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Keystone XL setback will cost Canadian industry 'millions', says association

CALGARY — The Canadian oil industry reacted with frustration and bitterness Friday after a U.S. judge ordered a halt to the Keystone XL pipeline project until it passes further environmental review.
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CALGARY — The Canadian oil industry reacted with frustration and bitterness Friday after a U.S. judge ordered a halt to the Keystone XL pipeline project until it passes further environmental review.

The decision on Thursday means longer delays in finding a way to drain a glut of oil in Western Canada that has driven price discounts to multi-year highs and stalled investment, said Tim McMillan, CEO of the Canadian Association of Petroleum Producers.

"It's a vulnerability that we can't control and will cost us hundreds of millions if not billions of dollars as a nation and thousands of jobs," he said Friday.

"And the only reason it does have such a massive impact on us is self-inflicted wounds here at home on projects that could have given us resilience against this sort of ruling."

U.S. District Judge Brian Morris found Thursday that the potential impact of TransCanada Corp.'s $10-billion pipeline had not been considered as required by federal law. Environmentalists and Native American groups had sued to stop the project, citing property rights and potential oil spills.

The judge, who was appointed by former president Barack Obama, issued a federal court order blocking a Trump administration permit for construction of the pipeline.

TransCanada remains committed to the project, spokesman Terry Cunha wrote in a brief email on Friday, adding the company has received the judge's ruling and is reviewing it.

The Calgary-based pipeline company's shares fell by as much as 2.75 per cent in early trading but recovered to $51.49, down 1.4 per cent, by 3 p.m. EDT on the Toronto Stock Exchange.

Last January, TransCanada said it had secured shipping commitments of roughly 500,000 barrels per day on the line, including a deal with the Alberta government to ship 50,000 bpd of provincially owned crude.

"This ruling by a foreign court underscores once again the urgent need for Canada to build pipelines within our own borders, including the Trans Mountain expansion," said Alberta Energy Minister Marg McCuaig-Boyd in Edmonton.

"Today's differential tells the story. We're giving away our resources cheap."

The federal government bought Trans Mountain and its expansion project for $4.5 billion last summer only to have the Federal Court of Appeal strike down its National Energy Board approval, citing inadequate Indigenous consultation and failure to consider impacts on marine environment.

Ottawa decided not the appeal the ruling and is instead working to address issues identified by the court.

Vanessa Adam, a spokeswoman for Natural Resources Minister Amarjeet Sohi, said the Liberal government is "disappointed" by the Montana court's decision because Keystone XL is needed for jobs in Canada and successful energy exports.

Other Keystone XL shippers include major Calgary-based oilsands producers Canadian Natural Resources Ltd., Suncor Energy Inc. and Cenovus Energy Inc.

The setback in the United States is a "wake-up call" that shows how important it is for Canada to build pipelines like Trans Mountain that take oil to tidewater, said Chris Bloomer, CEO of the Canadian Energy Pipeline Association.

The shortage of export pipeline space as oilsands production grows in Alberta has been blamed for the recent widening of the difference between Western Canadian Select bitumen blend and New York-traded West Texas Intermediate to as much as US$52 per barrel, more than three times the typical discount.

Analysts say as much as 110,000 barrels a day of crude oil is currently being left in the ground in Western Canada rather than being produced and sold at unprofitable prices. Oil storage levels are at record highs.

"This is the world's longest tug of war, with western Canadian oil prices as the rope," said Zachary Rogers, a refining and oil markets research analyst at Wood Mackenzie.

The judge's ruling doesn't kill the Keystone XL project, he said in a report, adding he expects the fight to continue in the courts or lead to an additional U.S. State Department review followed by President Donald Trump approving the line again.

An appeal of the U.S. court decision might allow TransCanada to stay on schedule with Keystone XL but it's more likely that the appeal will fail, said Fred Jauss, an American partner at the international law firm Dorsey & Whitney, noting the appeal court's rocky relationship with Trump directives.

In that case, he said, the State Department will have to provide a new environmental review, likely delaying the project by several months and making its expected construction start next spring unlikely.

The 1,897-kilometre pipeline would carry as much as 830,000 barrels of crude per day from Hardisty, Alta., to Steel City, Neb., where it would be sent on through a half dozen states to refineries on the Gulf Coast.

Becky Mitchell, chairwoman of the Northern Plains Resource Council, a plaintiff in the Montana legal action against Keystone XL, said her environmental organization is thrilled with the ruling.

The company and opponents of the project have been in a decade-long dispute that has involved standoffs between protesters and law enforcement.

In 2008, the State Department issued a presidential permit for the pipeline and TransCanada filed paperwork to expand the project. After years of legal wrangling, Obama rejected the permit in 2015.

The company responded by seeking $15 billion in damages, an action it withdrew when a newly elected Trump signalled he would approve the project in February 2017.

 

Follow @HealingSlowly on Twitter.

 

— With files from The Associated Press

 

Companies mentioned in this article include: (TSX:TRP, TSX:CVE, TSX:CNQ, TSX:SU)

Dan Healing, The Canadian Press




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