimum. A take or pay, or a minimum investment basically to get the thing rolling.
A long-haul pipe needs support from multiple producers because no one producer has enough volume to backstop the investment. So the midstreamer right off the bat faces immense hurdles. They have to negotiate fixed rate guaranteed production contracts with multiple producers, plus the figure out how to jump through all of the regulatory hurdles. When pipelines cross provincial boundaries, they're regulated by the feds which will push for basically ensuring that all impacted communities have their extortion demands met. Without being branded racist I am sure you know what this means. These types of projects today in Canada all but guarantee that a huge portion of upside for the midstreamer is given away in equity to "impacted communities". I don't think people really appreciate just how impossible these projects are to develop now in this country. Multiple factors but producers were always highly reticent to guarantee production volumes especially with the backdrop of today's capital markets in the energy space, and their ability to grow volumes... it's very complex. Further, producers don't really seem too willing to pay the right fee either (yes, it's high). Risk is enormous for the midstreamer now. That's why no projects are being proposed or moving ahead.