National Post (National Edition)
Inside the futile scramble to save a pipeline.
Dissecting Alberta's very bad week
EDMONTON/CALGARY • The Alberta government's trade office in Washington, D.C. called home last week with grim tidings: Rumours were circulating the U.S. capital that President Joe Biden was planning to scrap the Keystone XL pipeline on his first day in office.
It set off a wave of alarm. The Alberta government worked through the weekend to prepare its response strategy and a flurry of phone calls were placed between Ottawa, representatives in Washington and to the TC Energy headquarters in Calgary. On Sunday, news outlets reported on a Biden team transition memo that said the death of Keystone XL was coming.
A senior Alberta government source said there was a “lot of anger” within the premier's office, given they had been hoping Prime Minister Justin Trudeau — who spoke with Biden in November — was going to at least be able to keep Biden from scuttling the project until further discussions were held, even though he'd promised to kill it in May 2020.
“It felt like a betrayal,” the source said.
The impression that there would be discussions going forward was mistaken. And no one was prepared for the pipeline to be cancelled on Biden's first day.
Kenney placed frantic calls to federal ministers, U.S. congressmen, American labour unions, and, on Tuesday, the day before the inauguration, the premier and James Rajotte, Alberta's envoy to the United States, had a phone call with Trudeau.
Both asked Trudeau to phone Biden, to speak to him about the project. Rajotte, said the Alberta government source, told Trudeau “union groups told him that only a phone call from Trudeau to Biden could salvage the project.”
“The PM did not acknowledge the request to call,” the source said.
The Prime Minister's Office declined to comment on the specifics of the phone call between Kenney and Rajotte and Trudeau, and referred the National Post to previous statements Trudeau has made about the pipeline.
Kirsten Hillman, Canada's Ambassador to the United States, was notified of the decision on Tuesday night before the inauguration and executive order signing the next day.
On Wednesday, within hours of being sworn in as president, Biden signed an executive order that revoked the presidential permit Trump had issued for the US$14.4-billion pipeline that would link Alberta's crude oil production with heavy oil refineries in Texas and Louisiana.
Since then, it's been tools down for thousands of workers, many of them members of massive American labour unions.
That evening, as inauguration celebrations were being held in Washington, Alberta's premier took to the lectern, calling the decision a “gut punch” and “an insult directed at the United States's most important ally and trading partner.”
On Thursday, TC Energy served notice of 1,000 layoffs along the pipeline route, Reuters reported.
Given Biden's campaign promises, the cancellation wasn't “out of the blue,” said Paul de Jong, president of the Progressive Contractors Association, which represents unionized construction companies that build major infrastructure projects.
“This is an approach that President Biden has been signalling for some time,” de Jong said. His organization supported the pipeline.
Still, within the energy industry, executives were hopeful that a negotiation on the merits of the project was possible.
“Up until the pen hit the paper, there was some hope that there would be some conditions around it or some ability to negotiate and engage,” said Chris Bloomer, president and CEO of the Canadian Energy Pipelines Association, an industry group representing midstream companies — TC Energy is a member.
“I have to believe that the governments, both federally and provincially, engaged in sincere conversations about this and tried to find a way through, but this has evolved to be such a powerful political symbol, that I think that trumped everything.”
A federal government official described the effort to advocate in Washington for the project as a “Team Canada” approach between Alberta and Ottawa. The team attempted to sell the merits of the project: built with union labour, partly owned by Canadian and U.S. Indigenous groups, and powered by renewable energy. It also pitched Canada as being committed to emissions reductions and a carbon tax.
Throughout last fall, Alberta Energy Minister Sonya Savage, federal Natural Resources Minister Seamus
O'Regan, and Rajotte held weekly calls to strategize on how to make the case for Keystone XL in the U.S. halls of power.
The Alberta government had also ramped up its lobbying. Alberta's trade office in Washington held more than 60 meetings with politicians and staff — mostly Democrats and “Biden influencers.”
In December, Alberta added two Washington lobby firms, JDA Frontline Inc. and Crossroads Strategies, to its roster (a contract with Crestview Strategy was already in place) to press the case for Keystone XL, the Alberta energy sector broadly and other economic issues in Washington.
But the efforts made over the last half of 2020 were too little, too late, sources said. The project was doomed.
There were also several missteps during the Trump years that made it less likely the project would survive an incoming Democratic president looking to appease the environmental wing of his party.
