Province needs more details on Kinder Morgan’s emergency plan

by Jennifer Moreau

The National Energy Board is allowing Kinder Morgan to keep parts of its emergency management plan for the Trans Mountain pipeline system redacted for commercial, security and privacy reasons, despite the provincial government’s insistence on more details.

The provincial government asked for the missing information, along with an oil spill response plan, in a Dec. 5 motion filed with the NEB.

“The province has found the redactions made by Trans Mountain to be excessive, unjustified and prohibitive. The redactions thwart the province’s examination of the EMP (emergency management program) documents, and preclude a thorough understanding of Trans Mountain’s EMP by the board and all intervenors,” the government’s motion reads.

Some of the missing information includes people’s names and phones numbers, bomb threat checklists and valve locations. A section on the Burnaby tank farm is missing information on site drainage and maps for the terminal and the evacuation zone.

But in a decision released last Thursday, the NEB sided with Kinder Morgan.

“In this instance, the board is satisfied that sufficient information has been filed from the existing EMP documents to meet the board’s requirements at this stage in the process,” the response reads. The board went on to explain that the province will be privy to some of the missing documents as Kinder Morgan consults “implicated parties” to update the plans for the proposed pipeline expansion.

Pending NEB approval, Kinder Morgan plans to twin the Trans Mountain pipeline, which would nearly triple the line’s capacity from 300,000 barrels per day to 890,000, while increasing tanker traffic nearly seven fold.

As for the oil spill response plan, the NEB cited Kinder Morgan’s line – that it can’t file what it doesn’t have – because Kinder Morgan is waiting for information from Western Canada Marine Response Corporation, the company in charge of cleaning up oil spills on water.

Several municipalities wrote to the NEB in support of the province’s request for more information, including Burnaby, Vancouver, Surrey, Langley, Abbotsford, North Vancouver and West Vancouver, as well as First Nations bands and environmental groups.

Kinder Morgan filed most of its emergency management plan with the NEB last October, which means the documents are publicly available through the board’s website. Kinder Morgan initially wanted to keep the documents secret for proprietary reasons, which the NEB sometimes allows. In this case, the board ruled that public interest outweighed Kinder Morgan’s request to keep the plan confidential.

Burnaby Mountain ‘warrior’ stands up for us all

Betty Krawczyk

Dear Editor:

Burnaby Mountain Warrior? It only takes one. And Alan Dutton, a retired professor, certainly takes that title in my opinion. He is the only one with the guts and the ability to stand up to what has been a conspiracy between the courts of this province, the resource extraction corporations and both provincial and federal governments. What do I mean by conspiracy?

Because all three of the above conspire to facilitate the use of injunctions to impose the intellectually conniving perceived rights of corporations over the natural rights of the earth and Her inhabitants. When citizens try to stop an obvious harm to land, waterways and habitat for all living things, the corporations turn to the courts. They know the B.C. courts are their friends. Most judges in B.C. were corporate lawyers before becoming judges. They are used to fighting for the artificially perceived rights of death dealing corporations rather than the natural rights of living things to clean water, food, and air to breathe.

But what are these injunctions? Most people know that in some way injunctions make people stop protesting a contested area like Burnaby Mountain, and some even know these injunctions are precipitated by something called SLAPP suits. What is a SLAPP suit? When I heard the actual legal title I was astonished. SLAPP stands for Strategic Lawsuit against Public Participation. How anti-democratic! And blatantly anti-public! And anti-everything except the rights of courts, governments and the corporations they serve. However, with a copy of a SLAPP suit in hand to show they have civilly sued a protester, the corporation can take this back to the court and ask for an injunction (or even before the suit is filed). The judge will most certainly give the corporation the injunction requested (they refuse so rarely it isn’t even worth mentioning) et voila!

Now anybody who steps up to try to block any bit of the corporation’s right to do whatever they chose to do to an area will now be breaking a judge’s order.

The court seems to be taking a slightly different tack with Burnaby Mountain protesters than they did with me in the logging protests; instead of the humiliating demand for an apology to the court that I refused, the protesters are agreeing to some sort of settling out of court. Except for Mr. Allan Dutton, who is refusing to settle and is challenging the right of the courts to give out injunctions instead of using the Canadian Criminal Code to deal with protesters.

Okay, so how would that fix things if the Criminal Code was used instead? The Criminal Code has instructions for just about any crime or misdemeanour one can think of. Blocking a road is against the law. So is refusing to move when a police officer commands it. So the police would simply arrest whoever was breaking the law. And then in court a protester could have an actual trial where the contest would be between the protester and the corporation instead of between the protester and the judge for breaking the judge’s order. That’s why the corporations so love injunctions.

The protester can’t argue in court his or her reasons for trying to stop a destruction of the earth when one is arrested under an injunction. There is no defence for breaking a judge’s order. The question just becomes one of if the protester knew about the injunction and if he or she broke the injunction by refusing to move. That’s it. That is what the Strategic Lawsuits Against Public Participation (SLAPP suits) culminate in, injunctions and humiliating retreats for the protesters.

Except occasionally, for whatever reason, a protester will refuse to retreat. Like Alan Dutton.

This resounds among the populace. It’s heartwarming. It’s hopeful. Courage is inspiring and it’s also contagious.

Alan Dutton, I understand, is to be back in the courtroom Jan. 19. I wish I could be there. Those of you who can, will you please attend and bear witness? And report the results? A warrior is going to be on the stand.

Betty Krawczyk, by email

Protester fails in court challenge to Kinder Morgan legal attack: Vows to fight back


A failed two-day court challenge to an anti-democratic, corporate legal attack is the latest chapter in the 2014 Battle of Burnaby Mountain over the Kinder Morgan tar sands pipeline expansion project.

The B.C. Supreme Court ruled January 14 that stifling Alan Dutton’s right to protest was not the primary purpose of a multi-million-dollar civil suit and, therefore, his application for a summary dismissal of the case was denied. In an unexpected additional blow, he was ordered to pay the company’s costs for the action.

As revealed in an wide-ranging interview with the Vancouver Sun, the setback has left Dutton unbowed.

A retired academic and active member of Burnaby Residents Opposing Kinder Morgan (BROKE), Dutton has indeed been an active protester in the anti-pipeline battle. His challenge sought judicial recognition that he became a victim of strategic litigation against public participation (SLAPP) when he and four other defendants were sued October 30 by KM.

With the support of fellow BROKE members Dutton filed his mid-December application for a summary judgment to include dismissal of Kinder Morgan’s damage claims and an “Order for special costs payable by the Plaintiff to the Defendant.”

In its suit, the energy giant accuses the defendants of conspiracy to commit illegal acts of trespass, nuisance, assault, intimidation and intentional interference with contractual relations. Their acts, the claim says, resulted in “unlawful interference” with “field studies” required by the National Energy Board’s (NEB) review of the expansion project.

A related Kinder Morgan court document projects that each month of delay would cost the company $5,643,000 in expenses, as well as $88 million in lost revenues.

Dutton vows to appeal the court’s ruling, if there are grounds to do so. “I never committed any of the alleged conspiracy, assault, trespass, etc.,” he told this writer. “The charges against me were never proved and don’t have to be under the rules the court followed. Those rules disadvantage and silence defendants in the face of huge lawsuits by large corporations.”

Just before Christmas the energy transnational offered to “discontinue” the suit if defendants agreed not to claim costs. That deal was taken by the other four defendants, whose legal expenses had been paid by an enthusiastic public response to an on-line crowdfunding appeal.

Now, it is not so clear the deal actually settled the suit. A lawyer to two of those defendants barged into the Dutton hearing and was finally permitted to address the court. He expressed his clients’ unease that a discontinuance of the lawsuit was not as final as a dismissal and left them open to further action.

Dutton declined Kinder Morgan’s deal in order to fight the suppression of free speech and freedom of assembly, which he sees as the SLAPP suit’s real goal.

“The issue here is our democracy and the fundamental right to protest,” Dutton told the Burnaby NOW. “It’s to show people we can fight big multinational corporations, and we can be successful.”

