(Bloomberg) -- Canada’s oil-sands industry suffered a major blow as Kinder Morgan Inc (NYSE:KMI). halted most work on the Trans Mountain pipeline expansion, throwing into doubt a project that could have helped alleviate shipping bottlenecks plaguing the nation’s energy producers.
The pipeline company is suspending all non-essential activities and ceasing to commit more resources to the project, which has faced opposition from the coastal province of British Columbia, whose land it traverses. Still, Houston-based Kinder said it will consult with stakeholders to try to reach agreements that will allow the project to proceed and set a May 31 deadline on the talks.
The $5.7 billion Trans Mountain expansion is one of three major pipeline projects that Canada’s oil industry is counting on to help carry more of its crude to refiners abroad. The Kinder project was particularly attractive because it would lessen the industry’s dependence on American buyers by moving an additional 590,000 barrels a day to a shipping terminal near Vancouver, where it could then be sent to markets in Asia.
Leaders in Alberta and the federal government, which approved and supported the project, vowed to keep fighting and pave the way for Kinder to see it through to completion.
“Canada is a country of the rule of law, and the federal government will act in the national interest,” Prime Minister Justin Trudeau said on Twitter. “Access to world markets for Canadian resources is a core national interest. The Trans Mountain expansion will be built.”
Alberta is “prepared to do whatever it takes” to get the project finished, including becoming an investor in Trans Mountain, Premier Rachel Notley said at a press conference in the province’s legislature in Edmonton on Sunday.
Notley also warned about taking measures that would hurt British Columbia, without specifying the details. The province’s government hinted in March that it may cut off oil shipments to British Columbia if the province continues efforts to thwart the expansion.
The project was approved by the federal government in late 2016 but suffered a setback this year when the British Columbia government proposed limiting any increase in shipments of diluted bitumen amid concerns about spills.
For a story on how Canadian crude is finding its way to Asia, click here
The B.C. government, led by Premier John Horgan, took power in July 2017 pledging to employ “every tool” available to thwart the expansion. Since then, it has hired a former Supreme Court judge to advise in its legal fight against the project and has also proposed restricting future shipments of oil-sands crude.
The federal government’s approval of the project “failed to consider B.C.’s interests and the risk to our province,” Horgan said in a response Sunday to Kinder Morgan’s announcement. “We joined the federal challenge, started by others, to make that point.”
“We believe we need to grow the economy, while protecting the environment,” he said. “But we will always stand up for British Columbians, our environment and the thousands of jobs that depend on our coast.”
Canada’s oil industry has suffered from a lack of pipeline capacity, which has weighed on the relative prices producers can garner for their crude. An outage on TransCanada Corp.’s Keystone system last year sent Western Canada Select crude’s discount to West Texas Intermediate to the widest in four years.
Trans Mountain, along with TransCanada’s Keystone XL project and Enbridge Inc.’s replacement expansion of its Line 3 pipeline, was seen as key to helping alleviate those restrictions.
“The project is critical to Canada and the future of its oil and gas industry,” Alex Pourbaix, chief executive officer of oil-sands producer Cenovus Energy Inc., said in a statement. “If the rule of law is not upheld and this project is allowed to fail, it will have a chilling effect on investment not just in British Columbia, but across the entire country.”