“It would have made no difference. I lived all this,” said Dennis McConaghy, a former TC Energy executive who oversaw the Keystone XL pipeline project under the Obama administration before his retirement in 2016. “There was no one you could have hired that was going to change the minds of the people around Biden.”
The “Team Canada” strategy has now taken on a new dimension. Kenney has demanded that Ottawa take a more assertive approach in an attempt to negotiate for Keystone XL and, if that fails, to retaliate with sanctions. Other premiers, it seems, share his concern.
On a Thursday evening phone call with Trudeau, Quebec Premier François Legault, Ontario Premier Doug Ford and Saskatchewan Premier Scott Moe all expressed dismay, said an Alberta government source with knowledge of the call. Canada meekly accepting the death of KXL sets an alarming precedent for the country, which faces the possibility of the Biden administration also invoking Buy American provisions in federal projects.
The Alberta source told the National Post that Kenney had made this case to Trudeau on the Tuesday phone call, and that Trudeau agreed, and said that would be his message in the coming days to Biden. He was to speak with the new president on Friday.
“The PM's rather muted response the next day seemed to very much contradict both publicly and to us privately about how Keystone was a top priority. It told us all we needed to know about where we stood,” the source said.
Wednesday marked the third time a U.S. president has killed the project, which was first proposed in 2008 and has spent more than a decade in regulatory reviews and endless litigation.
Former U.S. president Barack Obama vetoed Keystone back in 2012 and, after the company reapplied for permits at the president's own invitation, denied the project permits again in 2015.
A senior company source, who has since left TC Energy, but who has direct knowledge of the matter, said the U.S. administration gave the company, then called TransCanada Corp., one hour's notice of the impending cancellation at that time. The company's then-president and CEO Russ Girling looked liked he was in shock after getting notice of the veto in 2012, the source said.
But the source said the company made strategic mistakes in its third attempt to get the project built after former U.S. president Donald Trump signed an executive order reviving the pipeline on Jan. 24, 2017. They did not communicate the merits of the project assertively with opponents, and most importantly, did not leverage relationships with major U.S. trade unions.
“They (trade unions) were the only ones that could have put enough pressure on the Democrats to stop this from happening,” the person said, noting that labour marches in Washington or other demonstrations of support had been effective in garnering support for the project in the past.
And, for years, TC Energy had only one government-relations contact in Washington, D.C., meaning the company was understaffed in the very place where it most needed support for its key growth project.
TC Energy did not respond to requests for comment. The company has already announced it will take a sizable charge on its balance sheet as a result of the cancellation.
Research from BMO Capital Markets shows that TC Energy had spent US$1.7 billion on the project up to the end of September 2020, but $720 million of that was contributed by investments from the government of Alberta.
For the Alberta government, the project has long been a must-build, as it would have connected North America's largest heavy-oil formation, the oilsands, with the world's largest concentration of heavy-oil refineries on the U.S. Gulf Coast.
The province first began discussing the possibility of a loan guarantee for the Keystone XL project in June 2019 in an effort to drive the project forward.
In the end, the province invested $1.5 billion directly in the project to give itself an ownership stake and also to finance 80 per cent of the first year of construction. It also agreed to a $6 billion loan guarantee that would have been used for construction costs this year.
The opposition New Democrats have called for a release of all the details contained in the contracts between the government and the pipeline giant.
The governing UCP, meanwhile, has been pressing Ottawa to do more. On Thursday evening, Kenney sent a letter to Trudeau expressing his concerns about the cancellation of the project and called upon “the government of Canada to press the U.S. administration to compensate TC Energy, and the Government of Alberta” for the money spent on the project.
Now, the Alberta government and TC Energy are left with a pipe to nowhere. Parts of the line are built through Alberta and Saskatchewan as well as across the Saskatchewan/Montana border.
McConaghy, the former TC Energy executive, said the business case for Keystone XL is actually expected to strengthen in the coming years in the U.S., because refineries in Texas and Louisiana are designed to process heavy crude, and the output from other sources, like Venezuela and Mexico, are declining.
But, the business case aside, what could spell the final death — or another rebirth — is who is in the Oval Office four years from now.
“I think it's most likely that this project is over at least as long as Joe Biden is president,” McConaghy said.
THERE WAS A `LOT OF ANGER' WITHIN THE PREMIER'S OFFICE.