On the first morning of Dutton’s application hearing, B.C. Civil Liberties Association Executive Director Josh Paterson, held a press conference with Dutton’s lawyer Neil Chantler. Paterson told reporters that Dutton “is basically making the argument that the reason for which this lawsuit is brought is actually improper and was to shut down people’s lawful and democratic expression.” The BCCLA also put out an “advisory” on the case.

Hoping his action would discourage future SLAPP suits and help bring anti-SLAPP legislation back to B.C., Dutton accepted that he could face growing legal expenses. Crowd-funding and other donations had covered most of his legal costs before this week’s hearing. But this challenge and the court’s unexpected turn-about on awarding costs have added thousands more in legal expenses.*

Kinder Morgan ‘s suit came after a two-and-a-half year battle against its plan to “twin” a 60-year-old pipeline not designed for, but now carrying, tar sands diluted bitumen through Burnaby to a supertanker marine terminal on the municipality’s northern border.

Kinder Morgan ‘s latest revision to the intended route for the “twinned” pipeline has it tunneling under Burnaby Mountain, home of SFU and of a large municipal conservation area.

Kinder Morgan ‘s expansion project would triple the bitumen being piped through suburban Burnaby to nearly 900,000 barrels per day. It would also triple — to five million barrels — the storage capacity of a tank farm on the side of Burnaby Mountain (uphill from residential neighbourhoods, schools, parks, etc.). And it would increase seven-fold, to 400 loads a year, the super-tanker traffic under two bridges across the narrow, busy Burrard Inlet, which is flanked by Vancouver and four other cities in addition to Burnaby.

Opposition to the project has centred on concerns about climate change, as well as about spills on land (already happened) and water, toxic fumes from the marine terminal and tank farm, fire and leaks from the latter (with no response plan in place), and earthquakes affecting the tunneled pipeline section.

Burnaby-Douglas NDP MP Kennedy Stewart has been a steady, engaged and persuasive voice against the Kinder Morgan expansion, while Burnaby North Liberal MLA Richard T. Lee has been living on another planet.
Burnaby Mayor Derrick Corrigan and his entire city council have held and attended several public meetings explaining their objections in detail.

In addition, the city fought several losing court battles to stop Kinder Morgan work on Burnaby Mountain. Those activities resulted in a September opinion poll that revealed an astonishing 93 per cent of citizens were aware of the Kinder Morgan expansion project and 68 per cent of those were opposed. Affirming this result was Corrigan’s November 15 re-election to a fifth term with 68.5 per cent of the vote and a three-peat of his party’s sweep of council seats.

BROKE, through holding community meetings and rallies and through its website, has worked diligently to educate and mobilize the community against the project since it announcement in 2012.

This past summer and fall, another small group calling themselves “caretakers” came together on the mountain to provide vigilant patrols of areas where Kinder Morgan crews were expected to work. As the fall unfolded, another layer of “land defenders” formed around the “caretaker” nucleus.

In late October, some protestors came into confrontation with a crew of contractors hired by Kinder Morgan to do work at several sites on and around Burnaby Mountain. This led with startling rapidity to the lawsuit and an application to B.C. Supreme Court for an injunction barring protesters from several areas on and around the mountain.

That injunction, which the B.C. Supreme Court did grant, gave birth to a pair of 24/7 work camps ringed by police. It also drew hundreds of protesters to the mountain day after day. Between November 19 and 27, over 100 people “crossed the line” into no-go zones ordered by the court and were arrested, only to have their contempt-of-court charges thrown out when Kinder Morgan revealed it had given the court the wrong GPS coordinates to designate the no-go zones.

Meanwhile, various other constitutional and procedural challenges to the Kinder Morgan project and to the NEB review process of it have been launched by the City of Vancouver, by the Tsleil-Waututh Nation, by a citizens group and by Robyn Allan, an economist and former president and CEO of the Insurance Corporation of BC who has become a formidable anti-pipeline crusader.

Dutton pledges to continuing the fight and is still committed to new anti-SLAPP-suit laws, “a fight both the BCCLA and West Coast Environmental Law have indicated they would support,” he said.

Gene McGuckin is a resident of Burnaby who worked for 29 years in a Burnaby paper recycling mill. He is a member or BROKE and of the Vancouver Ecosocialist Group.

*In an email to this writer Dutton emphasized that a new fundraising effort is underway, again primarily through crowd-funding.

Pipeline protester fights Kinder Morgan lawsuit

by Stefania Seccia, QMI Agency

VANCOUVER — A Burnaby, B.C. man argued in court on Tuesday that a multi-million-dollar lawsuit filed by Kinder Morgan’s Trans Mountain Pipeline is an attempt to stifle democratic activities.

Alan Dutton, a member of Burnaby Residents Opposing Kinder Morgan Expansion and a defendant in the $5.6-million lawsuit seeking damages against the protesters, is refusing to settle out of court.

In B.C. Supreme Court on Tuesday, Dutton said the case was an abuse of process and highlighted the need for anti-SLAPP (Strategic Lawsuit Against Public Participation) legislation.

Josh Paterson, the executive director of the B.C. Civil Liberties Association, said it’s up to the defendant and his counsel to prove that the lawsuit filed by Kinder Morgan was a strategic lawsuit against public participation.

“From our perspective, we’ve said that there needs to be legislation in this province that makes it easier and faster for so-called SLAPP lawsuits to be identified and disposed of,” he said.

Paterson said the province had legislation in place until 2001 that expedited the court’s determination as to whether a case was a SLAPP suit.

The BCCLA is calling on the province to reinstate such legislation.

While B.C. Minister of Justice Suzanne Anton was unavailable for an interview, a ministry spokesperson said the province “is in line with most Canadian jurisdictions which do not provide for what is sometimes described as ‘anti-SLAPP’ legislation.”

“The challenge with such legislation is determining the basis for dismissing a civil claim prior to a hearing on its merits,” the spokesperson wrote in a statement.

The decision on whether a case is legitimate or not is up to the court’s discretion, according to Section 18 of the Supreme Court Act, which outlines general criteria for what constitutes a frivolous claim.

Trans Mountain deferred comment about the court case until it is officially concluded.

The case will be back in court on Wednesday.

How Trans Mountain Project Will Pump Profits to Its Texas Owners



Robyn Allan
U.S.-based Kinder Morgan says its Trans Mountain expansion project represents financial and economic benefit to the Canadian economy, and our federal and provincial public treasuries.

Who would spend a year investigating such claims, rooted as they are in complex tax law, regulations and corporate structure? I did.

What I found made me conclude the opposite — Kinder Morgan drains financial wealth from our economy and does not pay its fair share of taxes.

I have written about the project’s complicated design to yield meagre tax revenues for Canadians in a previous Tyee article.

Now let me examine just how Canadian Kinder Morgan Canada Inc. is. The answer: hardly at all.

Pop the hood and take a look at Kinder Morgan’s inner workings and the idea that this is a Canadian company operating for the good of Canadians is dispelled quicker than Kinder Morgan can say injunction.

If you are bored by arcane discussions of corporate structure and governance, that may be just what Kinder Morgan is hoping.

Please bear with me. It’s critical we know who really runs, and benefits from, Kinder Morgan Canada Inc.

From the boys who brought us Enron

Kinder Morgan Canada is little more than a Canadian face for one of the 50 richest American billionaires, Richard Kinder, and his Houston, Texas, based executive team — many of them the same boys who brought us Enron.

Enron was a U.S. energy giant responsible for one of the biggest accounting frauds in history. According to Robert Roach, U.S. Senate counsel and chief investigator into Enron’s collapse, Enron’s executives began falsely inflating revenues and cheating on taxes way back in 1992 (page 16 Volume 1 of 2). When it became apparent what they were up to, the house of cards imploded. Enron filed for Chapter 11 bankruptcy on Dec. 2, 2001.

It is common knowledge that Richard Kinder — chair and CEO of Kinder Morgan — worked at Enron for 16 years. By the late 1980s he was vice-chairman of Enron’s Board, becoming its president and chief operating officer (COO) in 1990. Kinder was instrumental (see page 109 and 119) in helping establish some pretty creative tax avoidance structured transactions the company became infamous for.

