Pipelines Are Not ‘Too Risky,’ But Too Political

In discussing his government’s decision to purchase the stalled Trans Mountain pipeline expansion, Canadian Prime Minister Justin Trudeau blamed the expansion’s uncertainty on environmental opposition in British Columbia as making the project “too risky for a commercial entity” such as Kinder Morgan Canada Ltd. to build.

This candid remark was an about-face for a politician who has distinguished himself as a passionate environmentalist, an irony not lost among his former green supporters. Yet, expanding Canada’s existing pipeline infrastructure is critical to bringing its domestic energy to new markets overseas and harnessing the energy revolution already well-underway in North America.

The Trans Mountain expansion was deemed “too risky” for the private sector to complete because environmental activism has made pipelines too political. As this activism has become increasingly professionalized, digitized and globalized, it requires an entirely new mindset for companies that have operated in and mastered their business environment over the past century.

Midstream projects such as pipelines are more vital to America’s economic growth engine than ever before, and they used to be non-controversial, with most opposition generally being a localized result of NIMBY-ism. Certainly, the staid bureaucratic process of the Federal Energy Regulatory Commission was known only to those who had direct interests in front of the commission, unlike today where the agency’s use of “tolling orders” has been leveraged by environmental groups to disrupt and delay pipeline projects, and where environmentalists increasingly look to the courts — of law and of public opinion — to overturn the agency’s pipeline approvals. The commission itself has also come under increased pressure to consider and address the potential contributions to climate change from midstream projects.

Signs of these growing risks have flared up over the past decade. Activism targeting the energy infrastructure industry has been on the rise since the Keystone XL pipeline inspired a chain of activists around the White House in 2011 and grew into a political litmus test for Democratic candidates up and down the ticket ever since.

It then continued with the massive protests against the Dakota Access pipeline, and has metastasized to focus on projects currently underway across North America. Trans Mountain was the latest, but certainly not the last, casualty of these efforts. Banks and financial institutions that invest in energy infrastructure have also not been spared, as activists are demanding that they divest from fossil fuels, and some banks have already caved to the pressure.

Keystone, Dakota Access and Trans Mountain are not aberrations, but signs of the new normal. Taken together, they represent a growing trend toward tension, confrontation and uncertainty between the energy industry and its emboldened opponents. The energy industry must adapt to the political and reputational risk stemming from this activism, or else risk financial consequences that would negatively impact the economy and national security of the countries in which they operate.

The first step for the industry to protect itself is to acknowledge its growing reputational and political challenges. While the temptation to breathe a sigh of relief may be strong, especially if a company’s projects and interests are not directly impacted by recent events, vigilance and preparation to anticipate and mitigate activism before protesters arrive at their projects — or at the local water boards and administrative hearings they are holding — must now be an essential measure for any company building energy infrastructure in the 21st century.

Community engagement and good-neighbor policies will always remain an important component of getting pipelines built; however, these tactics are no longer enough in the face of a determined and professionalized activism that will not stop until fossil fuels are completely eradicated. This reality is the new operating environment for the energy industry. Unlike technical and geopolitical risks of the past that were mitigated through feats of engineering and corporate diplomacy, politicized activism targeting energy infrastructure can only be addressed through a proactive strategy built for the public arena.

Jeff Berkowitz is founder and chief executive of Delve, a Washington-based competitive intelligence firm that has worked on a number of energy projects.

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