MORE PIPE­LINE SET­BACKS

Key­stone XL faces long de­lay

Calgary Herald - - FRONT PAGE - CHRIS VAR­COE Chris Var­coe is a Cal­gary Her­ald colum­nist. cvar­coe@post­media.com

Stop me if you’ve heard this be­fore.

A judge puts the brakes on a vi­tally im­por­tant piece of en­ergy in­fra­struc­ture for the oil­patch, Al­berta and Canada.

It will cause fur­ther project de­lays and con­tinue the pipe­line con­straints now squeez­ing the oxy­gen out of Cana­dian oil prices.

All this, de­spite the ini­tia­tive hav­ing won po­lit­i­cal back­ing and a string of other rul­ings in its favour.

But that doesn’t mat­ter. On Thurs­day night, a U.S. judge put the brakes on Tran­sCanada’s $10-bil­lion Key­stone XL project, mir­ror­ing a Cana­dian court rul­ing in Au­gust that shoved the Trans Moun­tain ex­pan­sion into le­gal limbo.

Cal­gary-based Tran­sCanada said Fri­day it re­mains com­mit­ted to build­ing the project, but it ap­pears the de­ci­sion will add many months to the project’s time­lines, at best.

I’m sure it’s just co­in­ci­dence, but it sure seems the Key­stone XL and Trans Moun­tain ex­pan­sion projects are hand­cuffed to­gether, both try­ing to scram­ble out of thick le­gal and reg­u­la­tory quick­sand.

“This is like an­other blow on a bruise and it hurts, and it has al­ready been hurt­ing,” said re­tired Tran­sCanada ex­ec­u­tive Den­nis McCon­aghy, who wrote a book about the tri­als and tribu­la­tions of the Key­stone XL project.

“It has many of the char­ac­ter­is­tics of the Trans Moun­tain rul­ing, in terms of a judge sec­ond-guess­ing other rul­ings, and (the project) hav­ing a mas­sive time­out.”

Ear­lier this spring, I com­pared the race to build Trans Moun­tain and Key­stone XL to a slow­mo­tion con­test be­tween two tur­tles.

To­day, it seems like both tur­tles have been flipped on to their backs, legs flail­ing, wait­ing for an act of prov­i­dence to roll them over.

Like the re­ac­tion to­ward Trans Moun­tain’s trou­bles, a col­lec­tive groan emerged from down­town Cal­gary af­ter U.S. Dis­trict Court Judge Brian Mor­ris in Mon­tana granted an in­junc­tion stop­ping con­struc­tion of Key­stone XL.

Work was ex­pected to be­gin in 2019, al­though Tran­sCanada had yet to an­nounce a fi­nal in­vest­ment de­ci­sion.

The 1,900-kilo­me­tre pipe­line would move 830,000 bar­rels of oil from Hardisty to Steele City, Neb., where it would ul­ti­mately be shipped to U.S. Gulf Coast re­fin­ers.

Af­ter a le­gal chal­lenge from a coali­tion of en­vi­ron­men­tal and Indige­nous or­ga­ni­za­tions, Mor­ris, who ruled against the project ear­lier this year in a re­lated case, de­ter­mined Key­stone’s ap­proval by the Trump ad­min­is­tra­tion last year failed to ad­e­quately ad­dress sev­eral con­cerns.

The judge said the U.S. State Depart­ment needs to do a sup­ple­men­tal en­vi­ron­men­tal im­pact assess­ment to con­sider the ram­i­fi­ca­tions of cur­rent crude prices on the project’s vi­a­bil­ity, the cu­mu­la­tive ef­fect of green­house gas emis­sions from the pipe­line and the Al­berta Clip­per ex­pan­sion, and up­dated modelling about po­ten­tial oil spills.

“It’s a frus­trat­ing set­back,” said Al­berta En­ergy Min­is­ter Marg McCuaig-Boyd, whose gov­ern­ment has com­mit­ted to ship 50,000 bar­rels a day on Key­stone XL.

“We are giv­ing our re­sources away cheap.”