Kinder and his partner William Morgan — another key player at Enron — bought Enron Liquids Pipeline Company from Enron in early 1997. What is not generally understood is Kinder himself set Enron Liquids Pipeline Co. on its path five years before he bought the company. Kinder was a member of Enron Liquids Pipeline Co.’s Board of Directors when the company filed its initial public offering (IPO) with the U.S. Securities and Exchange Commission (SEC) in 1992.

It is also not common knowledge that at least four other key Kinder Morgan executives employed in senior positions today are Enron alumni. Three of them were with Enron when it went under and the SEC eventually brought one before the U.S. District Court on fraud charges.

Current Kinder Morgan elite who held senior positions at Enron include Steven J. Kean, Kinder Morgan’s president and COO. Kean was Enron’s executive vice-president and chief of staff in charge of human resources, government affairs, public relations, corporate communication and administration when the company filed for bankruptcy. From 1997 to 1999 he was Enron’s senior vice-president of government affairs. Kean spent 12 years at Enron — he started with the energy giant in 1989. What’s strange is that Kean’s corporate bio on Kinder Morgan’s site makes no mention of the dozen years Kean spent at Enron.

Kean must be clever. While executive vice-president at Enron he sold (page 53) more than $5.1 million in Enron stock including more than 60,000 shares on Jan. 31, 2001. The highest price Enron shares reached was $90.75 in August 2001. A year after Kean sold more than 60,000 shares at $80 each, Enron’s stock closed at 42 cents a share.

Jordan H. Mintz is Kinder Morgan’s chief tax officer and a member of the board of various Canadian Kinder Morgan subsidiaries. Mintz was the vice-president of Enron’s tax division from 1996-2000 and became general counsel for Enron Global Financial in October 2000. He joined Kinder Morgan in 2006. The U.S. government’s Securities and Exchange Commission sued Mintz in 2007 for violating anti-fraud laws, aiding and abetting Enron’s violations of anti-fraud and periodic reporting provisions, and lying to auditors while he was general counsel.

In January 2009 the SEC settled its lawsuit against Mintz — he paid a civil penalty and was suspended from practicing as a lawyer before the SEC for two years.

Two other senior Kinder Morgan executives are Enron alumni — Dax Sanders, now Kinder Morgan’s vice-president of corporate development and David P. Michels, Kinder Morgan’s vice-president of finance and investor relations. Both were hired into Enron’s Analysts and Associates Program — Enron’s boot camp that fed aggressive university grads into Enron’s work force at mid-level positions where they would rotate through different corporate divisions within Enron. Analysts and Associates learned how to structure complex deals, obtain financing, work the trading floor and generally became steeped in Enron’s corporate culture.

A pocket full of radicals

Dividend growth is key to Kinder Morgan’s stock price, but dividend growth needs revenue growth. This is why Trans Mountain’s new pipeline is so important to Kinder Morgan. The company plans to triple pipeline capacity while siphoning away more than five times the financial return. Kinder Morgan predicts (page 3) $850 million a year in cash flowing out of the Canadian economy to U.S.-based shareholders when Trans Mountain’s expansion becomes operational.

Trans Mountain’s expansion is the biggest single project on Kinder Morgan’s capital expenditure back log. It represents more than 30 per cent of planned expenditures. Without Trans Mountain, Kinder Morgan’s financial prospects severely diminish. Kinder Morgan won’t back down from Trans Mountain’s expansion without a tough fight and they will never give the impression they aren’t winning. Their stock price can’t afford it.

This may be why former Enron employee and Kinder Morgan vice-president of corporate development Dax Sanders characterized the Trans Mountain Expansion project as a done deal. He was speaking at the Bank of America Merrill Lynch Global Energy Conference in Miami on Nov. 14, 2014.

Sanders assured (minute 25) his audience that Kinder Morgan is “very optimistic” about the pipeline and that the company is “expecting the NEB authorization… the federal government is enormously supportive of it… the real opposition is some of the few pockets of the more radical views in the lower mainland; in Burnaby and Vancouver.”

It hard to understand how Sanders can characterize a majority of British Columbians opposed to Kinder Morgan’s twinning — including the mayors and municipal representatives of Vancouver, Burnaby and the entire North Shore — as a “few pockets of the more radical views.”

All roads lead to Houston

All Kinder Morgan’s big decisions are made in Houston. Whether it’s in-house legal, human resources, project financing, information technology, communications, audit, tax planning, insurance — the orders come from Texan deal makers.

Kinder Morgan Canada Inc. is an operating arm of the U.S. multinational. Its president, Ian Anderson — who many of us recognize from TV ads — has two people directly reporting to him aside from an executive assistant: a vice-president of operations and engineering, and a vice-president of regulatory affairs and finance. All other corporate functions report to Houston.

On operating matters, Anderson himself reports to Steven Kean. When he files stock trading statements with the U.S. SEC, Anderson identifies himself as a Kinder Morgan Inc. vice-president.

This is where the complex corporate structure begins to come into the picture and helps reveal Kinder Morgan Canada Inc. as more of a mask than a face. Kinder Morgan Canada Inc., registered in Alberta, does not own the Trans Mountain Pipeline system, nor does it own any pipeline, storage, terminal or other assets.

Corporate structure

As shown by the Corporate Structure Chart I’ve prepared to accompany this article, Trans Mountain’s system is owned by corporate entities that feed from Trans Mountain Pipeline LP registered in Alberta, through a myriad of entities.

Click to enlarge (some browsers may require a second click to further enlarge image). Kinder Morgan corporate chart prepared by Robyn Allan. Graphic design by Karl Jensen.

Some of these are ULCs. ULC stands for Unlimited Liability Company. These unique entities only exist in Nova Scotia, Alberta and B.C. They can offer tax minimization opportunities to U.S. parent companies because of their special treatment under the U.S.-Canada Income Tax Treaty.

Trans Mountain Pipeline LP feeds into entities including Trans Mountain Pipeline ULC registered in Alberta, onto Kinder Morgan Canada Company ULC registered in Nova Scotia.

Then we cross the border and into Texas with Kinder Morgan Operating LP “A,” to Kinder Morgan Energy Partners Ltd., to Kinder Morgan GP Inc. to undisclosed entities and onto Kinder Morgan Inc. All U.S. entities are registered in Delaware because of lax laws, but their head office is in Houston, Texas.

The only corporate shares Trans Mountain’s operator Kinder Morgan Canada Inc. owns is its 25 per cent interest in Western Canadian Spill Services Ltd. (WCSS), a terrestrial spill preparedness and response organization that books profits because oil spills can, and do, happen. WCSS’ other shareholders are Enbridge Pipelines Inc., the Canadian Association of Petroleum Producers (CAPP) and the Explorers and Producers Association of Canada.

Kinder Morgan Canada Inc. operates more than Trans Mountain. It also operates the Puget Sound and Trans Mountain Jet Fuel pipelines, Westridge marine terminal, Vancouver Wharves and the North Forty terminal. Kinder Morgan Canada Inc. plays a minor role with the Cochin condensate import pipeline because Kinder Morgan product pipelines group out of Houston, Texas — Kinder Morgan Operating LP “D” — is responsible for operating the actual Cochin system.

The flow of funds gushing away from the Canadian economy takes a slightly different route than the rights over ownership of assets. But the difference is significant — it helps directors and officers as well as the corporate entity itself avoid liability, and assists in minimizing taxes. Companies bother with complex and sophisticated corporate structures because they pay. Whether or not the structure is outside the spirit of the law or represents tax evasion is a matter for the Canada Revenue Agency to investigate and determine.

Limited Partnership unit holders do not have any say in the day-to-day running of a business if they want to protect their limits of liability to what they have invested in the Limited Partnership. This is one reason why, for example, Trans Mountain Pipeline LP would send 99.99 per cent of its partnership unit based financial returns to Kinder Morgan Cochin ULC, but only 0.01 per cent to its general partner, Trans Mountain Pipeline ULC.

The funds then flow to Kinder Morgan Canada Co. — a ULC registered in Nova Scotia and a little bit to Kinder Morgan Terminals Canada — a ULC registered in Alberta. A simpler, more direct and less lucrative route would be to have Trans Mountain as a wholly owned company of Kinder Morgan Inc. in the U.S.

