Alberta Politics & Government Thread 3.0

[GGG]

As an aside TMX is up to 30 billion in cost. At that price it never breaks even.

As an economic investment if it raises the price of every barrel by narrowing Differentials it would still make sense but it’s a poorly executed project.

[Aarongavey]

Originally Posted by GGG

As an aside TMX is up to 30 billion in cost. At that price it never breaks even.

As an economic investment if it raises the price of every barrel by narrowing Differentials it would still make sense but it’s a poorly executed project.

Getting Alberta oil to market is always a very tough economic proposition. Thus the private markets reticence.

[Mr.Coffee]

Originally Posted by Aarongavey

Getting Alberta oil to market is always a very tough economic proposition. Thus the private markets reticence.

Part of the problem is producer's reticence to make and stick to commitments and pay for the necessary tolling to de-risk.

Pipelines don't just magically appear.

[bizaro86]

Originally Posted by GGG

As an aside TMX is up to 30 billion in cost. At that price it never breaks even.

As an economic investment if it raises the price of every barrel by narrowing Differentials it would still make sense but it’s a poorly executed project.

There's no upper limit to how much money you can spend making something "perfect." That's also the same reason nuclear plants don't get built in the west - the extreme investment in perfection makes them impossible to justify.

[Torture]

Originally Posted by bizaro86

There's no upper limit to how much money you can spend making something "perfect." That's also the same reason nuclear plants don't get built in the west - the extreme investment in perfection makes them impossible to justify.

They have loser regulations in France?

[GGG]

Originally Posted by Torture

They have loser regulations in France?

They have government backing in France. The final price tag of their new plants will be interesting.

[GGG]

Originally Posted by Mr.Coffee

Part of the problem is producer's reticence to make and stick to commitments and pay for the necessary tolling to de-risk.

Pipelines don't just magically appear.

Can you expand on this?

I’m only vaguely familiar with how pipeline tolls work.

[Street Pharmacist]

Originally Posted by Torture

They have loser regulations in France?

France's EDF is building Hinckley Point C in England. The project was approved 11 years ago and was supposed to cost £17B. Cost estimates were raised many times, including last may to £25-26B. This February it was raised further to £32.7B and likely faces another delay by a year and a half. It's now 2023 and not expected to open for at least 3 more years

[Mr.Coffee]

Originally Posted by GGG

Can you expand on this?

I’m only vaguely familiar with how pipeline tolls work.

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.

[Fighting Banana Slug]

Originally Posted by Mr.Coffee

Part of the problem is producer's reticence to make and stick to commitments and pay for the necessary tolling to de-risk.

Pipelines don't just magically appear.

Originally Posted by Mr.Coffee

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.

While I generally agree with your take in the second post, I don't see how that equates to a "producer's reticence to make and stick to commitments". As you mentioned, a producer will almost certainly be in a take or pay situation. I don't think it unreasonable for them to balk at taking all of the construction risk, essentially cutting a blank cheque for the costs of the pipeline. As someone more in the producer space, I think it is less to do with the volume, and more to do with the risk allocation on building the thing in the first place.

[GGG]

Originally Posted by Mr.Coffee

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.

Who takes on cost escalation / construction risks in these toll agreements?

[Bring_Back_Shantz]

Originally Posted by Mr.Coffee

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.

This kind of talk really bothers me.
What you're doing is implying that it's only indigenous communities that come calling with their hands out when these types of projects roll through town, when that is definitely not the case.

When indigenous communities make demands, or ask for concessions, it's extortion? What about every city, town, county, municipality along the way does the same thin? No one has the same vitriol for them.

Property taxes for things like pipeline right of ways, or production facilities are through the roof compared to other industries, just because, but I assume you aren't worried about being labeled as racist because you don't like what Wheatland county is asking for.

I'm not trying to side track this, or call you racist, but the attitude that it is only indigenous communities that hold oil companies over the fire, or make oversized demands, is pretty narrow minded.
The truth is everyone looks out for their own interests, and every community does the same, but it only seems to upset people when it's a Chief doing it instead of a Mayor.

[Mr.Coffee]

Originally Posted by Fighting Banana Slug

While I generally agree with your take in the second post, I don't see how that equates to a "producer's reticence to make and stick to commitments". As you mentioned, a producer will almost certainly be in a take or pay situation. I don't think it unreasonable for them to balk at taking all of the construction risk, essentially cutting a blank cheque for the costs of the pipeline. As someone more in the producer space, I think it is less to do with the volume, and more to do with the risk allocation on building the thing in the first place.

Yeah, producers work in their own self-interest and don't understand / empathize that it takes multiple producer contracts to put it all together.

Producers are pretty entitled. "Somebody build me a pipe". Get your own product to market then?

If nobody takes risk then nothing gets built. The producers also don't really take construction risk, they sign a contract for a fixed commitment, all they gotta do is produce. They can negotiate in clauses that if it doesn't get built they don't owe anything, eliminating construction risk. Once they agree to the fixed toll it's the midstreamer taking on construction risk not the producer.

