January 2018, Vol. 245, No. 1
Features
The Hurdles Never Seem to End for Keystone XL
On Dec. 19, Nebraska regulators denied TransCanada’s request to amend its route application, a potential setback for the company as it seeks to head off legal challenges.
The Nebraska Public Service Commission (PSC) issued an approval for the line in late November, removing what appeared to be the last big regulatory obstacle for the long-delayed project, which has been backed by President Trump.
But the commission’s approval was not for the route TransCanada had singled out in its application. Instead, the commission approved an alternative route that shifts it closer to an existing pipeline right-of-way down the eastern side of the state, a move opponents of the pipeline have said violates state statutes.
TransCanada filed a motion in November with the commission seeking permission to retrospectively amend the route application, a move that a company official said was intended to prevent lawsuits that could delay the project. But the commission voted 5-0 against the motion.
TransCanada said in a statement that it would review the decision to determine next steps for Keystone XL, but added that it believed the project remained economically viable.
“It is important to remember that this project has widespread support within the U.S. and Canadian federal governments, as well as state officials in Montana, South Dakota and Nebraska,” the company said.
Ken Winston, a lawyer for environmental group the Sierra Club, said he saw the ruling as a win for pipeline opponents.
“The fact that they’re having to consider an alternate route and that their motion was denied continues to make it more complicated for TransCanada. And any time it’s more complicated, that’s a victory for us,” he said.
Attorneys for landowners opposing the pipeline also said Tuesday’s ruling represented a setback for the project.
“The PSC clearly recognizes that it voted on a route that was not in the TransCanada application as a route it wanted approved,” said attorney David Domina. “TransCanada knows it is now in a position where it cannot go forward without a tremendous risk of reversal on appeal,” he said.
The proposed Keystone XL, which would run about 1,180 miles (1,899 km) from Hardisty, Alberta, to Steele City, NE, has been a lightning rod of controversy since it was proposed a decade ago, with environmentalists making it a symbol of their broader fight against fossil fuels and global warming.
Nearly a decade has passed since TransCanada first proposed in 2008 to build the Keystone XL pipeline that would run from Alberta in Canada to Nebraska and the U.S. Gulf Coast.
After being dumped by the Obama administration and revived early last year by President Trump, Keystone XL cleared a major regulatory hurdle last month: the Nebraska Public Service Commission (PSC) gave the go-ahead to the project.
Nebraska’s regulators, however, approved an order for the Mainline Alternative Route for the pipeline out of the three TransCanada had proposed—the other two being the company’s Preferred Route and the Sandhills Alternative Route.
The alternative route is longer than TransCanada’s preferred route, and the company is still reviewing Nebraska’s decision, and has yet to make a final investment decision on the project.
Nor are the regulatory issues the only problem facing Keystone XL. Since it was first proposed arguments have been raised as to whether the pipeline is still necessary. Environmental opposition has also been strong, and environmentalists continue to strongly oppose the project.
On the other hand, oil supply in Canada is increasing, due to project startups approved before the oil price crash. Currently, Canada’s oil is selling at a $27-per-barrel discount relative to WTI, the sharpest difference in more than four years, as supply in Canada is exceeding takeaway capacity.
Keystone XL is one of three major pipeline proposals to take more oil out of landlocked Alberta either to the U.S. or to the Canadian Pacific coast, together with the Enbridge’s Line 3 Replacement Program, and Kinder Morgan’s Trans Mountain expansion project.
In October, TransCanada scrapped a pipeline project to ship oil to the Canadian East Coast.
In the best-case scenario for Canada’s pipeline capacity –that is, if all three remaining pipelines clear all regulatory hurdles –total capacity will be in excess of 52,100 bpd in 2020, and more than 656,100 bpd in 2022. However, if only Line 3 is approved and built (the pipeline that, for now, stands the best chance of entering into service), Canada will still be 552,000 bpd short of pipeline takeaway capacity in 2022. If Keystone XL doesn’t go ahead and Line 3 and Trans Mountain proceed, the excess pipeline capacity in 2022 will be just 50,000 bpd.
But before 2020, Canada’s oil production is expected to continue to increase, and pipeline constraints will become bigger, before any of the proposed pipelines –or one, or all –comes online and eases some of the takeaway constraints.
At its investor day on Nov. 28, TransCanada said that it was still reviewing Nebraska’s approval. Subject to a final investment decision, the company expects to begin Keystone XL construction in 2018, and it expects the construction will take approximately two years.
Meanwhile, some of TransCanada’s shareholders are pushing for the company to proceed with the project, despite the alternative route that is 5 miles longer than the preferred route, saying that the longer distance should be manageable for TransCanada even if the firm needs to raise funds with a share issue.
Still, the alternative route means that the company has to engage and talk to new landowners in Nebraska –another potential new hurdle to its project.
“The alternate route would involve a number of new landowners for us, and as always, we’re striving to understand their perspectives on the project, and we will continue to strive to reach agreement with them on mutually beneficial terms,” Dean Patry, TransCanada’s senior vice president, Liquids Pipelines, said at the investor day at the end of November.
Even if there still may be rationale to build the Keystone XL, especially for Alberta oil producers, passing the Nebraska hurdle may have created more hurdles for TransCanada’s almost decade-old plan.
Tsvetana Paraskova and Reuters contributed to this article.
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