Understanding the corporate structure helps us see how millions of dollars a year generated from Kinder Morgan’s Canadian activities can be repatriated to the U.S. with very little Canadian tax obligation. According to Kinder Morgan, over the past five years for Trans Mountain alone, an average of $172 million a year flows to the U.S. with an annual average tax burden of $1.5 million a year — Trans Mountain received a cash tax refund in two of them.

It is not only distributable cash flow that Kinder Morgan Inc. in the U.S. siphons from the Canadian economy. The Houston based parent charges Kinder Morgan Canada Inc. for corporate services such as in-house legal, human resources, tax advice, auditing, information technology, procurement and insurance.

As well, Kinder Morgan Inc. — the 100 per cent indirect parent of Trans Mountain — is the sole-source financing for all Kinder Morgan activities in Canada. This means interest and fees related to project financing flow to Houston. This effectively removes an opportunity for our financial sector, and Canadian investors, to participate domestically and directly in these federally regulated transportation systems, including the $5.4 billion expansion project.

As the Corporate Structure Chart shows, Trans Mountain’s pipeline system begins as a limited partnership with 0.01 per cent of its units owned by its general partner Trans Mountain Pipeline ULC and 99.99 per cent of its units owned by Kinder Morgan Cochin ULC — the company that owns the Cochin pipeline system.

Recall that ULC stands for Unlimited Liability Company, and that these unique entities, existing only in Nova Scotia, Alberta and B.C., can diminish taxes to U.S. parent companies because of their special treatment under the U.S.-Canada Income Tax Treaty.

Kinder Morgan Cochin ULC imports condensate into Alberta to mix with bitumen so it can be exported back out as diluted bitumen. Cochin used to export propane from Canada until mid-2014. Condensate production and shipment from the U.S. is a Kinder Morgan profit centre.

Trans Mountain’s expansion means every barrel of diluted bitumen exported from Kinder Morgan’s Westridge marine terminal in Burnaby will include 30 per cent condensate imported from the U.S. Trans Mountain’s expansion is not the “made-in-Canada” crude oil export opportunity as is being pitched by Kinder Morgan. What’s more, co-mingling financial returns from Trans Mountain with Cochin’s net results can represent further financial opportunities to Kinder Morgan.

The Corporate Structure Chart higher in this article shows that after Kinder Morgan Cochin ULC has absorbed its returns from Trans Mountain with its operation of the condensate import line and returns from its partnership units in Kinder Morgan Canada Terminal LP, 99.93 per cent of distributable funds flow from Kinder Morgan Cochin ULC to Kinder Morgan Canada Company ULC and 0.37 per cent to KM Canada Terminals ULC.

Kinder Morgan Canada Company is a ULC registered in Nova Scotia with all but two of its directors and officers based in Houston. Mintz is the vice-president and chief tax officer of Kinder Morgan Canada Co. ULC.

Kinder Morgan Canada Co. is a company on paper. It is 100 per cent owned indirectly by Kinder Morgan Inc. through two disclosed and at least one or more undisclosed entities. Kinder Morgan Inc. purchased its 100 per cent ownership in all the Canadian entities as part of its $76 billion acquisition on Nov. 26, 2014. The purchase allows Kinder Morgan Inc. to legally inflate the value of the purchased assets to achieve significant tax write-offs — $20 billion over 14 years turning Kinder Morgan Inc. into a tax shelter according to Rich Kinder.

As part of my right as a qualified expert intervenor at the Trans Mountain expansion project, reviewed and regulated by the National Energy Board, I asked Kinder Morgan to provide a complete corporate structure and reconcile its public claims regarding its financial and tax contribution to the Canadian economy contradicted by its reports to investor analysts in the U.S. Kinder Morgan refused arguing that the request was outside the scope of the public interest review. The National Energy Board sided with Kinder Morgan.

Kinder Morgan’s unwillingness to be transparent and accountable is frustrating. The complicity in this by Canada’s regulatory agency — the National Energy Board — is in my view tragic.

The corporate structure illustrated in the chart accompanying this article is based on a selected rendering submitted to the National Energy Board by Kinder Morgan and independent research I have conducted which relies on numerous outside publicly available sources including federal and provincial corporate registries. Best efforts have been made to be accurate. It should be noted that Kinder Morgan has more than 250 individual corporate entities with as many as 20 registered in Canada — six of them ULCs. The corporate structure provided here focuses on the Trans Mountain system and its related entities.

The Trans Mountain expansion project is a project fronted by a very Canadian sounding Kinder Morgan Canada Inc. when it’s actually driven by Richard Kinder and his executive team in Houston, Texas, many of them ex-Enron employees. Their interests are not our interests.

Canadians are being asked to decide whether a three-fold expansion of Trans Mountain’s pipeline capacity is in our economic interests. At the very least we deserve to know who is running the show, how decisions are made, who gets the money and where it’s going.

Let me repeat. There is nothing I have found in the past year of my research into Kinder Morgan that supports the claim that the Trans Mountain expansion project represents a net financial or economic benefit to the Canadian economy, or federal and provincial public treasuries. It’s just the opposite — Kinder Morgan drains financial wealth from our economy and does not pay its fair share of taxes.

Read more: Energy, Labour + Industry,

Robyn Allan is an economist, former president and CEO of ICBC and qualified expert intervenor at the National Energy Board hearing into whether the Trans Mountain Expansion project is in the public interest of Canada. Find her previous articles for The Tyee here.

Industry Minister Moore makes stuff up to threaten British Columbians

Robyn Allan
He threatened a Lac Megantic disaster if we don’t accept Kinder Morgan’s Trans Mountain pipeline expansion.

Industry Minister James Moore who represents the Port Moody-Westwood-Port Coquitlam riding engaged in blatantly false fear mongering last week. He threatened a Lac Megantic disaster if we don’t accept Kinder Morgan’s Trans Mountain pipeline expansion. In order to springboard from a disgusting reliance on a horrific tragedy to reach his ridiculous conclusion, he had to make stuff up.

These are desperate tactics from someone who as an elected Member of Parliament and Minister of the Crown should know better. He said, “The people of Lac Mégantic wished they had pipelines instead of rail.” If Mr. Moore and his Tory government colleagues had done their job, Lac Megantic would not have happened.

Instead of acting responsibly, Mr. Moore follows up his toxic logic with a distasteful chaser. “It’s very dangerous for the Lower Mainland … to have the massive spike in rail transfer of dangerous goods,” he said. Moore is reported to have pointed to the huge rail yard in the heart of Port Coquitlam claiming an increasing number of trains are arriving there carrying diluted bitumen crude that has no other way to get to foreign markets.

That’s just not true. There are no facilities on the west coast to transfer crude oil from tank cars to marine shipping vessels. CP spokesperson Jeremy Berry confirmed, “CP does not ship oil along its line to Vancouver for export”.

Mark Hallman, CN’s director of communications and public affairs explained by email that, “CN has never transported crude oil or diluted bitumen to any British Columbia port or terminal for export via ocean-going vessel, and has no plans to do so.”

As for the so-called “massive spike in rail transfer of dangerous goods” there is neither a massive transfer or a spike. Transport Canada figures of about 5,000 barrels a day relied on by Mr. Moore date back to 2013. CP confirms that, “2014 numbers are lower than 2013.” It is interesting that Mr. Moore would not use recent figures—maybe because they don’t support his false narrative.

Both the Vancouver Sun and Financial Post printed the grossly misleading story (same article different title).

Mr. Moore is quoted as following up his falsehood about a massive spike in rail transfer with “The people of Port Coquitlam and Burnaby and New Westminster, with dangerous goods going on those rail lines, should be concerned about that.”

If Mr. Moore is concerned about rail transport, he should do everything he can to stop crude transport until its safe, not blackmail Canadians with incineration if we don’t accept pipeline projects.

The truth is it is the Harper government’s unrelenting willingness to cheerlead on behalf of Alberta’s tar sands that is putting us at risk and failing the Canadian economy—including the economic health of our fossil fuel industry.

