Keystone back on death bed if Biden wins presidency
Barack Obama tried to stop the Keystone XL pipeline. Donald Trump tried to revive it. If Joe Biden is elected, he says he'll block it again — and the pandemic may help him kill the project for good.
Biden has pledged to rescind a key permit granted by Trump for the pipeline, a 1,950-kilometre project designed to take 830,000 barrels of crude a day from Alberta to Nebraska. Keystone XL has been on its death bed before, only to come back. But this time the politics are shifting at a moment when demand for oil is weak and other pipelines are moving toward completion more quickly.
“The question should be, is Keystone XL necessary?” said Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners LP in Toronto. “The answer to that is quite clearly no.”
The end of Keystone XL would bring down the curtain on a 12year drama that has come to symbolize the clash between environmentalists and the oil industry.
A protracted battle over pipelines in Canada has led to some strategy shifts in the oil sector. Calgary-based Cenovus Energy Inc. said Sunday it will buy Husky Energy Inc. for $3.8 billion in stock. Cenovus executives said the acquisition will boost the company's refining business, making it less exposed to pipeline problems that have depressed prices for Canadian heavy crude.
The Keystone project has been fought over ever since it was first proposed in 2008 by Calgary-based TC Energy Corp. Canadian oil producers argue it will give U.S. Gulf Coast refineries access to much needed heavy crude to replace lost production from Venezuela and other Latin American countries. Opponents say the pipeline will allow the higher-carbon oilsands to grow, accelerating climate change.
After years of delays in making a decision, then-U.S. president Obama rejected the project in 2015. Just over a year later, newly elected President Trump granted TC Energy a permit to build, though court challenges have hindered construction.
The Canadian pipeline operator has focused its case on the economic impacts. More than 2,500 people are already working on the right-of-way for the pipeline, spokesperson Terry Cunha said in an emailed statement. “Keystone XL will generate substantial economic benefits to more stakeholders and strengthen North American energy security,” Cunha said.
But two other Canadian oil export pipelines, the Trans Mountain expansion to Vancouver and Enbridge Inc.'s new Line 3 to the U.S. Midwest, are under construction with fewer regulatory or legal hurdles ahead of them. They are being built as Alberta oilsands producers, reeling from the pandemic, have been cutting capital budgets and focusing on cash flow over growth. For now, they may be more than enough to alleviate pipeline shortages that existed before the pandemic.
Canada's future production growth is a question mark. The International Energy Agency predicts that world oil demand won't return to pre-pandemic levels until 2023 and will stop growing by 2030. With Canadian oil prices trading around US$30 a barrel, oilsands companies aren't focused on expanding production anytime soon.
The “new ethos of no growth” in the industry and a focus on returns for investors and cash flow “really moderates the go-forward production outlook,” Nuttall said.
For Alberta, the cancellation of Keystone XL would be a symbolic and financial blow. To jump-start work on the Canadian side, the province agreed earlier this year to fund the first year of construction with a US$1.1-billion investment and to guarantee US$4.2 billion of loans.