The path of least resistance

The long awaited spring thaw is finally underway in Alberta, the snow is melting and the run-off in some places is quite substantial. As we watch the snow banks disappear and transform into small streams and rivers, there is one natural law that stands true for all of them; they will always take the path of least resistance. That is the physical path that allows for the least resistance to forward motion.

Investment capital is very much like the water we see running during the spring run-off. Investors who hold the capital that fund large industrial projects, that eventually create the tax revenue through wages and corporate taxes we rely on for infrastructure, also search for the path of least resistance. Like water, when that path is obstructed, they will find a more accommodating route.

When faced with countless illegal blockades by protestors and legal challenges from the British Columbia NDP coalition government, Kinder Morgan has suspended the Trans Mountain pipeline expansion spending on all non-essential activities and related spending related to the project. Creating even more obstacles, B.C. Premier John Horgan has committed to doing whatever his government can to stop the project.

Kinder Morgan Chairman and CEO, Steve Kean stated in the company announcement that “as KML has repeatedly stated, we will be judicious in our use of shareholder funds. In keeping with that commitment, we have determined that in the current environment, we will not put KML shareholders at risk on the remaining project spend.”¹ Unfortunately Premier Horgan fails to grasp that investment capital has no loyalty, and like water, it will follow the path of least resistance.

The shared ideology of the NDP across Canada has created an environment that consistently creates barriers for potential investors; at least that is the message Kinder Morgan are taking away from the current Trans Mountain pipeline dispute.

Kean added that the resistance coming from the B.C. government “leads us to the conclusion that we should protect the value that KML has, rather than risking billions of dollars on an outcome that is outside of our control.” The company has already spent about $1.1 billion on the $7.4-billion project so far and now completion of the project is being seriously compromised.

Like the gravity that causes water to seek the path of least resistance, the Chairman of Kinder Morgan is running out of options for the shareholders and is left with few options to properly protect their investments. Until the notion that Alberta oil and gas should be left in the ground and the reality of what our economy operates on is understood, the path of investment capital will not be traveling through Alberta.

Investors generally understand risk, however when the landscape is obscured with countless unnecessary obstacles, it does not bode well for the future of Alberta. The Alberta government’s new ideological policies have resulted in investment capital being diverted and fleeing out of Alberta. If they fail to get their B.C. counterparts to see the light, it looks like it may go from a trickle to a torrent of vacating capital!

¹ http://calgaryherald.com/business/energy/live-notley-news-conference-on-kinder-morgans-suspension-of-work-on-trans-mountain-pipeline

 

 

 

 

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