Death by eco­nom­ics?

Key­stone XL sur­vived pol­i­tics but low oil prices, high cost of ex­trac­tion could kill it

The Guardian (Charlottetown) - - BUSINESS - BY GRANT SCHULTE

The pro­posed Key­stone XL pipe­line sur­vived nine years of protests, law­suits and po­lit­i­cal wran­gling that saw the Obama ad­min­is­tra­tion re­ject it and Pres­i­dent Don­ald Trump re­vive it, but now the project faces the pos­si­bil­ity of death by eco­nom­ics.

Low oil prices and the high cost of ex­tract­ing Cana­dian crude from oil sands are cast­ing new doubts on Key­stone XL as ex­ec­u­tives with the Cana­dian com­pany that wants to build it face the fi­nal reg­u­la­tory hur­dle next week in Ne­braska.

The pipe­line pro­posed in 2008 has faced dozens of state and fed­eral de­lays, many of them prompted by en­vi­ron­men­tal groups who ul­ti­mately per­suaded Pres­i­dent Barack Obama to deny fed­eral approval in Novem­ber 2015. Pres­i­dent Don­ald Trump re­sus­ci­tated the project in March, declar­ing that Cal­gary-based Tran­sCanada would cre­ate “an in­cred­i­ble pipe­line.”

Af­ter all that, a Tran­sCanada ex­ec­u­tive raised eye­brows in the en­ergy in­dus­try last week when he sug­gested that the pipe­line de­vel­oper doesn’t know whether it will move for­ward with the project. Paul Miller, an ex­ec­u­tive vice-pres­i­dent who is overseeing the project, told an in­vestor call that com­pany of­fi­cials won’t de­cide un­til late Novem­ber or early De­cem­ber whether to start con­struc­tion.

“We’ll make an as­sess­ment of the com­mer­cial sup­port and the reg­u­la­tory ap­provals at that time,” Miller said in the con­fer­ence call Friday with in­vestors.

The com­pany has in­vited cus­tomers to bid for long-term con­tracts to ship oil on the pipe­line. The bid­ding will run through Septem­ber.

An en­ergy ex­pert said the project has been de­layed so long it may no longer make eco­nomic sense.

“Frankly, in the current price cli­mate, it’s probably not go­ing to be a go­ing ven­ture un­less there’s a mas­sive im­prove­ment in tech­nol­ogy” for pro­cess­ing Cana­dian crude, said Charles Ma­son, a Univer­sity of Wy­oming pro­fes­sor of petroleum and gas eco­nom­ics. Crude oil was trad­ing at around $49.50 a bar­rel on Wed­nes­day, down from highs of more than $100 in 2014.

The 1,179-mile pipe­line would trans­port oil from tar sands de­posits in Al­berta, Canada, across Mon­tana and South Dakota to Ne­braska, where it would con­nect with ex­ist­ing pipe­lines that feed Texas Gulf Coast re­finer­ies.

South Dakota and Mon­tana reg­u­la­tors have ap­proved the project, al­though there are le­gal chal­lenges pend­ing in both states. Only Ne­braska has yet to give reg­u­la­tory approval. The rest of the route for the oil to the Gulf would travel an ex­ist­ing pipe­line in the net­work.

Ma­son said the big­gest eco­nomic prob­lem is that syn­thetic crude from the Cana­dian de­posits is con­sid­ered a low­er­value prod­uct be­cause it tends to be heav­ier, and thus more ex­pen­sive to re­fine into gaso­line and jet fuel. It’s also more ex­pen­sive to ex­tract than other oils.

Pro­duc­ers have also found other ways to ship oil, pri­mar­ily by train, and many are re­luc­tant to sign long-term con­tracts with a pipe­line that wouldn’t go into op­er­a­tion for sev­eral more years, said Jeff Share, edi­tor of the Hous­ton-based Pipe­line & Gas Jour­nal, a lead­ing in­dus­try pub­li­ca­tion. Given the dif­fi­cul­ties, Share said Tran­sCanada has probably a “50-50” chance of com­plet­ing the project.

AP PHOTO/NATI HARNIK

In this July 29 photo, Jane Kleeb, pres­i­dent of Bold Al­liance, center, landowner Chris Carl­son, sec­ond right, and volunteers, pose for a photo un­der an ar­ray of so­lar pan­els they built in a corn field be­long­ing to the Carl­sons of Sil­ver Creek, Ne., in the pro­posed path of the Key­stone XL pipe­line.

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