The Chevron refinery in Burnaby imports a small amount of crude by rail. Chevron began rail-to-truck-to-refinery deliveries in May 2012 and rail-to-refinery deliveries in April 2013 because Chevron couldn’t get enough space on the existing Trans Mountain pipeline—exports took priority over domestic needs.

Crowding out domestic demand is why the relatively small volumes of crude by rail to BC have increased since 2011, not because diluted bitumen is seeking foreign markets. But even if Chevron could export all the crude oil it can now receive by rail, it would take more than two months for them to fill an oil tanker. Mr. Moore’s “heavy oil exports to foreign markets” spin doesn’t even make business sense.

Our safety is not threatened by rail transport of heavy oil. Our safety is threatened by the Federal Government’s de-regulation of transport safety. Since 2010 marine safety budgets have been slashed 28% and rail and aviation by more than 20%. Had Transport Canada done its job regulating the rail industry Lac Megantic would not have happened.

Our safety is also threatened by the Harper government’s unwillingness to ensure Canadian energy self sufficiency. The oil transported to Lac Megantic on that fateful night in July 2013 was Bakken crude—a highly flammable light oil imported from New Town, North Dakota destined for the Irving refinery in New Brunswick. More than 40% of the crude oil used in eastern Canada is imported. The public policy answer is to ensure more bitumen is upgraded in Alberta—what Harper promised would happen in 2008 before foreign multinational interests made him change his mind—not build more pipelines.

Oil sands bitumen is dense like tar or wet cement. It requires imported condensate as diluent to move it through a pipeline. If more bitumen were upgraded in Alberta instead of transported as diluted bitumen for upgrading in other countries we would have plenty of pipeline space.

Barrel for barrel, diluted bitumen requires twice as much pipeline capacity as upgraded bitumen. You need dedicated condensate import pipelines, like Enbridge’s Southern Lights and Kinder Morgan’s Cochin, to bring condensate in, and then you need 30% of the heavy oil pipeline export capacity to re-export condensate as diluent in bitumen. What’s more, diluted bitumen moves 20% slower than light or synthetic crude oil.

Transporting diluted bitumen, even by pipeline, unnecessarily exposes Canadians to a condensate spill. Condensate becomes airborne when released. It’s highly toxic and causes severe respiratory damage. Rail transport of heavy oil requires little or no condensate because oil in rail cars is stationary—the cars move, not the heavy oil.

Mr. Moore was elected to protect his constituent’s interests, not mislead them with erroneous statements and distastefully false arguments. Instead of busying himself inventing boogie men as a front for big oil he should protect the safety and business interests of Canadians—while he still has time.

Robyn Allan is an economist, former president and CEO of the Insurance Corporation of British Columbia and qualified expert intervenor in the NEB Trans Mountain Expansion Project Hearings.

Building Social Movements: Lessons we need to learn

Pablo Iglesias
Podemos leader Pablo Iglesias on radical politics and what it takes to build mass movements.

Spain’s newest political party is also its most popular. With roots in the 2011 indignados movement (also called the 15-M movement), Podemos emerged in January with a petition launched by a few dozen intellectuals. In May’s European Parliament elections, just months after its formation, the leftist party captured 8 percent of the vote. It is now the second largest political party in Spain by membership and the largest in the polls. Even the Financial Times admits, “the new party appears to be on course to shatter Spain’s established two-party system.”

At a meeting held early this year in Valladolid, Spain, Podemos General Secretary Pablo Iglesias offered his thoughts on how the Left can win. Below is an excerpt from that talk. The transcript and translation were prepared for Jacobin by Enrique Diaz-Alvarez.

I know very well that the key to understanding the history of the past five hundred years is the emergence of specific social categories, called “classes.” And I am going to tell you an anecdote. When the 15-M movement first started, at the Puerta del Sol, some students from my department, the department of political science, very political students — they had read Marx, they had read Lenin — they participated for the first time in their lives with normal people.

They despaired: “They don’t understand anything! We tell them, you are a worker, even if you don’t know it!” People would look at them as if they were from another planet. And the students went home very depressed, saying, “They don’t understand anything.”

[I’d reply to them], “Can’t you see that the problem is you? That politics has nothing to do with being right, that politics is about succeeding?” One can have the best analysis, understand the keys to political developments since the sixteenth century, know that historical materialism is the key to understanding social processes. And what are you going to do — scream that to people? “You are workers and you don’t even know it!”

The enemy wants nothing more than to laugh at you. You can wear a t-shirt with the hammer and sickle. You can even carry a huge flag, and then go back home with your flag, all while the enemy laughs at you. Because the people, the workers, they prefer the enemy to you. They believe him. They understand him when he speaks. They don’t understand you. And maybe you are right! Maybe you can ask your children to write that on your tombstone: “He was always right — but no one ever knew.”

When you study successful transformational movements, you see that the key to success is to establish a certain identity between your analysis and what the majority feels. And that is very hard. It implies riding out contradictions.

Do you think I have any ideological problem with a forty-eight hour or a seventy-two-hour wildcat strike? Not in the least! The problem is that organizing a strike has nothing to do with how badly you or I want to do it. It has to do with union strength, and both you and I are insignificant there.

You and I may wish that earth were a paradise for all mankind. We can wish whatever we want, and put it on a t-shirt. But politics is about strength, it is not about wishes or what we say in assemblies. In this country there are only two unions with the ability to organize a general strike: the CCOO and the UGT. Do I like that? No. But it is what it is, and organizing a general strike is very difficult.

I’ve manned the picket lines in front of the bus depots in Madrid. The people there, at dawn, you know where they had to go? To work. They were no scabs. But they would be fired from their jobs, because at their jobs there were no unions to defend them. Because the workers who can defend themselves, like those in the shipyards, in the mines, they have strong unions. But the kids that work as telemarketers, or at pizza joints, or the girls working in retail, they cannot defend themselves.

They are going to be canned the day after the strike, and you are not going to be there, and I am not going to be there, and no union is going to be there guaranteeing them that they’re going to sit down with the boss and tell him: you’d better not fire this person for exercising their right to strike, because you are going to pay a price for it. That doesn’t happen, no matter how enthusiastic we may be.

Politics is not what you or I would like it to be. It is what it is, and it is terrible. Terrible. And that’s why we must talk about popular unity, and be humble. Sometimes you have to talk to people who don’t like your language, with whom the concepts you use to explain don’t resonate. What does that tell us? That we have been defeated for many years. Losing all the time implies just that: that people’s “common sense” is different [from what we think is right]. But that is not news. Revolutionaries have always known that. The key is to succeed in making “common sense” go in a direction of change.

César Rendueles, a very smart guy, says most people are against capitalism, and they don’t know it. Most people defend feminism and they haven’t read Judith Butler or Simone de Beauvoir. Whenever you see a father doing the dishes or playing with his daughter, or a grandfather teaching his grandkid to share his toys, there is more social transformation in that than in all the red flags you can bring to a demonstration. And if we fail to understand that those things can serve as unifiers, they will keep laughing at us.

That’s how the enemy wants us. He want us small, speaking a language no one understands, in a minority, hiding behind our traditional symbols. He is delighted with that, because he knows that as long as we are like that, we are not dangerous.

We can have a really radical discourse, say we want to do a general wildcat strike, talk about the people in arms, brandish symbols, carry portraits of the great revolutionaries to our demonstrations — they are delighted with that! They laugh at us. However, when you gather together hundreds, thousands of people, when you start convincing the majority, even those who voted for the enemy — that’s when they start to be afraid. And that is called “politics.” That is what we need to learn.

There was a fellow here who talked about the Soviets in 1905. There was that bald guy – a genius. He understood the concrete analysis of a concrete situation. In a time of war, in 1917, when the regime had crashed in Russia, he said a very simple thing to the Russians, whether they were soldiers, peasants, or workers. He said: “bread and peace.”

And when he said “bread and peace,” which is what everyone wanted — for the war to be over and to have enough to eat — many Russians who had no idea whether they were “left” or “right,” but did know that they were hungry, they said: “The bald guy is right.” And the bald guy did very well. He didn’t talk to the Russians about “dialectical materialism,” he talked to them about “bread and peace.” And that is one of the main lessons of the twentieth century.

