The Trans Mountain Expansion pipeline is in the eye of a political storm as the British Columbia government vows to restrict diluted bitumen shipments from Alberta, while Prime Minister Justin Trudeau promises the 525,000 barrel per day (bbl/d) project will be built. At the center of the controversy are arcane and poorly understood constitutional principles that could determine the fate of the oil and gas industry’s quest for much expanded market access.

The Canadian pipeline system is already seriously constrained. A mid-November leak in the Keystone line that shut down the system for several weeks backed up delivery and left producers and traders scrambling to find rapidly disappearing storage.

Then came news that rail, always the Canadian industry’s fall back option even though it is $2 to $4 more expensive per barrel, was not available in needed quantities because railroads were busy moving grain and other commodities for which they had long-term contracts, something oil companies are reluctant to sign.

CEOs pulled out their hair and the differential between Western Canadian Select and West Texas Intermediate, which for most of 2017 was around $9 to $11, soared to more than $35, reflecting the lower value of the transportation-constrained Canadian shipments.

The only solution is more pipelines. One of three under development (the other two are TransCanada’s Keystone XL and Enbridge’s Line 3 replacement), the Kinder Morgan project is doubly important because it will be the Alberta-based industry’s first line to tidewater and then on to the prized Asian markets. The problem is that much of the population of British Columbia is opposed to a pipeline that will mostly follow the existing Trans Mountain right of way, including running straight through the heart of Burnaby, a crowded and growing city next door to Vancouver.

Burnaby Mayor Derek Corrigan is so incensed by the project that he has promised to throw himself in front of the bulldozers should Kinder Morgan ever begin construction, which has already been pushed back by a year to this fall. The left-leaning NDP government of John Horgan is equally hostile, and both governments are busy obstructing the company at every turn, all the while pretending they are looking out for the environment and their citizens.

The latest squabble, which erupted earlier in the week, came when the BC government announced it was a preparing a second phase of regulations to “improve preparedness, response and recovery from potential spills.” One of the five points it suggested was “Restrictions on the increase of diluted bitumen (‘dilbit’) transportation until the behavior of spilled bitumen can be better understood and there is certainty regarding the ability to adequately mitigate spills.”

Alberta Premier Rachel Notley immediately condemned the move as unconstitutional and outside the provincial government’s jurisdiction.

“We just agree to disagree with Alberta,” said B.C. Environment Minister George Heyman. “We believe we have authority under the [provincial] environmental management act to protect our coastline, to protect our environment.”

Then Prime Minister Justin Trudeau waded into the fray Feb. 1, siding with Alberta: “We’re just going to reiterate that the decision we made was in the national interest and we’re going to move forward with that decision, which means we’re going to get the Trans Mountain pipeline built,” he said during a radio interview.

B.C. says that under the principle of “co-operative federalism” (Canada is a federation), provincial obligations to regulate pipelines for the protection of the environment are equal in authority to those of the federal government. Canada and Alberta argue that Sect. 92 of the Constitution Act, 1982 gives the national government exclusive jurisdiction over approval and regulation of pipelines that cross provincial boundaries (Trans Mountain Expansion will start near Edmonton, Alberta and terminate in B.C.).

Furthermore, the principle of “paramountcy”¾ when federal and provincial laws conflict, the national government prevails¾is well-established in constitutional law and pipeline precedents stretch back to 1954. Paramountcy has been cited as the authority by which the National Energy Board has already issued municipal permits to Kinder Morgan when the Canadian energy regulator ruled the City of Burnaby was deliberately delaying the approval process.

Constitutional scholar James Coleman of the Dedman School of Law says the law is on the company’s side.

“If there is some new legislation that says you can’t transport dilbit, Kinder Morgan may feel more comfortable just ignoring that and saying, ‘There’s no way you can just enforce such a law against us,’” he said in an interview. As for provincial and municipal permits, the NEB could continue issuing them if B.C. and Burnaby won’t do so in a timely manner.

The problem is, the NEB process is cumbersome and time-consuming.

“The main thing that the National Energy Board can do is what it’s already doing, which is establishing some sort of more streamlined permitting process that is going to allow the NEB and Kinder Morgan to deal with these issues as they come up,” said Coleman.

The big issue is time. Kinder Morgan warned in December that if government obstructions become too onerous, its investors may lose patience and pull the plug: if the project continues to be “faced with unreasonable regulatory risks due to a lack of clear processes to secure necessary permits … it may become untenable for Trans Mountain’s shareholders … to proceed.”

Trudeau has already watched TransCanada cancel the $12 billion Energy East pipeline project in October, so he knows the threat is not an idle one. Losing the $8 billion Kinder Morgan project would deal a serious blow to the prime minister’s stated objective to attract more investment capital for the national economy.

Trudeau faces a serious dilemma. He would probably prefer the NEB to deal with the stubborn B.C. governments on a permit-by-permit basis but the clock is ticking on Kinder Morgan’s patience. And now Notley says Alberta will both sue the B.C. government and retaliate with trade sanctions of some sort, most likely refusing to buy electricity from the controversial Site C hydro dam Horgan reluctantly approved only weeks ago.

Worse yet, he has few options. He could broker a political deal with B.C. and Alberta, but that would likely cause Horgan’s minority government to fall because it is propped up by Andrew Weaver’s Green Party, which is adamantly opposed to the pipeline.

Or he can have the NEB take over all or most of the approval process and cut out the province and Burnaby altogether, a not very palatable option either because the national election is scheduled in 2019 and Trudeau’s Liberals need to hang on to as many of its 17 Vancouver-area seats as possible.

What will Trudeau do? No one knows, but doing nothing is no longer an option.

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