Canada's National Energy Board (NEB) has said that pipeline companies under federal jurisdiction with plans for major oil projects to the west coast of British Columbia must put up a letter of credit (L/C) or another type of payment guarantee to pay for abandoning pipelines.

Payment guarantees will be required by 1 January 2015, when the NRB says that pipeline companies must also create mechanisms to start setting aside money to pay for abandoning pipelines.

Assuring payment

Companies will be able to put up an L/C from a major bank, or provide suitable trust agreements or provide a surety bond.

This is because the NEB wants to ensure that rehabilitation and environmental costs of the pipelines do not fall to landowners or the state when they are shut down.

Abandonment costs

The board reckons the cost of abandonment of pipelines and associated land rehabilitation it has jurisdiction over is 7.2 billion Canadian dollars.

According to the NEB, which has authority over pipelines that cross provincial boundaries, most companies have many years to fund these future costs.

Regular reviews

An L/C or another instrument to cover abandonment will be required from almost all pipeline companies under the NEB's jurisdiction.

The board will regularly review the companies' estimates of abandonment costs, the coverage provided by their set-aside mechanisms and the assumptions about how those funds will grow.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.