Trans-Canada secures backing from shippers

TransCanada says it has contracted about 60% of pipeline’s total capacity

CALGARY TransCanada Corp. said Thursday it had signed enough 20-year contracts to make its proposed Keystone XL pipeline commercially viable, but stopped short of announcing a final decision on the controversial project.

Calgary-based TransCanada said shippers — including the Alberta government — had committed to send 500,000 barrels per day on the pipeline, which would run from Alberta to the U.S. Gulf Coast. Critics said the commitment nonetheless falls short of a full-throated backing by Alberta’s oil industry.

TransCanada had spent months asking shippers to commit their production to the project under long-term agreements and succeeded in contracting roughly 60 per cent of Keystone XL’s total capacity of 830,000 bpd even as other export pipelines are full, operators are rationing space and producers are moving more oil out of the province on railway cars.

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 British Columbia, deliberately leaving 20 per cent open 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-in-kind 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 achieved several milestones that move us significantly closer to constructing this critical energy infrastructure for North America,” TransCanada president and 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 amid 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.

Opposed landowners, represented by Omaha lawyer David Domina, filed an appeal of the approvals at the end of December.

“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 TransCanada release noted the firm 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.

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.