TORONTO (ICIS)–Canada’s oil industry has
suffered yet another blow as the Keystone XL
oil pipeline was formally cancelled this week,
leaving taxpayers in oil-rich Alberta province
with a Canadian dollar (C$) 1.3bn ($1.1bn) loss
on their government’s investment in the
project.
The 830,000 bbl/day, nearly 2,000km pipeline
has often been described as critical for the
future of Alberta’s oil industry.
Due to start up in 2023, the long-delayed
project would have provided direct access for
producers to US Gulf Coast refining markets.
However, on Wednesday, Canadian energy
infrastructure major TC Energy (formerly
TransCanada), officially terminated the
project – ending a 13-year battle for
regulatory approval, a battle that underlines
the challenges of getting major oil and gas
infrastructure projects built in North America.
TC Energy proposed the project back in 2008,
starting a long, eventually unsuccessful
regulatory process.
While the project has had strong support from
the US refining and petrochemicals industry
right up to its termination, it quickly became
a focus for environmentalists on both sides of
the border – especially as it would have
shipped oil sands-based crude, which has a
worse environmental footprint than conventional
crude oil.
As the pipeline would have crossed the
US-Canada border, it required White House
approval, in addition to state and provincial
clearances from the Alberta and Saskatchewan
provinces, the US states of Montana, South
Dakota and Nebraska, as well as various other
approvals.
The long and complicated regulatory process
provided many opportunities for opponents to
intervene and make their voices heard.
Former President Barack Obama rejected Keystone
XL twice, but Donald Trump revived it with an
executive order after
he took office in 2017.
Then last year, when the project appeared to
falter amid the coronavirus pandemic and
recession, the Alberta government stepped in
and took an ownership stake,
saying that the project was “essential” to
Alberta’s future prosperity.
However, in January 2021 US President Joe Biden
revoked Keystone XL’s
presidential permit as one of his first acts on
assuming office.
As for Alberta’s financial loss from the
Keystone XL investment, premier (governor)
Jason Kenney said this week that the government
may seek to sue the US under the Chapter 11
investor protection provisions of the North
American Free Trade Agreement (NAFTA).
While NAFTA has been replaced with the
US-Mexico-Canada Agreement (USMCA), its
investor protection rules remain in effect
until July 2023.
ONLY TWO LEFT
Without Keystone XL, and after the previous
cancellations of other important projects,
Alberta’s oil industry is now left with only
two pipeline projects to support its access to
export markets.
Both projects are nearing completion, but
environmentalists, encouraged by the Keystone
XL termination, have pledged to continue
opposing them.
One project is the federal government-owned
Trans Mountain expansion project of an existing
pipeline from Alberta to an export terminal
near Vancouver.
Prime Minister Justin Trudeau’s government
bought Trans Mountain
from US energy infrastructure firm Kinder
Morgan when the expansion project ran into
opposition from environmental and indigenous
peoples’ groups.
The other project is the Enbridge’s Line 3
replacement and expansion, running from Alberta
to Superior, Wisconsin. The Canadian section
has been completed, while work in Minnesota is
ongoing.
There were two other big projects Alberta’s oil
industry had been looking to for market access,
but both got cancelled amid resistance and
pressure from environmentalists and others.
Those were Enbridge’s Northern Gateway from
Alberta to an export terminal at Kitimat,
British Columbia, and TC Energy’s west-to-east
Energy East project from Alberta to an export
terminal in the seaport city of Saint John, New
Brunswick, on Canada’s Atlantic coast.
MORE TROUBLES
…
Meanwhile, Canada is having yet
more pipeline troubles with the US, this time
over Enbridge’s existing Line 5.
The Michigan government, fearing oil spills at
a section where the nearly 70-year-old pipeline
crosses the Straits of Mackinac into Michigan
on its way to the Sarnia refining and
petrochemicals hub in Canada’s Ontario
province, ordered Enbridge to shut down Line 5
by 12 May.
However, despite the order, Enbridge is
defying Michigan and
keeps operating Line 5.
The company has challenged Michigan’s order in
a US federal court and says it will keep
operating Line 5 – unless ordered by a court to
shut it down.
Canada’s federal government has supported
Enbridge in the US court proceedings, and it
has lobbied the Biden administration to
intervene.
While President Biden could issue an executive order to
prevent Michigan from shutting down Line 5 oil,
he may not want to do so as, politically, Biden
and Michigan Governor Gretchen Whitmer are seen
as close allies, political commentators have
said.
Whitmer, in her 2018 campaign for governor,
committed to shutting down Line 5,
and Biden would be unwilling to prevent
Whitmer from fulfilling this campaign promise,
they said.
The case remains undecided, and years of court
battles could be looming – along with continued
uncertainties for the refining and
petrochemicals industries in eastern Canada,
which rely on feedstock supplied through Line
5.
As for Alberta, while the Keystone XL
cancellation is clearly a setback, longer-term
it may yet be seen as an opportunity.
Pressure keeps
building on the oil industry in a world
that aims to turn away from conventional oil
and gas, and even Alberta, sometimes seen as
lagging behind on the environmental agenda, is
catching on.
Notably, this week’s Keystone termination
coincided with the announcement of an
initiative by Alberta’s major oil sands
producers to reach net-zero greenhouse gas
emissions by 2050, and with Air Products’
announcement of plans
for a major net-zero hydrogen production
complex in Alberta.
Meanwhile, the Biden administration is fully
committed to its environmental agenda, making
it hard to get new pipelines or other oil and
gas projects approved south of the border.
“Given the Biden administration’s
all-government approach to combatting climate
change, fossil fuel projects will likely have
an uphill battle to obtain any required federal
government permits or authorisations,” said
Steve Weiler, a partner at Dorsey &
Whitney, a US-based international law firm.
Additional reporting by Al Greenwood and
Adam Yanelli in Houston
Thumbnail image: map of cancelled Keystone
XL, from Hardisty, Alberta, to Steele City,
Nebraska, from where it would have connected to
the US Gulf Coast. Source: TC Energy
($1 = C1.21)
Focus article by Stefan
Baumgarten
