FRESH SET­BACK FOR KXL

A U.S. JUDGE HAS OR­DERED A FUR­THER EN­VI­RON­MEN­TAL RE­VIEW OF THE KEY­STONE PIPE­LINE.

National Post (Latest Edition) - - FINANCIAL POST - Ge­of­frey Mor­gan gmor­gan@na­tion­al­post.com

CAL­GARY • Tran­sCanada Corp. said it re­mains com­mit­ted to its long-de­layed, of­ten-chal­lenged $10-bil­lion Key­stone XL pipe­line Fri­day even af­ter a U.S. fed­eral judge blocked the project.

United States Dis­trict Court Judge Brian Mor­ris is­sued an in­junc­tion Thurs­day pre­vent­ing ei­ther Cal­gary-based Tran­sCanada or the U.S. fed­eral gov­ern­ment “from en­gag­ing in any ac­tiv­ity in fur­ther­ance of the con­struc­tion or op­er­a­tion” of the pipe­line.

Mor­ris’ rul­ing said the U.S. State Depart­ment’s anal­y­sis “fell short of a ‘hard look’” at po­ten­tial spills, likely im­pact on Na­tive Amer­i­can cul­tural re­sources, cu­mu­la­tive emis­sions from Key­stone XL and other oil­sands pipe­lines and how a change in oil prices would af­fect the vi­a­bil­ity of the pipe­line.

An­a­lysts say the de­ci­sion could cause a de­lay of up to one year for Key­stone XL, which was first pro­posed 10 years ago.

For­mer Tran­sCanada ex­ec­u­tive Den­nis McCon­aghy, who has writ­ten a book on the Key­stone XL pipe­line saga, said the Cal­gary-based pipe­line gi­ant had suc­cess­fully re­con­tracted all the avail­able space on the pipe­line, which should suf­fi­ciently sat­isfy the court of the vi­a­bil­ity of the pipe­line.

Not­ing that for­mer U.S. pres­i­dent Barack Obama had ap­pointed Mor­ris to the court, McCon­aghy said op­po­nents of the pipe­line had “shopped (the case) as best they could to find a pli­ant fed­eral court judge who had some nexus to the project.”

Obama re­jected Key­stone XL be­fore leav­ing of­fice.

McCon­aghy said that, most likely, “Tran­sCanada has been work­ing steadily through the night with the Trump ad­min­is­tra­tion to de­cide what they’re go­ing to tac­ti­cally do.”

U.S. Pres­i­dent Don­ald Trump, who ap­proved a re­vived Key­stone XL through an ex­ec­u­tive or­der in 2017, blasted the de­ci­sion Fri­day. “It was a po­lit­i­cal de­ci­sion made by a judge. I think it’s a dis­grace,” he told re­porters at the White House.

Tran­sCanada did not in­di­cate how it would pro­ceed on Fri­day but the rul­ing is a blow to the com­pany’s plans to be­gin con­struc­tion early next year. Tran­sCanada had been stag­ing pipes and clear­ing veg­e­ta­tion along the route in Canada and the U.S.

“We have re­ceived the judge’s rul­ing and con­tinue to re­view it. We re­main com­mit­ted to build­ing this im­por­tant en­ergy in­fra­struc­ture project,” the com­pany said in an emailed state­ment.

Le­gal ex­perts be­lieve Tran­sCanada has three av­enues for the project. The State Depart­ment could try to ad­dress the de­fi­cien­cies the judge in­di­cated in the rul­ing, ap­peal the de­ci­sion to a higher court or Congress could try to pass a law en­abling the project’s con­struc­tion.

Each of those op­tions have prob­lems of its own, said Fred Jauss, a Wash­ing­ton, D.C.-based part­ner with Dorsey & Whit­ney LLP.

“The most likely out­come is they’ll take a two-track ap­proach here and they will file an ap­peal up to the (San Fran­cisco-based) Ninth Cir­cuit, which has not been friendly ground for the Trump ad­min­is­tra­tion,” Jauss said. “Si­mul­ta­ne­ously, the State Depart­ment will start work on a re­vised en­vi­ron­men­tal anal­y­sis.”

He said it could take sev­eral months be­fore the State Depart­ment is able to is­sue a new en­vi­ron­men­tal im­pact state­ment, putting a time­line for a de­ci­sion “well into 2019.”

Al­ter­na­tively, Repub­li­cans could try to pass a law through both houses of Congress to rub­ber stamp the project, but they’d need to do it be­fore the House of Rep­re­sen­ta­tives switches to Demo­cratic con­trol in the New Year.

“They’ve only got just about two months to be able to get some­thing through — that’s a very low prob­a­bil­ity, but it is a pos­si­bil­ity,” Jauss said.

Trump could also ei­ther file an ap­peal or di­rect the State Depart­ment to con­duct a new study, said Zachary Rogers, an­a­lyst at Wood Macken­zie.

“We see the po­ten­tial de­lay of this project be­ing be­tween eight months and a year — and that could push the (in-ser­vice date for the) line back to the mid­dle half of 2022,” Rogers said.

“This re­ally un­der­scored the painful year that West­ern Cana­dian pro­duc­ers are hav­ing and it’s re­ally a func­tion of the lack of in­fra­struc­ture,” Rogers said of the rul­ing, which ex­ac­er­bates Canada’s pipe­line pinch that has led to record-set­ting US$50-per bar­rel dis­counts for Cana­dian crude.

The rul­ing in Mon­tana against Key­stone XL is “eerily sim­i­lar” to the Fed­eral Court of Ap­peals rul­ing against the Trans Moun­tain pipe­line, ac­cord­ing to Chris Bloomer, Cana­dian En­ergy Pipe­lines As­so­ci­a­tion pres­i­dent and CEO.

“Th­ese things are turn­ing on what seem to be pretty nar­row is­sues and they’re pretty sim­i­lar on both sides of the bor­der. We char­ac­ter­ize it as yet an­other wake up call as to how frag­ile and how vul­ner­a­ble Canada is to not hav­ing in­fra­struc­ture built to move its en­ergy to mar­ket,” Bloomer said.

AN­DREW BUR­TON / GETTY IMAGES FILES

Pipe slated for use in the Key­stone XL project might not be touched for an­other year af­ter a U.S. Dis­trict Court judge is­sued an in­junc­tion Thurs­day halt­ing con­struc­tion.

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