Trying to transform society by mimicking history, mimicking symbols, is ridiculous. There is no repeating other countries’ experiences, past historical events. The key is to analyze processes, history’s lessons. And to understand that at each point in time, “bread and peace,” if it is not connected to what people think and feel, is just repeating, as farce, a tragic victory from the past.

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News story of the year: Kinder Morgan’s proposed pipeline expansion

If there’s one fight that captured our readers’ attention this year, it was the Kinder Morgan pipeline expansion and the city’s battle with the company on Burnaby Mountain.

Local opposition to the proposed pipeline has been fierce, with pipeline opponents raising concerns about oil spills, tanker traffic and climate change.

It’s no secret Mayor Derek Corrigan and council are against the pipeline expansion anywhere in Burnaby, but when Kinder Morgan started survey work for a proposed pipeline route through a city-owned conservation area, Burnaby fired back with stop work orders and fines for violating a local bylaw that prohibits cutting trees in public parks.

Kinder Morgan then went to the National Energy Board, which issued an order directing the city to back off. That’s when hundreds of residents from Burnaby and beyond descended on the mountain. When Kinder Morgan showed up for work, protesters drove their contractors away, some shouting foul language, and one young chap chained himself to the underside of a work vehicle.

This time, Kinder Morgan went to the B.C. Supreme Court, asking for an injunction. The company’s lawyers were arguing that people’s facial expressions constituted assault, and although there may be legal merit to that argument, the public found it absurd. People posted selfies of their menacing “Kinder Morgan faces” on social media, and the #KMFace Internet meme went viral.

On Nov. 14, the court gave Kinder Morgan its injunction, ordering protesters to stay away or risk arrest. Police arrived on the mountain in larger numbers on Nov. 20, sealed off Centennial Way and set up a no-go zone around Kinder Morgan’s work areas. But that didn’t stop hundreds from gathering on the mountain for what would become a 10-day standoff. In all, 126 people crossed the injunction line, including two 11-year-old girls. The girls were not arrested; they were simply detained and released, but that sparked another controversy over whether their parents should have them cross and adults in general should take their kids to protests. Even Premier Christy Clark chimed in, criticizing the parents for letting their kids break the law, while her detractors quickly pointed out how she ran a stop sign with her kid and a reporter in the car.

Other high-profile appearances on Burnaby Mountain included David Suzuki, who admonished the RCMP for allegedly pulling his grandson across police lines so he could be arrested. Many Burnaby residents were arrested for violating the injunction, including Ruth Walmsley and Peter Cech, father of one of the 11-year-old girls. Both adults are members of Burnaby Residents Opposing Kinder Morgan Expansion. SFU professor Lynne Quarmby was also arrested.

Grand Chief Stewart Phillip of the Union of B.C. Indian Chiefs also crossed the injunction line on Nov. 27. Dressed in a suit, with red face paint, the First Nations leader stood facing police at the injunction line in the woods, in the thick of a drumming and singing crowd. Phillip slipped under the police tape, and RCMP respectfully took him into custody.

Later that day, news broke that a B.C. Supreme Court threw out all civil contempt charges against the protesters, because Kinder Morgan screwed up the GPS coordinates, which meant no one really knew where the injunction areas were. Protesters followed up with more celebratory gatherings on the mountain.

The Battle on Burnaby Mountain has all the hallmarks of a classic David and Goliath tale, but the central issue is whether a federally appointed body, like the NEB, can override a city’s bylaws. It’s something the courts have yet to rule on, and the city is still pursuing legal action to defend its bylaws. The NEB Act already allows companies like Kinder Morgan to conduct survey work and build pipelines on Crown land and private property without the landowners’ permission, but never before has a city come up against the NEB the way Burnaby has, meaning any court decisions on the matter will be precedent setting and could have implications for other municipalities across the country.

The mayor is spot on when he says this is just Phase 1 of a very long war. We are certain Kinder Morgan will dominate the headlines for 2015 and years to come. If something as simple as survey work led to a 10-day standoff with police and protesters, one can only imagine what will happen if Kinder Morgan actually starts building the pipeline.

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Newsmaker of the Year: Pipeline expansion dominates the headlines

Kinder Morgan’s pipeline expansion proposal made headlines in a big way in 2014, culminating in two weeks of protests in November that dominated the Twittersphere.

The project, to almost triple capacity on the Trans Mountain pipeline between Edmonton and Burnaby to export oil sands crude to overseas markets, has been in the news for the last couple of years.

But 2014 was the year when people had a chance to apply to participate as intervenors. The National Energy Board (NEB) accepted 400 as being directly affected while many others were turned down. It was also when Kinder Morgan decided it preferred routing the pipeline in a tunnel through Burnaby Mountain itself, causing the NEB to extend the review process.

It was the year when both the company and City of Burnaby waged a legal battle, with the city attempting to stop survey and geotechnical study work in Burnaby Mountain Conservation Area after several trees were felled.

And when the NEB granted the company an order preventing Burnaby from interfering, and the courts granted an injunction to keep protesters away from the work site, that’s when protesters actively took to the mountain.

About 100 protesters defied the injunction, and were arrested for civil contempt last month, only to have the charges thrown out after the company admitted it inadvertently provided the wrong GPS coordinates for the area that was off-limits.

But for Lindsay Meredith, Simon Fraser University marketing professor, the pipeline story was a classic case study in what companies ought not do.

Resource companies and businesses who sell to other businesses, have been slow to realize the game has changed now that the Internet and social media have leveled the playing field, Meredith said. “Corporations ignore this stuff at their peril.”

In the past, such companies were involved in one-way communications, “which was government and big corporations talking to the rest of the peons.” It used to be “nobody else could do it when you had to cough up a couple million dollars on an ad campaign, but anybody can put up a website and anybody can get on a social network site.”

As a result, small groups with small budgets “very quickly become very, very accomplished marketers.” They’ve become adept at getting out their messages highlighting the negative attributes of a project such as the Trans Mountain pipeline project.

Meredith specifically cited First Nations groups and environmentalists as becoming “extremely accomplished” at this game.

“Guys like Kinder Morgan are running smack into the old glass plate wall and getting their nose smashed in. And they’re in shock, they can’t figure out what the hell happened. Now they’re starting to catch on very quickly.”

In recent months, Kinder Morgan, Enbridge, and other energy-related companies have been “advertising like hell,” all trying to position themselves as being part of the community.

“They’re all trying to basically play the same game, which is grassroots consumerism, trying to get back down to that level to try and gain a toehold to counter this negative attribution because the environmentalists and the natives are cleaning their clocks.”

All that advertising is an expensive way to try and get people on side, but they have the means and the stakes are high.

When social media sites get critical mass, generating lots of attention, mass media start to take notice, Meredith explained. The mass media then draw even more attention to such smaller groups, creating even more critical mass at the grassroots level and in turn generating even more media coverage.

Everyone is trying to influence that silent majority that rarely gets the attention that the squeaky wheels do. And once public sentiment goes one way, “that scares the hell out of the politicians,” he said. Political stakeholders then influence government regulatory bodies, and in one scenario, a project can be rejected.

With the next federal election scheduled to take place in 2015, before the NEB is slated to make a decision on the pipeline application, there will continue to be a push to influence public opinion before voters go to the polls.

“Kinder Morgan should’ve seen this one coming more and got much more active before the protests ever got off the ground.”

Meredith noted if your company has had bad publicity in the past, “it will come back and haunt you.”

He believes that’s the case with Kinder Morgan whose pipeline was ruptured by a backhoe in 2007, showering the Westridge neighbourhood in crude oil. The Transportation Safety Board concluded the incident was due to outdated pipeline maps, exacerbated when the company responded to the spill by turning off the flow of oil at the tanker ship it was loading, not at the source.

Why the company would choose to involve the same neighbourhood in its expansion plan is a head scratcher, said Meredith.

“There are so many signals, hey boys, give your head a shake, you’ve got a problem here. That is what I like to put so delicately—that’s what you get, serves you bloody right when you let a bunch of engineers run things.”

