Key­stone XL set­back will cost Cana­dian in­dus­try ‘mil­lions’, says as­so­ci­a­tion

Kingston Whig-Standard - - BUSINESS - DAN HEAL­ING

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 self­in­flicted 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.

AP FILES

The Key­stone Steele City pump­ing sta­tion, into which the planned Key­stone XL pipe­line is to con­nect to, is seen in Steele City, Neb.

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