Kinder Morgan Oversells Benefits of Trans Mountain Pipeline, Underplays Costs, Says New Report

Kinder Morgan has significantly overstated the benefits of its controversial Trans Mountain pipeline expansion proposal while vastly understating risks associated with increasing the flow of oil to Metro Vancouver.

That’s the conclusion of a new economic analysis by Simon Fraser University and The Goodman Group Ltd. which also recommended that the proposed expansion be rejected as it is neither in the economic nor public interest of B.C. and Metro Vancouver.

“The jobs created are nowhere near the number claimed by Kinder Morgan and the costs are grossly underestimated when the risks of a major spill, particularly one occurring in the Vancouver area, are factored in,” said Doug McArthur, director of SFU’s Graduate School of Public Policy, which co-authored the report.

“The whole project is highly questionable from a public policy point of view,” McArthur added.

The report — Economic Costs and Benefits of the Trans Mountain Expansion Project (TMX) for BC and Metro Vancouver — said Kinder Morgan maintains building the $5.4 billion expansion project would create 36,000 person-years of short-term employment in B.C.

The analysis, however, shows it would only create 12,000 person-years, or less, of employment.

“We correctly anticipated that the benefits from the pipeline would be small in the context of the overall B.C. economy and mostly short-term,” said Ian Goodman, president of The Goodman Group Ltd. and co-author of the report.

“But we were very surprised that the company has exaggerated the short-term jobs associated with building the pipeline by a factor of three,” Goodman said.

In terms of permanent jobs, the report notes Kinder Morgan says operating the expansion project would create only 50 direct full-time jobs in the province but a wide range of spin-offs could push the total up to almost 2,000 jobs.

“Once again, these claims are exaggerated: even with a wide range of spin-offs [the Trans Mountain expansion] will only create 800 long-term jobs,” the 70-page report, released Monday, said.

It also said that, on the cost side, Kinder Morgan’s miscalculations are even more dramatic with estimations of a worst-case scenario for spill damage in a non-urban, non-sensitive area costing only $100 million to $300 (CDN) million.

The analysis found, however, potential costs for a major rupture in a sensitive but non-urban setting could start at $1 billion (USD). Under a worst-case scenario involving a catastrophic rupture in an urban setting, costs could escalate to as much as $2 billion to $5 billion (USD).

The ruptured Enbridge Line 6B that sent more than three million litres of diluted bitumen into a tributary of the Kalamazoo River in Michigan came with a clean up cost of more than $1 billion after more than three years of remediation work.

Brigid Rowan, senior energy economist at The Goodman Group Ltd., said Kinder Morgan has vastly underestimated the worst-case costs for a catastrophic pipeline rupture.

“Contrary to [Kinder Morgan’s] findings, damage and cleanup costs for major accidents are highly correlated with population density,” Rowan said.

“So a worst-case scenario for [the Trans Mountain expansion] would involve a major accident in a more densely populated area (such as Metro Vancouver) damaging and disrupting key infrastructure, and possibly resulting in a spill to water and losses of human life,” he said.

Costs for that type of catastrophe could escalate to the multi-billion dollar range — more than 10 times higher than the Kinder Morgan estimates, Rowan added.

The existing Trans Mountain pipeline already ruptured in a suburban area in Burnaby in 2007 sending 250,000 litres of crude into the community and 70,000 litres into the Burrard Inlet. Over 250 residents were evacuated and more than $15 million spent on clean up.

The report also outlined a major profit disparity between the province and producers when it comes to the pipeline’s financial benefits. B.C. would receive less than 2 per cent of the increased revenues paid to tar sands producers who will retain 68 per cent of the new revenues.

“The lion’s share of the benefits flows to [Kinder Morgan and Trans Mountain], the Alberta tar sands producers and Alberta, whereas the citizens of B.C., and Metro Vancouver in particular, will bear the lion’s share of the risks and receive very small benefits,” the report said.

The Trans Mountain expansion project proposal, which is hotly contested by local residents and municipal politicians, would increase the capacity of oil flowing from Alberta to Metro Vancouver to 890,000 barrels per day from the current 300,000.

The proposed expansion is currently under a controversial review by the National Energy Board.

Image Credit: Kinder Morgan oil facilities in the Burrard Inlet. Photo by Carol Linnitt.