Commitments ‘bring us close’ to final investment decision

Continued from FP1

By contrast, oil companies had taken up 80 per cent, or 708,000 bpd, of Kinder Morgan Canada’s expanded Trans Mountain pipeline system between Alberta and B.C., deliberately leaving 20 per cent for spot shipments.

Commitments from the Alberta Petroleum Marketing Commission, a provincial agency, make up 10 per cent of the volumes announced Thursday, with 50,000 bpd committed to the line through a royalty-inkind for 20 years.

“We’re pleased to be making this commitment to bring more Alberta oil to the world and we expect it means Keystone XL will be built,” Alberta Premier Rachel Notley said in an emailed statement.

The APMC had previously committed barrels to TransCanada’s now-cancelled Energy East project. It did not commit barrels on either Kinder Morgan Canada’s Trans Mountain pipeline expansion to the West Coast or on Enbridge Inc.’s Line 3 to the U.S. Midwest. Enbridge declined to comment.

Pipeline opponents, meanwhile, said the commitments to the project so far are “shockingly weak” and an indication the pipeline lacks support from the Canadian oilpatch.

“TransCanada clearly does not have the support necessary for this project, since the company could secure just 500,000 bpd of commitments from shippers on its 830,000 bpd-capacity pipeline — and that’s only with a giant subsidy gift directly from the Canadian government,” Bold Nebraska founder and pipeline opponent Jane Kleeb said in a statement.

TransCanada itself stopped short of announcing a decision on the $8-billion project.

“Over the past 12 months, the Keystone XL project has TransCanada’s final decision on Keystone XL has been pushed back by legal challenges in Nebraska. achieved several milestones that move us significantly closer to constructing this critical energy infrastructure for North America,” TransCanada CEO Russ Girling said in a release.

TransCanada had intended to make a final decision by the end of 2017 but that date has been pushed back by legal challenges to the route through Nebraska.

The Nebraska Public Service Commission approved a route through the state in November but it was different from TransCanada’s preferred route — which has opened up the project to new legal challenges.

Landowners who oppose the pipeline or route, represented by Omaha lawyer David Domina, filed an appeal of the approvals at the end of December, bringing an in-service date for the line into question.

“We are progressing toward a final investment decision,” TransCanada spokesperson Terry Cunha said in an email, adding, “having route approval in Nebraska and the necessary commercial support for Keystone XL brings us close to FID.”

“While (TransCanada) had previously noted its confidence with respect to securing sufficient commercial agreements, we believe the announcement confirming support is a modest positive for the share price,” RBC Capital Markets analyst Robert Kwan said in a note. The company stock ended the day virtually flat, closing at $59.84 on Thursday.

The release from TransCanada noted the company has begun preparing for construction, getting permits for the line and plans to begin construction in 2019. It had previously expected to begin construction in the spring of 2018 and said the line would take two years to build.

Notley said the government committed barrels to the project to “maximize the return we get for every barrel of oil” because current Canadian oil production is outstripping total oil export capacity.

The limits on oil export capacity have exacerbated the discount that Canadian oil producers are forced to accept for their crude relative to West Texas Intermediate, which also hurts the royalty payments Alberta collects from the industry.

University of Calgary economics professor Trevor Tombe said there’s “every reason to think” that committing government barrels to the pipeline makes good business sense.

“The oil that the government owns through the (royalty in kind) program needs to be deployed somewhere and it ought to be deployed in ways that maximize its value,” Tombe said.