For the in­dus­try, the tim­ing couldn’t be worse.

Due to a lack of pipe­line ca­pac­ity, Canada heavy oil is sell­ing at a steep dis­count to Amer­i­can crude, at more than US$42 a bar­rel.

It also comes as bench­mark U.S. oil prices closed Fri­day be­low US$60 a bar­rel.

The Cana­dian oil­patch re­acted with frus­tra­tion and fury to the set­back, say­ing it un­der­scores the need for Ot­tawa to cre­ate a prac­ti­cal, man­age­able sys­tem for ap­prov­ing new pipe­line projects north of the 49th par­al­lel.

“It’s a com­plete dis­ap­point­ment and it’s un­ten­able,” Surge En­ergy CEO Paul Col­borne said of the Key­stone de­ci­sion.

“You get a rul­ing like this take the wind right out of your sails. The mar­ket has ab­so­lutely been ham­mered the last two days for oil com­pa­nies in Canada. It’s a sense of frus­tra­tion and help­less­ness.”

For Col­borne and oth­ers across the in­dus­try, the U.S. court de­ci­sion also il­lus­trates why the Trudeau gov­ern­ment needs to re­con­sider Bill C-69, new leg­is­la­tion be­fore that Se­nate that will over­haul ap­proval of ma­jor en­ergy projects.

The Cana­dian En­ergy Pipe­line As­so­ci­a­tion con­tends the new Im­pact Assess­ment Act will likely pre­vent any ma­jor oil pipe­lines from be­ing built in the fu­ture.

“To use hockey analo­gies, we are kind of back on our heels in our zone play­ing de­fence and the op­po­si­tion, they’re in our end all the time. We’ve got to start do­ing some of­fence,” said Chris Bloomer, CEO of the Cana­dian En­ergy Pipe­line As­so­ci­a­tion.

Tim McMil­lan, head of the Cana­dian As­so­ci­a­tion of Pe­tro­leum Pro­duc­ers, be­lieves the coun­try needs to re­vive the failed En­ergy East and North­ern Gate­way pipe­line de­vel­op­ments.

Tran­sCanada pulled the pin on En­ergy East a year ago af­ter it ran into on­go­ing reg­u­la­tory head­winds, while the fed­eral gov­ern­ment’s oil tanker mora­to­rium off the north­ern B.C. coast killed North­ern Gate­way.

“A court rul­ing in the U.S. will have a dra­matic af­fect on the Cana­dian econ­omy, but it wouldn’t if we had mean­ing­ful ac­cess to our own coasts,” McMil­lan said.

Th­ese forces are all rag­ing while pe­tro­leum pro­duc­ers across Cal­gary are now busy pre­par­ing their 2019 spend­ing plans.

White­cap Re­sources CEO Grant Fager­heim said his com­pany pre­vi­ously con­sid­ered a $600 mil­lion cap­i­tal pro­gram for next year. With the steep oil-price dis­counts, it will chop at least $100 mil­lion from that amount.

“If you look at the $100 mil­lion, look how many jobs that cre­ates within our provinces and within our coun­try,” he said.

As oil-by-rail ship­ments in­crease this win­ter, price dif­fer­en­tials are ex­pected to nar­row in the com­ing months. En­bridge’s Line 3 re­place­ment project should be fin­ished later next year, al­though it isn’t large enough to han­dle all of the new crude slated to be brought on in the com­ing years.

And that means ei­ther Trans Moun­tain or Key­stone XL — and likely both — are needed if fu­ture in­vest­ment and more jobs are to flow from the oil­patch.

To­day, both de­vel­op­ments have a cloud of un­cer­tainty loom­ing over­head.

Dif­fer­ent projects, but it’s the same old story when it comes to build­ing oil pipe­lines out of Al­berta.

DEAN BEN­NETT/THE CANA­DIAN PRESS

The U.S. de­ci­sion on Key­stone XL is a “frus­trat­ing set­back,” Al­berta En­ergy Min­is­ter Marg McCuaig-Boyd said.

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