Pipe in the ground may not save KXL
Do facts on the ground — or the pipe under it — trump U.S. campaign politics in the divisive battle over the Keystone XL project? The premier of Alberta certainly hopes so. Analysts aren’t so sure.
News that Joe Biden intends to pull the plug on the federal permits for Keystone XL if he’s elected the next U.S. president in November isn’t a real shocker.
It is a sign of the continuing political risks and uncertainty that face the controversial cross-border pipeline — and the province’s new $7 billion financial commitment to see it built.
On Tuesday, Premier Jason Kenney defended Keystone XL and Alberta’s decision in March to make a $1.5-billion equity investment in TC Energy’s project.
The UCP government also agreed to provide a $6-billion loan guarantee next year to get the development built.
Although, it would only be extended after the U.S. election results are understood, the premier told reporters.
Despite the threat of the project being stopped by the presumptive Democratic nominee, Kenney reiterated the province’s investment decision was the right one, as it’s already created jobs and enabled construction to begin on the Us$14.4-billion project.
If built, Keystone XL would transport 830,000 barrels of oil per day from Alberta to Steele City, Neb., where it would then connect to the company’s existing network, shipping western Canadian crude to U.S. Gulf Coast refiners.
The pipeline is expected to be operational in 2023. The cross-border section between Saskatchewan and Montana has now been built.
“I cannot imagine that a U.S. president eight months from now, nine months from now, would require that thousands of miles of pipe be pulled out of the ground by the union workers who are now employed creating that project,” Kenney said.
“So we are creating facts on the ground.”
But such facts can be ignored. Partial construction is not likely going to stop Biden from pulling the project’s permit, said James Coleman, an expert in U.S. pipeline law and a professor at Southern Methodist University in Dallas.
The power to issue or revoke a presidential permit is sweeping. It gives Biden plenty of latitude to withdraw it, said Coleman, who previously did work for Transcanada Corp. (before it changed its name to TC Energy) on the main Keystone pipeline.
“There would be a ton of flexibility to revoke a pipeline, even if that pipeline were already in operation,” Coleman said in an interview.
“The mere fact you have a few hundred yards of pipe in the ground at the border is probably not going to really change the political calculus for the former vice-president.”
The project has served as a political football for years for both Democrats and Republicans.
In November 2015, former president Barack Obama rejected the project over climate considerations, prompting Transcanada to file a claim against the
U.S. under NAFTA and launch a lawsuit, which was later dropped after President Donald Trump swiftly endorsed the project.
Analysts say the political risk of a Democratic presidential candidate sinking the project has been well understood, which was why TC Energy was reluctant to make a final investment decision until it struck a deal with the provincial government.
“It is increasingly impossible to build these projects unless the government is providing some backing,” Coleman added.
Christine Tezak, managing director of research at Clearview Energy Partners in Washington, D.C., also believes Biden would have the authority to rescind the permit if he’s elected, even if the pipeline is under construction.
But she cautions other factors — including U.s.-canada relations under a new president — would have to be factored in before such a significant decision was made.
“Rhetoric on the campaign trail is one thing. Where the project is … could colour their thinking,” she said. “But is there risk there? Sure it is.”
If the project is blocked, Alberta may have to litigate to recoup any of its investment.
Kenney indicated the province conducted extensive legal analysis on the investment and stressed the province would do “everything within our power to defend our vital economic interest, including our investment, and I’m certain TC energy would as well.”
Former Transcanada executive Dennis Mcconaghy noted the project received a permit from the current president, and billions of dollars have already been spent on Keystone XL up to this point.
“Alberta has taken a lot of the first-year (construction) risk on.
So all Albertans are putting money in right now,” he said.
"Even if the project did get rescinded or stopped … it is likely they would recover much of that initial spending in some ultimate litigation.
“But that’s not the real downside to Alberta and Canada — it’s losing this conduit of Alberta’s increased opportunity to produce this crude oil that’s still in demand.”
The underlying logic of the project also remains, said Christopher Sands, director of the Canada Institute at the Woodrow Wilson International Centre for Scholars.
The project will deliver needed heavy oil to U.S. Gulf Coast refiners, and it’s cheaper and safer for Canadian producers to use pipelines to ship their oil to market than relying on crude-by-rail.
“It’s a setback, not a fatal blow,” said Sands. “It is a reminder, though, that it isn’t over until it’s over.”
Whatever happens next, with this much money on the line, Albertans need to see all of the details of the investment and the large commitment made by taxpayers, said NDP Leader Rachel Notley.
“There has always been risk. I don’t think the risk has changed,” she said. “The need for transparency has also not changed.”