[Mr.Coffee]

Originally Posted by Bring_Back_Shantz

This kind of talk really bothers me.
What you're doing is implying that it's only indigenous communities that come calling with their hands out when these types of projects roll through town, when that is definitely not the case.

When indigenous communities make demands, or ask for concessions, it's extortion? What about every city, town, county, municipality along the way does the same thin? No one has the same vitriol for them.

Property taxes for things like pipeline right of ways, or production facilities are through the roof compared to other industries, just because the can, but I assume you aren't worried about being preceded as racist because you don't like what Wheatland county is asking for.

I'm not trying to side track this, or call you racist, but the attitude that it is only indigenous communities that hold oil companies over the fire, or make oversized demands, is pretty narrow minded.

Depending on the regulatory regime (intra or inter provincial) there are ways around extortion demands from communities and surface access, but it's not like for like with the way things have developed for indigenous communities and their ability to require their demands to be met. Consultation is no longer consultation, it's de facto approval and inherent with that is the requirement to give up equity. If you were to look at any new pipeline projects going on today (even non pipeline projects), every single one is giving up equity and ownership stakes to indigenous communities. It's not narrow minded, it's reality.

[Mr.Coffee]

Originally Posted by GGG

Who takes on cost escalation / construction risks in these toll agreements?

Usually the midstreamer.

[iggy_oi]

Originally Posted by Mr.Coffee

Depending on the regulatory regime (intra or inter provincial) there are ways around extortion demands from communities and surface access, but it's not like for like with the way things have developed for indigenous communities and their ability to require their demands to be met. Consultation is no longer consultation, it's de facto approval and inherent with that is the requirement to give up equity. If you were to look at any new pipeline projects going on today (even non pipeline projects), every single one is giving up equity and ownership stakes to indigenous communities. It's not narrow minded, it's reality.

Do you consider it to be extortion when a company demands special tax breaks/incentives or public assistance before committing to a project in a given jurisdiction?

[Mr.Coffee]

Originally Posted by iggy_oi

Do you consider it to be extortion when a company demands special tax breaks/incentives or public assistance before committing to a project in a given jurisdiction?

Depends on the circumstance and context. It can look that way depending on the situation, yes.

My opinion is that ultimately it depends if there are viable competitive conditions that allow multiple groups to do something or allow for something or not. So for example, if new service is required from CP / CN and they won't do it without special treatment. Well, we've created a monopoly / oligopoly for them that is literally unbreakable without returning to slave labour prices so, yeah, extortion there. Nobody can build a new railroad. It is not economic.

BBS is right, it's not only indigenous communities that are necessarily extortionist, but they are for sure and the current construction climate requires you basically to give up interest in infrastructure projects to them to get stuff done. Personally, I don't think it's necessarily right but it's where we are due to years of terrible consultation by industry so to a degree to reap what you sow.

[Fighting Banana Slug]

Originally Posted by Mr.Coffee

Yeah, producers work in their own self-interest and don't understand / empathize that it takes multiple producer contracts to put it all together.

Producers are pretty entitled. "Somebody build me a pipe". Get your own product to market then?

If nobody takes risk then nothing gets built. The producers also don't really take construction risk, they sign a contract for a fixed commitment, all they gotta do is produce. They can negotiate in clauses that if it doesn't get built they don't owe anything, eliminating construction risk. Once they agree to the fixed toll it's the midstreamer taking on construction risk not the producer.

This is not close to being accurate.

[Torture]

Originally Posted by Bring_Back_Shantz

This kind of talk really bothers me.
What you're doing is implying that it's only indigenous communities that come calling with their hands out when these types of projects roll through town, when that is definitely not the case.

When indigenous communities make demands, or ask for concessions, it's extortion? What about every city, town, county, municipality along the way does the same thin? No one has the same vitriol for them.

Property taxes for things like pipeline right of ways, or production facilities are through the roof compared to other industries, just because, but I assume you aren't worried about being labeled as racist because you don't like what Wheatland county is asking for.

I'm not trying to side track this, or call you racist, but the attitude that it is only indigenous communities that hold oil companies over the fire, or make oversized demands, is pretty narrow minded.
The truth is everyone looks out for their own interests, and every community does the same, but it only seems to upset people when it's a Chief doing it instead of a Mayor.

Exactly. See Burnaby, BC which has long been a stick in the mud for TMX and fought the project despite approvals by the NEB/CER. Or how about Christy Clarke's "5 conditions" for pipelines through BC despite the fact that interprovincial pipelines are Federally regulated?

[Mr.Coffee]

Originally Posted by Fighting Banana Slug

This is not close to being accurate.

It depends on the contract and pipe / situation but yes, it is.

You think the producers are eating the overshoot on TMX? Maybe after the term of their fixed rate deals are done they will when the operator goes to recoup losses as much as possible, but until then there's going to be caps on cost escalation 100% within those contracts. And usually not too divergent from the fixed rate tolls and take or pay they agreed to. The contracts get mostly settled before the build for about 70-90% of the investment required. FID goes and then some companies still contract after the fact (after waiting to see if it will, which is also not helpful to the process for the midstreamer, actually).