Pipes are seen at the Kinder Morgan Trans Mountain facility in Edmonton in 2017. The pipeline is used to send crude from Alberta to refineries in Washington State.JONATHAN HAYWARD/The Canadian Press
The federal government’s proposed $4.5-billion acquisition of the Trans Mountain pipeline faces U.S. regulatory hurdles that could provide an avenue for President Donald Trump to intervene.
Under U.S. State Department rules, the government must be notified when ownership of a cross-border pipeline changes hands and such a transfer may require a new national-interest determination that would have to be approved by the U.S. President.
The Trans Mountain system includes the Puget Sound pipeline, a 111-kilometre line in operation since 1954 that can carry as much as 180,000 barrels a day of crude from Alberta to refineries in Washington State.
Ottawa is purchasing the entire system from Kinder Morgan Inc. in order to ensure the completion of an expansion project that would provide new export markets for Alberta crude producers but is facing fierce opposition in British Columbia.
The federal government’s acquisition of the Puget Sound line must be reported both to the U.S. State Department and to the Committee on Foreign Investment in the United States (CFIUS), an interagency group under the U.S. Treasury Department that examines foreign takeovers for national-security implications.
Explainer: Trans Mountain, Trudeau and the B.C.-Alberta feud: A guide to the political saga so far
Both departments must determine whether the change in ownership presents any significant issue but can decide that no further action needs to be taken. However, officials could determine that a deal resulting in Canadian government ownership of U.S. energy infrastructure needs a more thorough review, which would trigger presidential decision-making.
“There’s no question that there is a risk, given this very fraught trade environment and this administration’s desire to adjust trade balances, that this could be trade bait,” said David Goldwyn, a former State Department official who now works as a Washington-based energy consultant. “They’ve been generally friendly to the hydrocarbon industry, but at this point you can’t rule anything out.”
Canada and Kinder Morgan have jointly filed an application under CFIUS, said David Barnabe, a spokesman for the Department of Finance, which is managing the acquisition. Mr. Barnabe did not reply to questions about the need to notify the State Department, saying, “Any questions related to permits that were required during the initial construction of the Puget Sound spur should be directed to the company.”
In an e-mailed statement, Kinder Morgan Canada Ltd. said U.S. government review is “one of a number of regulatory and shareholder processes to occur prior to the completion of the transaction. These processes are on track.”
Under former U.S. president Barack Obama, any change in ownership of cross-border pipelines required a new presidential permit, Mr. Goldwyn said. The Trump administration changed that last September, issuing new rules meant to streamline approvals.
Under the new guidelines, the party seeking a change in ownership must notify the State Department in writing. The department will dispense with an environmental review provided no information is brought forward suggesting that a change in ownership would have a significant environmental impact.
However, officials will consult with other departments and agencies to determine whether the change in ownership would have an impact on the national-interest determination that was concluded as part of the existing permit. If they conclude there would be a significant change, a new permit must be obtained, subject to presidential approval.
Since taking office, Mr. Trump has supported the oil and gas industry and one of his earliest actions was to reverse Mr. Obama’s rejection of TransCanada Corp.'s Keystone XL pipeline and issue a presidential permit for the project, which would carry 830,000 barrels a day of crude from Alberta to the U.S. Gulf Coast.
Still, trade tensions between the U.S. and Canadian governments have increased, culminating in the Trump administration imposing tariffs on imports of steel and aluminum on the basis of national-security interests.