A Lesson in Diplomacy for Pipeline Companies

A proposed Canadian project provides a better model for dealing with opposition.

Jul 11, 2014 at 12:08PM

Big energy projects often bring out opposition groups. Investors often think of such groups as intractable opponents and as obstacles to overcome. But a proposed project in Canada shows that this isn't always the case.

Opposition groups have blocked Canada's efforts to bring its oil and gas to international markets at every turn. TransCanada's (NYSE:TRP) Keystone XL pipeline encountered environmental concerns, while Enbridge Energy's (NYSE:ENB) Northern Gateway line met resistance from First Nations groups.

But on July 8, Steelhead LNG and the Huu-ay-aht First Nations (HFN) announced a joint project to develop a liquefied natural gas (LNG) facility on Vancouver Island. The proposed $30 billion project would produce up to 30 million tons of LNG per year, using gas from northern British Columbia. While this project is a long way off, and Steelhead isn't a public company, its approach to the project should interest energy investors.

A new model of cooperation
Representatives of both Steelhead and HFN compose a panel that will oversee the Steelhead LNG project. The project will only proceed after extensive consultation with Huu-ay-aht citizens. Contrast this constructive, consultative approach with what happened between Enbridge and First Nations.

First Nations are a group of 634 indigenous cultural communities across Canada. While such groups have opposed Enbridge's Northern Gateway pipeline and other energy projects, this didn't have to happen according to Doug Eyford, the Prime Minister's special envoy on aboriginal and energy issues.

According to a report in the Globe and Mail, Mr. Eyford feels that the Canadian government failed to help Enbridge navigate complex First Nation issues, and failed to consult First Nations groups early in the process. The report quoted the envoy as saying, "I was struck that some of the communities that are today threatening judicial proceedings and civil disobedience were at one time requesting meetings with federal officials and making what I believe, in retrospect, were feasible proposals to address the environmental and other issues associated with the project. Regrettably, there was no uptake."

More opportunities for investment
There are energy projects in Canada worth about $100 billion, and people like Mr. Eyford are working to gain aboriginal support for them. The way to do this is exemplified by the Steelhead LNG proposal. This is just a first step, but it may open the door to improved relations between the energy industry and First Nations groups in Canada.

The Steelhead LNG project will also be working with pipeline companies to deliver gas from northern B.C. to Vancouver Island. Such a pipeline company, by developing relationships with First Nation groups, could gain a strong competitive advantage.

Growth

Source: Enbridge Energy.

Enbridge and TransCanada are certainly candidates for involvement in the project. For Enbridge, it might go a long way toward mending fences with First Nations, and may even lead to an accommodation on its Northern Gateway Project. TransCanada has experience in similar projects. Its proposed Coastal Gaslink pipeline is part of a $9 billion project to move LNG to a proposed liquefaction plant at Kitimat on the Pacific coast.

Another company looking for pipeline projects in British Columbia is Spectra Energy (NYSE:SE) and its master limited partnership Spectra Energy Partners (NYSE:SEP). In 2012, Spectra helped develop plans for a pipeline from B.C. to a proposed LNG plant in Prince Rupert. The Financial Post quoted Spectra's CEO, Greg Ebel, as saying of British Columbia, "I don't think we are done with proposals." He went on to say, "The investment opportunity in U.S. LNG is hundred of millions, as the infrastructure is mature there, as opposed to billions of dollars in B.C."

The Zen of Foolishness
Investors in pipeline companies like Enbridge, TransCanada, and Spectra know how frustrating opposition to large capital projects can be. Look for companies that try to consult with opposition groups early on instead of taking a confrontational approach.

Also, keep an eye out for companies that get involved with the Steelhead LNG project. Any such company could gain a large competitive advantage through its relationship with First Nations. Such a company also demonstrates a more successful approach to working with potential opposition groups.

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Scott Percival has no position in any stocks mentioned. The Motley Fool recommends Spectra Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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