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Information Request No. 4 to Trans Mountain Pipeline

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Information Request No. 4 to Trans Mountain Pipeline Information Request To: Trans Mountain Pipeline ULC From: City of Vancouver OH-001-2014 Trans Mountain Pipeline ULC (Trans Mountain) Application for the Trans Mountain Expansion Project (Project) File OF-Fac-Oil-T260-2013-03-02 City of Vancouver Information Request No. 4 Trans Mountain New Evidence Contents 1. MUSE STANCIL REPORT—NEIL EARNEST 2 2. RATIONALE FOR NEED CHANGED 5 3. FORECASTING ACCURACY 8 4. NETBACK ANALYSIS 10 5. IMPACT OF HIGHER CRUDE PRICES 13 6. CLIMATE CHANGE AS A BUSINESS RISK 14 7. NATIONAL ENERGY BOARD FORECAST 17 8. MARKETS 18 9. THE ASIA-PACIFIC MARKET (INCLUDING HAWAII) 21 10. THE CHINA MARKET 24 11. CONFERENCE BOARD REPORT—GLEN HODGSON 27 12. LIMITATIONS OF INPUT OUTPUT 30 13. DIRECT EVIDENCE OF JOHN REED 33 14. PRODUCTION 35 Page 1 of 36 1. MUSE STANCIL REPORT—NEIL EARNEST References: (i) Letter from Trans Mountain of September 25, 2015, Trans Mountain Evidence to Replace Evidence Prepared by Mr. Steven Kelly for the Project, (A4T6E7) (ii) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project (A4T6E8), Market Prospects and Benefits Analysis of the Trans Mountain Expansion Project, Muse Stancil Report prepared by Neil Earnest, September 25, 2015. (iii) Market Prospects and Benefits Analysis for the Northern Gateway for Enbridge, Application for the Enbridge Northern Gateway Project, OH-4-2011, January 2010 (A1S9X7) (iv) Update of Market Prospects and Benefits Analysis for the Northern Gateway for Enbridge, Application for the Enbridge Northern Gateway Project, OH-4-2011, July 2012 (A2V1R7) (v) Presentation by Ian Anderson, President, Kinder Morgan Canada, Analysts Conference, January 28, 2015, Page 3. http://ir.kindermorgan.com/sites/kindermorgan.investorhq.businesswire.com/files/event/addit ional/KM5-05AnalystConfKMCanada2015IA.pdf Preamble: Trans Mountain states in reference (i), pdf page 1, that it has replaced “the direct evidence prepared by Mr. Kelly for the Project in this proceeding,” and has “enclosed the expert report of Muse Stancil and consequential amendments to the Conference Board of Canada’s direct evidence (“CBofC”) and Mr. John Reed’s direct evidence.” Reference (ii) is the Market Prospects and Benefits Analysis Report for Trans Mountain prepared by Mr. Earnest on behalf of Kinder Morgan. Reference (iii) and (iv) are the Market Prospects and Benefits Analyses Reports for Northern Gateway prepared by Mr. Earnest on behalf of Enbridge, OH-4-2011. Request: (a) Please provide the date that Trans Mountain first contacted Mr. Earnest to discuss the possibility that an expert report to address the issues previously dealt with in Mr. Kelly’s direct evidence may, or would be, necessary. (b) Please provide the date that Mr. Earnest commenced work for Trans Mountain in connection with reference (ii). Page 2 of 36 (c) Please provide a copy of all documents setting out, or relating to, Trans Mountain’s engagement of Mr. Earnest. (d) Please provide all work papers, data, excel spreadsheets and other documents on which Mr. Earnest relied in preparing reference (ii). (e) Please confirm that the page numbers on the Table of Contents in reference (ii) are incorrect. Please provide a corrected version as errata. (f) Has Trans Mountain Pipeline ULC, or any of the numerous Kinder Morgan Inc. corporate entities in Canada or the US, commissioned Muse Stancil and/or Mr. Neil Earnest to undertake any reports on its behalf prior to reference (ii)? If yes, please provide copies of these documents. (g) Please confirm that Mr. Kelly’s report was commissioned and prepared over a period of time that was approximately 5 months. If not confirmed, please explain. (h) Please confirm that Mr. Earnest has almost exclusively represented Enbridge at proceedings before Canadian and US regulatory agencies over the past decade. (i) Is Trans Mountain aware that reference (iii) and (iv) were prepared by Mr. Earnest? i. If so, please advise when Trans Mountain first became aware of reference (iii) and (iv). ii. If no, please read reference (iii) and (iv), particularly with a view to identifying the exclusion of the Trans Mountain Expansion Project from the anticipated pipeline capacity over the forecast period. (j) Please confirm that Trans Mountain was, as recently as January 2015, proceeding with its Application on the assumption that Northern Gateway, Energy East and Keystone XL projects would all be completed. (k) Did Trans Mountain request that Mr. Earnest exclude Northern Gateway, Keystone XL and Energy East from his analysis in reference (ii)? (l) Please advise whether Mr. Earnest is of the opinion that the assumption in reference (ii) that the Trans Mountain Expansion Project (“TMEP”) is likely to be the only pipeline that is built between 2018 and 2038 is a reasonable assumption? i. Provide a detailed explanation of why or why