Meredith suggested it would have made more sense, at least from a marketing point of view, to route the pipeline down to Delta, through farmers’ fields, “and put a great big nice deep-water offloading oil port and keep those tankers way down there, way out of sight.

“Instead, let’s choose the difficult ground. Go over an area in North Burnaby where we already pissed off the locals. Get a whole bunch of freighters coming through a narrow gap and getting [Vancouver Mayor Gregor Robertson and Burnaby Mayor Derek Corrigan, both outspoken opponents of the project] worked up and then start saying, ‘OK, gee I wonder why people kinda hate us?’ ” he said.

“Not in my marketing class.”

Falling Oil Prices Could Rock Canada’s Politics: Expert

What do the plummeting oil prices tell us not only about our near term economic future in Canada, but the political fragility of the world’s petro states?

If Canada fully joins the petro state club, as our prime minister and his party desire, is oil’s volatility just the cost of doing business, or a threat to our nation’s well-being?

The ideal person to ask is Terry Lynn Karl, one of North America’s foremost experts on the politics of oil. The Tyee recently caught up with Karl, who teaches at Stanford University and lives in San Francisco.

Asked in a wide ranging interview what Canadians might expect if oil prices stay low for a few years, she predicted “a rapidly declining Canadian dollar, greater problems over pipelines, the reduction of future investments, and a very bumpy oil ride, especially for Alberta.

“Any adverse effect low oil prices will have on Canada’s high cost oil industry will have a multiplier effect on the economy and polity. Government services will be cut back, house sales will decline, and banking will slow down. Canadians will not be so happy with their government.”

‘The Paradox of Plenty’: a classic

How oil shapes the relationship between citizens and their governments has been the focus of Karl’s work since 1976, when she journeyed to Venezuela as a young doctoral candidate. The researcher wanted to find and interview the founder of the Organization of Petroleum Exporting Countries (OPEC), Juan Pablo Perez Alfonzo.

But Perez Alfonzo, a testy fellow, wanted nothing to do with this academic inquiry.

Then he relented. Karl even stayed with his family for two days.

Her visit corresponded with the first huge increase in oil prices — the days of “Venezuela Saudita” — when petrodollars poured into the country, and Venezuelans partied as never before. But Don Juan Pablo (as she called him), one of Latin America’s first conservationists, was not celebrating.

“You are such a smart girl,” OPEC’s founder remarked as he closed the interview. “Why study OPEC? It’s so boring?”

“Don Juan Pablo, what would you suggest I study?” Karl wondered aloud.

“Study what oil is doing to us,” he said. “Eventually, oil will bring us ruin. We are drowning in the devil’s excrement.”

Since then, Karl has studied the impact of oil revenue on oil-exporting states. Her seminal book, The Paradox of Plenty, remains a classic on how the world’s most capital-intensive industry corrodes the economy, politics, and culture of most oil exporting states in much the same way gold undid King Midas.

Karl even coined the term “petro state.” She developed her thinking from the so-called staple theory of Canadian historian Harold Innis. “I was excited to read his work. Everyone at the time thought having oil meant certain and progressive development. But they had not read Innis, the Iranian Mahdavy or the great economist Albert Hirschman who wrote about how commodities shape development — for good and bad.”

Petro states aren’t like other states for several reasons, says Karl.

For starters, their dependence on oil profits breaks the necessary link between taxation and representation. Instead of extracting state funds from citizens, wealth magically comes from the ground. This makes governments unaccountable; it means that people don’t demand to see how money is spent.

And oil governments, in turn, tend to treat their citizens like subjects, either paying them off or, when necessary, repressing them. Wedded to boom and bust cycles, oil-dependent regimes are either overspending to keep themselves in power or accruing debt to mask problems with seemingly no ability for fiscal reform.

Oil and highly centralized rule go together. Oil wealth permits governments to dismantle accountability mechanisms, weaken bureaucracies and undermine the rule of law.

Karl further found that although petro states appear strong, and some governments last for long periods of time, these oil infused regimes are highly vulnerable. When they collapse, they fall apart very quickly. Neither autocracies nor democracies are immune.

Petro-fueled environmental damage, violence and civil war often dominate oil-producing regions. In this respect, Karl sees resonance in Perez Alfonzo’s words: oil is indeed the devil’s excrement.

In her conversation with The Tyee, Karl commented on falling oil prices, climate change, vulnerable petro states, aboriginal resistance to oil, the commodity’s increasing volatility, and whether or not Canada is a petro state.

Tyee: How will falling oil prices affect global politics and the stability of some petro states?

Karl: “The effects of falling oil prices will be quickly felt in Venezuela, which is extremely vulnerable. If oil keeps dropping, the country’s employment, standard of living and GDP will be affected. This tends to make people not like their government.

“Venezuela, which is already extremely polarized, is in big trouble. In this respect, there is a big difference between how oil prices affect Canada and the U.S. and how they affect countries where the politics have become totally petrolized. Where there is simply no difference at all between wealth and power, where corruption and rent seeking have taken over the whole enterprise or where conflict is already very high, these are the most vulnerable countries.

“Venezuela has been an economic and political mess for a long time — well prior to the rise of Chavez. Indeed, Chavez came to power during the 1998 price collapse because the former party system could not manage the oil economy, control massive corruption, or direct petrodollars to alleviate poverty.

“But the current government does not have the power or charisma of Chavez nor economic management capacity.

“Thus, even though prices are much higher than 1998, like the party system earlier, it too is facing a perfect storm. If prices stay low and the economy continues to contract, grave civil conflict could result. In this respect, those who want to see the complete collapse of chavismo should be careful what they wish for. Venezuelans would be better off negotiating their crisis.”

What about Putin’s Russia, a classic petro state where oil revenues make up more than 50 per cent of government revenue?

“Russia isn’t quite as vulnerable as Venezuela, but because it is a global power its fate is more important. In the face of both sanctions and low prices, the ruble has plummeted, debt is rising, living standards are declining, and food prices are up sharply. With oil prices high, Putin took certain actions in the Ukraine and elsewhere because he felt untouchable; his popularity remains very high.

“But this could change very quickly if prices remain low.

“Most people don’t understand that the decline of the former Soviet Union was closely linked to the 1986 collapse in oil prices. Putin later took advantage of high prices to build his own personal power. That could be at stake if prices stay low.”

What about Saudi Arabia (a Sunni state) which has played a major role in orchestrating the price collapse by flooding the market with its low cost oil?

“Saudi Arabia is the most interesting petro state of all because of its continued influence on prices.

“The Saudis have obviously learned a lot from their orchestration of the 1986 price collapse, which they used to increase their market shares. This time the net effect of low prices is good for them in many ways. They have substantial financial reserves, and they can weather this low price better than any other major oil exporter.

“What is really interesting is how quiet and calm they are. The government is not saying much. But lower prices permit the Saudis to protect their market share in the face of the huge production threat from the U.S.; lower prices, if they last over time, will drive some high cost shale and bitumen producers out of the market.

“Saudi Arabia has always used oil prices for its regional political ends. When prices were high, they gave ten times more money than the US to the Egyptian generals. Now that prices have dropped, this plunge directly weakens their biggest rival, Iran (a Shia state), which is in a tacit alliance with the U.S. in the fight against ISIS. Saudi Arabia should weather this period well.”

Why is this oil price collapse different than previous ones?

“The United States is a major oil producer this time around. Production is higher than it has been since 1972, and over half of this comes from relatively high cost fracking. Equally important, this has a secondary effect on international financial markets, especially because oil has become a hugely traded financial asset. Today, oil price volatility has become a tipping point in the financial system.

“Oil prices and stock markets used to go in different directions. When prices went up dramatically, market hysteria pushed stocks down, and recession would ensue. Because the price is now down, this should be a boon to consumers, help the economies of consuming nations, and represent a massive transfer of wealth from oil producers to oil consumers. But the stock market doesn’t reflect this. In the last few years, the markets and oil prices are moving in tandem, and this is new.

