Canada’s TransMountain Pipeline Faces Another Major Setback

A major insurance company dropped coverage for the Trans Mountain expansion project, an oil pipeline seen as vital to the growth of Canada’s oil sands. Under pressure from environmental groups and growing global concerns about climate change, insurance companies are beginning to drop coverage for large-scale energy infrastructure.  Swiss insurance company Zurich announced on Wednesday its decision not to renew coverage for the Trans Mountain expansion, a pipeline that was effectively nationalized by the Canadian government for C$4.5 billion. Kinder Morgan, the previous owner, had planned on scrapping the project altogether due to legal uncertainty, rising costs and protests from First Nations and environmental groups. The government of Prime Minister Justin Trudeau bought the project in 2018, allowing Kinder Morgan to exit, and he vowed to build the pipeline.

The Trans Mountain pipeline just prevailed in a major Canadian Supreme Court case a few weeks ago. Ruling in favor of the project, the court dismissed legal battles brought by First Nations in British Columbia. If built, the expansion would triple the exiting line’s capacity to 890,000 barrels per day.

Despite the court victory, the pipeline now faces new obstacles with insurance companies backing out. Zurich was the project’s largest insurer, providing $508 million in insurance coverage, but the policy expires at the end of August. The Swiss company said it would not renew. That may put pressure on other insurance companies backing the project, including Lloyd’s of London, Liberty Mutual, Munich Re and Chubb.

In the short run, shuttered production due to the pandemic has some Canadian pipelines less than full. The downturn has hit the Canadian oil patch hard. It wasn’t too long ago that the government of Alberta, flush with production and not enough pipeline outlets, was tinkering with production cuts. This year, the market has forced 1 million barrels per day offline, with the production trickling back online only now.

But beyond the immediate crisis, Canada sees the Trans Mountain expansion as critical to the industry’s growth. That is particularly true with Keystone XL back on death’s door. The Trans Mountain expansion is “critical infrastructure needed to move Canadian energy to world markets and help restore investor confidence in Canada’s economy and political system,” the Canadian Association of Petroleum Producers says, and its completion is “in the national interest.”


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