not. ii. If yes, please advise whether Mr. Earnest has retracted reference (iii) and reference (iv) and advised Canada’s regulatory authorities that the assumptions underlying these two reports are no longer valid. (m) Is Trans Mountain aware that the oil to be transported on the Northern Gateway pipeline, as discussed in reference (iii) and (iv), is intended to serve the Asia-Pacific market? Page 3 of 36 (n) Please confirm that Mr. Earnest’s report at reference (ii) does not consider whether there will be sufficient oil supply and demand in the period 2018 through 2038 to make both the TMEP and the Northern Gateway pipeline used and useful. (o) Please confirm that much of the content of Mr. Earnest’s report at reference (ii) has been copied from reference (iii) and (iv). (p) Please confirm that Table A-13 at page 76 (at pdf page 78) of reference (ii), entitled “Disposition of Canadian Heavy Base Case (No Northern Gateway)”, has been reproduced in error from reference (iii). (q) Please confirm that page 76 (at pdf page 78), including Table A-13, should be removed from reference (iii). Page 4 of 36 2. RATIONALE FOR NEED CHANGED References: (i) Trans Mountain Pipeline ULC, Application for Trans Mountain Pipeline Expansion Project, OH-001-2014, Volume 1 (A3S0Q7), Volume 2 (A3S0Q8, A3S0Q9, A3S0R0) (ii) Trans Mountain Pipeline ULC, Evidence to replace the Direct Evidence Prepared by Mr. Steven Kelly for the Project (A72774), September 25, 2015. (iii) Neil K. Earnest, The Renaissance of the North American Energy Sector, Muse Stancil, October 9-10, 2013, Slide 10 of 25: http://slidegur.com/doc/30145/north-american-light- crude-oil-supply Preamble: On December 16, 2013, Trans Mountain Pipeline ULC filed reference (i) with the National Energy Board (NEB). The Application includes a discussion on the need, financial feasibility, commercial viability and economic impact of the Trans Mountain Expansion Project which has informed this hearing. For almost two years Trans Mountain endorsed a narrative developed in Reference (i), particularly pages 1-4 (at pdf page 30), and 2-40 to 2-45 (at pdf page 11 to 16) , that includes the following: (1) significant heavy oil markets exist in California and Asia; (2) supplying the California and Asia markets results in raising the netback price for all Western Canadian heavy oil by $5 - $6 per barrel (constant 2012 US dollars); (3) the Project represents one of four new pipelines planned for in-service between 2017 - 2018, with Project benefits calculated as a proportionate share of all benefits expected to arise when all of the major pipeline projects are completed; (4) due to excess pipeline capacity, spot capacity on the Project is excluded from the analysis and thus only long-term shipper volume of 707,500 bbl/d is included, of which 540,000 is related to new pipeline capacity; (5) benefits calculated include netback improvements estimated for only heavy oil; (6) the need for crude oil by rail transport capacity is displaced by pipeline projects; and (7) some level of under-utilization of aggregate pipeline capacity exiting Western Canada expected during the forecast period. On September 25, 2015, Trans Mountain Pipeline ULC filed reference (ii). A completely different narrative is now offered for consideration. This new view includes: Page 5 of 36 (1) significant heavy oil market demand exists in Northeast Asia; (2) California has disappeared as a market for heavy oil from Western Canada but provides a market for light oil and Hawaii has emerged as a significant market for light oil; (3) supplying Northeast Asia and Hawaii results in changing the price for all Western Canadian light and heavy crude oil produced by as much as $5.18 per barrel, constant 2015 US dollars, over the forecast period; (4) the Project represents the only pipeline planned for construction in the Canadian economy between 2017 - 2038, and thus all benefits are attributable to TMEP. Since there are no oil pipelines to be constructed in Canada over the forecast period other than Trans Mountain, additional transportation capacity needs will be met by rail; (5) limited pipeline capacity because no other pipelines are constructed, and rail capacity is assumed to be more expensive than pipeline capacity, results in full utilization of spot capacity on Trans Mountain. Total crude oil volume on the expanded system includes the legacy and new pipeline at 840 kb/d (50 kb/d of refined product is removed from the analysis); (6) the marine transport capacity at the Westridge dock is explicitly allocated to both light (~100 kb/d) and heavy oil (~540 kb/d); (7) benefits calculated include price increases estimated for both light and heavy oil, conventional and oil sands; and (8) the need for crude oil by rail transport capacity is not displaced by pipeline capacity but continues to be viable, although the need for rail is reduced, during the forecast period by the capacity shipped on Trans Mountain’s expansion.
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