Canada’s ties to U.S. deepen with approval of Keystone XL pipeline project

Here is one thing Keystone CALGARY XL won’t do for Canada: wean the country ’s oil industry off its dependence on the U.S.

While approval of the project in Nebraska was welcomed by Alberta and its producers, it came also as a reminder that Canada hasn’t been able to clear two crucial projects within its own soil, to ship crude to other markets from its own ports. Meanwhile, TransCanada Corp.’s Keystone XL ties the country’s industry even more to its southern neighbour.

As Nebraska’s Public Service Commission voted to approve Keystone XL’s route through the state early Monday, Kinder Morgan Inc.’s Trans Mountain expansion to British Columbia’s Pacific Coast remained mired in regulatory delays and legal challenges even after gaining federal approval last year. The decision in Nebraska also came after TransCanada’s Energy East project, which would have linked Western Canadian producers to the Atlantic Coast, was cancelled last month amid fierce opposition from Quebec.

The U.S. has become a “monopoly buyer” of Alberta’s oil, Alberta Premier Rachel Notley said at a speech in Toronto on Monday. “We continue to urge Canadian decision makers to follow this example so we can have access to global markets from Canadian ports, supporting good Canadian jobs.”

Canada sent about 99 per cent of its crude exports to the U.S. last year with the remainder mostly going to the U.K., Italy and Spain from oil platforms off the coast of Newfoundland and Labrador, Statistics Canada data show. While the existing 300,000-barrel-a-day Trans Mountain line is the only export pipeline that connects to a Canadian port, nearly all of the crude it carries supplies refineries in Washington state.

“Pipeline infrastructure to new markets is critical,” Sneh Seetal, spokeswoman for Suncor Energy Inc., Canada’s biggest oil company, said in an interview. “Expanded connection to the U.S. is critical but so is access to new markets.”

Another project that’s set to send more Canadian crude to the U.S. is Enbridge Inc.’s replacement and expansion of Line 3, which runs from Alberta to Superior, Wis. While construction is still awaiting the go-ahead from Minnesota, Enbridge chief executive Al Monaco said in September that the company is confident approval will be granted.

Meanwhile, a plan to expand Trans Mountain to 800,000 barrels a day by December 2019 could be delayed by nine months, the company warned last month. On Oct. 26, Kinder Morgan asked the National Energy Board for permission to start work as the company waited permits from the city of Burnaby, B.C., the end point of the line in Canada and a centre of opposition to the project.

Canadian oil producers say expanding Trans Mountain is crucial to gain access to Asia, where demand for heavy oil is growing. While line 3 may be expanded by late 2019, “Trans Mountain is still having issues,” said Kevin Birn, a director at IHS Energy in Calgary.

While Keystone XL would likely increase the price for Canadian crude by allowing more volumes to reach the U.S. Gulf Coast refining centre, Trans Mountain would have the added benefit of opening access to customers in Asia, said Mike Walls, a Colorado-based crude oil analyst at Genscape Inc.

“The transportation economics from Western Canada are much stronger” to Asia, he said. The price of heavy Canadian crude is “just going to be bid up that much more.”

Heavy Western Canadian Select crude, the benchmark for the oil sands, would trade at a discount of less than US$10 a barrel to West Texas Intermediate futures from almost US$16 a barrel currently after Line 3, Keystone XL and Trans Mountain are all operational, according to Walls and Tim Pickering, chief investment officer at Auspice Capital Advisors Ltd.