Costs threaten Key­stone pipe­line

Oil-sand eco­nom­ics slow Tran­sCanada more than pol­i­tics

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - GRANT SCHULTE

LIN­COLN, Neb. — The pro­posed Key­stone XL pipe­line sur­vived nine years of protests, law­suits and po­lit­i­cal wran­gling that saw for­mer Pres­i­dent Barack Obama’s 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 that ul­ti­mately per­suaded Pres­i­dent Barack Obama to deny fed­eral ap­proval in Novem­ber 2015. Trump re­sus­ci­tated the project in March, declar­ing that Cal­gary-based Tran­sCanada would cre­ate “an in­cred­i­ble pipe­line.”

Af­ter all that, a Tran­sCanada ex­ec­u­tive sur­prised some 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 lower-value 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 Hous­ton­based Pipe­line & Gas Jour­nal, a lead­ing in­dus­try pub­li­ca­tion. Given the dif­fi­cul­ties, Share said Tran­sCanada has prob­a­bly a “50-50” chance of com­plet­ing the project.

The five-mem­ber Ne­braska Pub­lic Ser­vice Com­mis­sion is sup­posed to de­cide by Nov. 23 whether the project serves the pub­lic’s in­ter­ests, based on ev­i­dence pre­sented by at­tor­neys in a for­mal le­gal pro­ceed­ing be­gin­ning Mon­day and a se­ries of pub­lic hear­ings held over the past few months. The elected com­mis­sion is made up of four Repub­li­cans and one Demo­crat.

En­vi­ron­men­tal op­po­si­tion to the project has per­sisted in Ne­braska, where op­po­nents say the pipe­line would pass through the Sand­hills, an eco­log­i­cally frag­ile re­gion of grass-cov­ered sand dunes,

and would cross the land of farm­ers and ranch­ers who don’t want it.

Ne­braska law en­force­ment au­thor­i­ties al­ready have had dis­cus­sions with their coun­ter­parts in North Dakota about how that state han­dled wide­spread protests dur­ing con­struc­tion of the Dakota Ac­cess Pipe­line near the Stand­ing Rock In­dian Reser­va­tion, said Cody Thomas, a Ne­braska State Patrol spokesman.

Pro­test­ers led by Amer­i­can In­dian tribes and en­vi­ron­men­tal groups flocked to North Dakota last sum­mer to rally against the Dakota Ac­cess Pipe­line, and some camped out in bit­ter cold through early this year, prompt­ing the state to send a large law en­force­ment con­tin­gent that some­times skir­mished with pro­test­ers. The pipe­line was ul­ti­mately com­pleted but le­gal chal­lenges re­main.

Pipe­line op­po­nents in Ne­braska said they are wary of Tran­sCanada’s re­cent state­ments and don’t be­lieve the com­pany will sur­ren­der without a fight.

“We can’t let our guard down,” said Jim Carl­son, a farmer near Sil­ver Creek, Neb., who grows corn on the pipe­line’s pro­posed route. “We’ve got to con­tinue to be vig­i­lant and proac­tive. Tran­sCanada could be do­ing things just to throw us off.”

Carl­son said Tran­sCanada has of­fered him $307,000 since the com­pany first con­tacted him in 2013, but he re­fuses to sign an ease­ment agree­ment to grant ac­cess to his land. To high­light his op­po­si­tion, Carl­son is in­stalling so­lar pan­els on his land di­rectly in the path of the pro­posed pipe­line.

AP/NATI HARNIK

Vol­un­teers and in­stall­ers push a so­lar panel ar­ray into place on farmer Jim Carl­son’s corn­field near Sil­ver Creek, Neb., on Satur­day. The pro­posed Key­stone XL pipe­line route takes it across Carl­son’s farm, and the panel is a form of protest.

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