Oil Flowing West to Asia Pushes Vancouver Port Growth: Freight

The port of Vancouver, Canada’s busiest, may issue debt to help finance the largest expansion in its history as the country’s resource companies move to boost shipments amid escalating Asian demand for coal, grain and oil.

Kinder Morgan Energy Partners LP (KMP), the biggest U.S. pipeline operator; Teck Resources Ltd. (TCK/B), the country’s largest diversified mining company, and grain-handler Richardson International Ltd. are among companies moving to increase shipments through Vancouver’s deep-water anchorage.

“We’re seeing hundreds of millions of dollars of private capital being invested in the gateway to create capacity,” Robin Silvester, chief executive officer of Port Metro Vancouver, said Feb. 15 by telephone. The government-linked port operator may also sell as much as C$400 million ($391 million) of bonds to fund its share of an expansion of container-handling capacity, he said.

Canada’s economic growth has been restrained by weak exports to the U.S., its largest trading partner. Bank of Canada Governor Mark Carney, who takes over as Bank of England head on July 1, has said the country’s businesses should export more to faster growing regions such as Asia.

The share of Canada’s exports headed to Asian markets such as China, Japan and India has more than doubled to 7.9 percent over the past 10 years, Statistics Canada data show, and the dollar value of those shipments has increased 132 percent to more than C$35 billion a year.

U.S. Exports

Canada’s exports to the U.S. haven’t recovered after falling from a monthly peak of C$34.2 billion in July 2008, before the country’s last recession. While trade with Asia has increased, the U.S. is still the destination for almost three- quarters of Canada’s foreign shipments.

The port’s expansion plans have drawn fire from environmentalists and aboriginal communities concerned about climate change, possible oil spills and the loss of agricultural land to development. Still, the opposition hasn’t deterred companies from pushing ahead.

The growth spurt is part of an estimated C$9 billion of spending by the port, local municipalities, private industry and the governments of Canada and British Columbia since 2006 to increase handling capacity and to eliminate road and railway bottlenecks.

‘National Priority’

Houston-based Kinder Morgan plans to apply for approval to double the capacity of its 1,150 kilometer (715 mile) Trans Mountain oil pipeline that terminates on the south shore of Vancouver’s inner harbor. Prime Minister Stephen Harper last year called building infrastructure to ship energy to Asia a “national priority.” A glut of crude being produced in neighboring Alberta’s oil sands deposits is depressing prices for Canadian oil, among the cheapest in the world.

Prices for Canadian oil have fallen relative to U.S. crude, widening to a record discount of $42.50 a barrel on Dec. 14. Oil-sands benchmark Western Canada Select was $25.00 less than West Texas Intermediate Feb. 27, crimping Alberta’s revenue and exacerbating a provincial budget deficit.

Other expansions include boosting annual container capacity at Deltaport, Canada’s largest shipping-container terminal, by one third to 2.4 million 20-foot equivalent units at a cost of C$280 million. Neptune Bulk Terminals (Canada) Ltd. is more than doubling its capacity to export metallurgical coal used in steelmaking to about 18.5 million tons a year, according to Silvester.

‘Long-term Expansion’

Neptune, jointly owned by Vancouver-based Teck, potash exporter Canpotex Ltd. and agricultural-products trader Bunge Canada, plans to spend C$200 million.

The Neptune improvements “add capacity to the steelmaking coal supply chain, which will support the longer-term expansion of our operations,” Teck spokesman Chris Stannell said in an e- mailed statement.

Teck, the world’s second-largest exporter of seaborne coal used in steelmaking, needs more shipping capacity after boosting output from its mines in southeastern B.C.

Shipments of coal and other exports rose 0.3 percent last year to about 98.6 million metric tons while inbound containers climbed 9.9 percent to 1.45 million TEUs, according to the port’s website.

Richardson International, Canada’s largest closely held agriculture company, plans to invest C$120 million to increase storage capacity for grains and oilseeds by 65 percent.

Grain Demand

“We’ve been operating at maximum capacity for a number of years and grain demand is going nowhere but increasing,” Tracey Shelton, a Winnipeg-based spokeswoman for Richardson, said Feb. 25 in a phone interview. “We’re very anxious to build this project and get moving.”

The port’s involvement in 17 separate infrastructure projects represents a “once-in-a-generation opportunity to build the capacity that our customers need,” Silvester said in a Feb. 26 e-mail.

Port Metro Vancouver, which has 28 marine-cargo terminals and is served by three railroads, may sell bonds to bring it to its C$500 million legal borrowing limit, Silvester said.

“We are well able to finance our requirements, we may be looking at a further bond issue sometime within the next 24 months,” Silvester said. “We may be moving up nearer that limit over the three- to four-year horizon.”

Bond Returns

Port Vancouver’s current debt, C$100 million of 4.63 percent bonds due in April 2020, has returned investors 4.85 percent over the past year, compared with 2.96 percent for 5-10 year Canadian government bonds, according to Bank of America Merrill Lynch data.

The port has jurisdiction covering more than 600 kilometers of shore from the U.S. border at Point Roberts, Washington, to Burrard Inlet and the lower reaches of B.C.’s Fraser River. Its deep-sea terminals are able to handle Capesize ships, the biggest conventional iron ore carriers, which transport about 90 percent of the commodity used to make steel. Its freshwater facilities service the automobile and forest industries, according to its website, and the port is also home to the Vancouver-Alaska cruise industry.

Not everybody is supporting the expansion plans. Some residents of Delta, B.C. are upset about the potential loss of agricultural land, environmental damage and a decline in quality of life from the expansion of Deltaport terminal, road and rail construction and a C$2 billion proposal to build a new 2.4 million-TEU per year terminal at nearby Roberts Bank, said Vicki Huntington, an independent member of the provincial legislature for the electoral area of Delta South.

“Delta is the doormat for the port of Vancouver,” Huntington said Feb. 26. “The port of Vancouver would like nothing better than to have Delta’s agricultural lands near the port developed as industrial properties,” she said by telephone from Victoria, the provincial capital.

“The port has to have the capacity to handle the transport of the goods,” Joe Oliver, Canada’s natural resources minister, said in a Feb. 26 interview in Vancouver, declining to speculate on whether opposition could derail expansion plans. “What I do know is there isn’t anything related to natural resources that isn’t opposed by someone and often by the same people.”

To contact the reporters on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net; Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.