Keystone XL Subsidy Announced, Still No Project Greenlight

Today, the company behind the proposed Keystone XL tar sands pipeline announced the official end of a weak open season for shippers to commit barrels to its project. This comes after news that the government of Alberta will help subsidize the project by paying for 50,000 barrels per day (bpd) of space on the pipeline. While TransCanada is out with bold statements that make it sound like the pipeline is now on the verge of construction, reality paints a much harsher picture for the project’s prospects of ever being built.

Since the Trump Administration revived Keystone XL from the dead early last year, the obstacles in its path have grown to considerable heights. Today’s announcement from TransCanada doesn’t change any of that. In fact, it just highlights how hard it will be for the company to ever move forward. A summary of some of the challenges it faces includes:

• Federal litigation challenging the legality of TransCanada’s cross-border permit. If environmental plaintiffs, including NRDC, were to prevail, TransCanada’s permit would be placed into jeopardy and a supplemental environmental review process would likely be required. This process could lead to significant delays and throw the entire project into jeopardy.
• Nebraska litigation over the Public Service Commission’s (PSC) approval of the Mainline Alternative route will soon begin and is expected to take two to three years to resolve. In contrast to TransCanada’s statement that “the approved route was based on a comprehensive review of the evidence submitted by all parties,” the actual state of play is the opposite: the alternative route was not in fact reviewed by state regulators, TransCanada never submitted an application for the route that was approved, landowners on the route were never notified that they could be impacted by a new pipeline, and Nebraska lawyers question whether the PSC even had the authority to approve the route they did.
• Future Nebraska litigation is expected in regard to TransCanada’s planned use of eminent domain to seize ranchland from landowners unwilling to take payouts from the company in exchange for easements. This litigation was suspended following the project’s cancellation in 2015, but is expected to be revived as TransCanada attempts to push ahead with the project.
• Contemplated pipeline safety legislation in Nebraska could create new requirements for TransCanada to follow in the state. This comes after the company’s major pipeline rupture on Keystone 1, where 210,000 barrels spilled into a farmer’s field in South Dakota—the third major spill for that pipeline is just seven years of operation.
• Shipper interest in Keystone XL, as evidenced by TransCanada’s announcement, is extremely weak (and may be weaker than the company had previously disclosed to investors in November). The company only secured contracts for 60% of the pipeline’s 830,000 bpd capacity, a number that includes the subsidy from Alberta. This means that true commercial interest would only fill 54% of the line. Traditionally, pipelines only move ahead with shipper commitments above 80% of capacity.
• Political uncertainty beginning this year with the 2018 midterm elections and looking ahead to the 2020 elections will almost certainly end up playing a role in Keystone XL’s eventual fate both federally and at the state level. The above obstacles will create significant delays for the pipeline—from the start of construction to the start of potential operation—that are extremely likely to delay any future in-service date well beyond 2020.
• Protests akin to what was witnessed during the Dakota Access Pipeline’s construction are increasingly likely. More than 10,000 people have committed to the Promise to Protect and are following developments with the pipeline closely.

All of which doesn’t even touch on the tough realities facing Alberta’s tar sands industry and the fierce competition TransCanada faces from two other companies to build a pipeline. As commentators aptly noted almost a year ago, no matter what happens with Keystone XL, it’s currently “last in line” and faces the harshest economic landscape of the three.

Government projections for tar sands production growth have it reaching its peak by 2039 under a relatively high oil price scenario, and the mid-2020s under a price scenario more akin to what the last few years have been like. And a lot of that growth will depend on projects breaking ground that currently have no capital investment behind them and may never see it return as investors, major oil players, and even countries move to keep their money out of the tar sands. Add accelerating climate policy ambitions to the mix and the need for significant new export capacity for Alberta’s high-carbon, low-quality crude seems like a bad bet.