“I suspect there are several reasons for this. First, advanced industrialized economies, and most especially the United States, have reached historic highs in inequality. This means that there is no wage growth, there is little consumer spending and the main concern is deflation, not inflation. While low prices help consumers, they simply will not have the same effect given acute poverty levels and the squeezing of the middle class.

“Second, the global economy may be de-accelerating, meaning this is not just a supply glut but also a reflection of lower demand from China, Europe and elsewhere.

“Finally, the stock market is reflecting the dangerous intertwining between oil futures and junk bonds, which was not the case decades ago.”

Both oil companies and global economies are now carrying great debt loads as hydrocarbons become more extreme and difficult to extract. The world’s largest 127 oil and gas firms generated $568 billion in cash from their operations during 2013-2014, while their expenses totalled $677 billion? How is debt affecting this whole picture?

“Debt is the Achilles heel of this picture. If prices remain low for several years, a lot of U.S. shale producers have high debt loads, especially in junk bonds. Today, energy debt currently accounts for a substantial 16 per cent of the U.S. junk bond market. If these producers start going bust, investors in junk bonds will be in for a shock.

Terry Lynn Karl: ‘We are in a situation where oil supply limits can cause recessions and oil supply gluts can cause stock market failures.’

“But this is only part of the picture.

“Dropping oil prices affect international debt as well, creating a high risk of default by countries like Venezuela. Around the world two sets of debt are coming in — from the high cost bitumen and shale oil producers who borrowed to help create the current supply glut and oil exporting producers who have borrowed heavily. Both affect the entire financial system.

“The biggest danger of prolonged low prices is a debt-related collapse linked to the rising cost of hydrocarbon extraction. Because low oil prices take a while to work their way through the system, this is not an immediate threat. But we should not forget that falling oil prices and junk bonds all played a role in the crash of 2008.”

Will oil prices stay low for a while?

“Uncertainty is the name of the game now. The price of oil is more volatile than ever before. Oil is linked to finance more than ever before. And the economies of producing and consuming countries are more intertwined than ever before.

“Predicting prices is a fool’s errand. Oil prices could stay down in 2015. There is a lot of supply and little demand right now. But what happens if unrest increases inside some oil-exporters because their regimes are forced to cut back on their extensive food and oil subsidies? What happens if conflict disrupts supply in Libya, Venezuela, Nigeria, Iraq or Iran? The price of oil could soar overnight.

“I don’t know how things will play out. But there is the tightest of links not only between the global economy and finance but also energy producers, environmental damage and the speed up in climate change. We are in a situation where oil supply limits can cause recessions and oil supply gluts can cause stock market failures.

“We urgently must wean ourselves from fossil fuels. All we are doing now is moving costs and benefits around in a highly volatile system. Few win, and most people lose. But I am not optimistic that this will happen before the consequences are catastrophic. There is just too much money in oil. As long as these extraordinarily high profits exist, oil will be extracted and politics will be petrolized to prohibit better alternatives.”

What have some aboriginal people foreseen about oil that industrialized societies haven’t?

“In Asia, Africa and Latin America, companies are searching for oil in pristine areas where ethnic minorities and indigenous peoples live. There are conflicts between Aboriginal people and oil companies everywhere. In northwestern Columbia, for example, some 5,000 U’wa have been battling Occidental Petroleum for years. The U’wa believe that oil is the blood of earth. When you take out too much blood from the body of Mother Earth, this will bring fluctuations in weather, fires, huge storms and changes to the climate.

“One U’wa chief came to my office at Stanford and stood in line during my office hours. Dressed in traditional garb, he did not look like any of my students. He did not speak Spanish, and I quickly learned that the U’wa do not have a written language. But through an interpreter, he explained that as head of 200 religious leaders; it was their duty to protect the earth. These U’wa religious leaders had made a pact to commit collective suicide if they failed to protect their territory from Occidental Petroleum.

“After years of struggle, including court cases in Colombia, Occidental was stopped — at least temporarily. Pretty sobering…”

Does the term petro state fit for places like Alaska, Texas, Louisiana, Alberta and Saskatchewan?

“Yes and no. When I developed the idea, I referred to the central government, not states in a federalist system. The petro state applied only to capital deficient oil exporting countries with big populations that were late developers.

“Since the U.S. was a producer but not an exporter, the same effects were not present.

“I showed that petro-states had the effect of replacing tax mechanisms with excessive oil profits, and this, in turn, then petrolized the whole political and economic environment. Oil influence and oil issues dominated the government.

“Petro states do not have to bargain or negotiate with their citizens. Their power depends on how they pass around oil revenues, how this wealth is distributed. Regimes that do that well, like the Saudi royal family or the former Venezuelan two party system, stay in power for a long time. Those that keep the revenue too closely inside their own support base, whether this is an autocratic family or a small religious or ethnic group, often don’t last as long.

“In most petro states, government spending is never an issue for public debate. Norway, the exception that proves the rule, has constant debates about oil distribution, even between its citizens today and future generations.

“A centralized power, to the contrary, just hands out petrodollars, quieting the loudest voices and its own power base. Thus statecraft is stifled. Because petro states invite little debate, nourish no coherent bureaucracy and engage in volatile spending, the state’s institutions get weaker and weaker. Stability-wise, this is not good.

“Alaska and Texas and Alberta are all part of a federal system, but they certainly take on some of the same characteristics of petro states. If you look at Texas or Alaska, and how they distribute oil wealth, they have boom and bust cycles just like an oil state, and they have repeated serious trouble balancing their budgets. But this volatility is mediated by central government.

“As easy oil becomes scarcer, and the commodity becomes even more valuable, oil politics inside these states have a contagion effect and tend to increasingly influence the central government. I suspect this same phenomenon can be seen in Alberta and the Canadian government.”

There are many such indicators in Alberta and Canada. Pipelines dominate all political discussion. Environmental legislation has been gutted while environmentalists and aboriginals protecting their land have been branded as foreign-funded radicals. The Harper government has centralized power enormously. Climate change is regarded with skepticism. Little money has been saved from oil. Alberta is a fiscal basket case. Foreign policy consists of bashing other petro states because Canada has so-called ethical oil. And scientific dissent has been muzzled.

“This does not surprise me. Democracies today are especially vulnerable to oil interests. But if oil prices stay low, this political arrangement won’t last over time.

“Instead, if prices continue declining and if they stay low for a few years (two big ‘ifs’) — they have already dropped 40 per cent but no one knows whether this price will endure — expect the following: a rapidly declining Canadian dollar, greater problems over pipelines, the reduction of future investments, and a very bumpy oil ride, especially for Alberta.

“Any adverse effect low oil prices will have on Canada’s high cost oil industry will have a multiplier effect on the economy and polity. Government services will be cut back, house sales will decline, and banking will slow down. Canadians will not be so happy with their government.

“How long will the prices stay down, and how long will it take for those effects to work their way through the economy? That is the question. If other vulnerable petro-states collapse, like Venezuela or Libya, or if conflict removes oil from the market, prices quickly could soar again.”

Has oil ruined us, as Perez Alfonso feared?

“For those of us living in advanced industrialized countries, inexpensive oil through 1970 has largely made our current standard of living. But Perez Alfonzo understood that oil is a non-renewable resource. It has huge costs associated with it, not only benefits.

“Let me be clear: the commodity itself is neither good nor bad.

“But the excessive profit involved from what Adam Smith called ‘reaping what has not been sown’ has led to a concentration of power and influence that makes it exceptionally difficult to fight the negative consequences of hydrocarbon dependence. This is true not only in Venezuela, Nigeria, Russia and the Middle East but also in the U.S. and Canada.

“Today, more than ever before as the ‘easy’ oil is being used up, the exploitation of petroleum in pristine environments hurts our water and the air we breathe. It threatens our climate. It props up authoritarian regimes and increases the propensity for war. In this respect, Juan Pablo Perez Alfonso was a visionary. He saw something about ‘the devil’s excrement’ before anyone else, and then he was kind enough to show it to me.”

Read more: Energy, Politics,

Andrew Nikiforuk is an award-winning journalist who has been writing about the energy industry for two decades and is a contributing editor to The Tyee. Find his previous stories here.

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