Hurdles remain for oil pipeline
Keystone project debate renewed as White House approves permit
WASHINGTON — The Trump administration resurrected a long national fight around the Keystone pipeline on Friday when it approved a cross-border permit to allow construction of the $8 billion project.
With state and local regulatory hurdles left to clear and environmental groups gearing up to challenge the presidential permit in court, the embattled oil pipeline has a ways to go before construction begins and crude flows to Texas refineries.
The fluidity of the situation became evident during a ceremony at the White House on Friday morning, when President Donald Trump asked the CEO of Keystone developer Trans Canada when construction would begin.
“We’re going to have to see,” CEO Russ Girling said. “We have some work to do in Nebraska to get our permits there.”
“Nebraska? I’ll call
Nebraska,” Trump said.
It might not be that simple.
“This is a pretty big step forward for TransCanada and Keystone XL getting built, but it’s important to remember the granting of the presidential permit is not a general nationwide permit to start construction,” said Fred Jauss, a former official at the Federal Energy Regulatory Commission, now an attorney at the law firm Dorsey & Whitney. “This is going to take time.”
A larger debate
It was once just one in a series of pipelines bringing crude from Canada’s oil sands fields to the U.S., but the Keystone pipeline became a touchstone in a larger debate around climate change between the fossil fuel industry and the environmental movement.
In late 2015, three years after TransCanada filed its original application, President Barack Obama announced he would not grant the project a permit on the grounds that allowing a pipeline transporting oil with such a high carbon intensity would undermine U.S. leadership on climate change.
But the State Department reversed course Friday, after Trump had ordered officials to look again — following up on a promise he made on the campaign trail. In its findings, the State Department said building the Keystone, which would have the capacity to deliver 800,000 barrels a day to the Gulf Coast, serves U.S. national interests.
Undersecretary of State Tom Shannon cited the importance of Canadian crude in maintaining U.S. energy security and downplayed the climate concerns of the previous administration.
“Since (2015), there have been numerous developments related to global action to address climate change, including announcements by many countries of their plans to do so. In this changed global context, a decision to approve this proposed project would not undermine U.S. objectives in this area,” a 31page report released Friday by the State Department read.
Attention almost immediately shifted to Nebraska on Friday, the last of three states from which TransCanada said it needs approval before it will begin construction on the 1,200 mile pipeline.
With approvals from Montana and South Dakota in hand, the Canadian firm must convince Nebraska regulators who have watched their original approval overturned after activists and tribal groups sued.
More litigation possible
TransCanada has submitted three possible routes to the Nebraska Public Service Commission for consideration, trying to find the path of least landowner resistance. But after Friday’s announcement, environmental leaders said any approval would again meet with litigation.
“You’re looking at two to three years of legal challenges in the state of Nebraska at the very least,” said Jane Klebb, president of the activist group Bold Alliance.
The rekindling of the Keystone debate comes at a tough moment for the oil industry, and the cost-intensive Canadian oil sands industry in particular, with crude trading at less than $50 a barrel. Shell announced this month it was selling off its oil sands business with an impairment of between $1.3 billion and $1.5 billion, joining competitors like Exxon Mobil, Conoco Phillips and Statoil that have sold or written down their Canadian oil businesses in recent years.
A spokesman for TransCanada said, “our shippers remain committed to the project,” but analysts were of a mixed opinion.
They expressed fear around a coming price collapse, while arguing the market demand along the Gulf Coast was there.
“There still comes the economic question, and that depends a heck of a lot more on whether we’ve seen the last of the crude price bust than Washington politics,” said Robert McNally, president of the Rapidan Group, an energy consultancy.
“Canadian crude production is set to grow over the next several years, and Canada is facing logistical bottleneck issues,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University.
But TransCanada is facing a legal and public relations onslaught.
In a call with reporters Friday, environmental leaders promised a steady series of events to block the pipeline in the months ahead.
The Sierra Club said it would challenge the presidential permit in federal court “in the next several days.”
Tribal leaders are making plans to resurrect the protest camps that delayed the Dakota Access pipeline in North Dakota. And petitions to the financial institutions providing the financing for Keystone are “circulating.”
Even in an industry used to operating in wartorn parts of Africa and the Middle East, some agonized about the potential for business disruption and physical violence.
“Some banks may be loath to enter a credit facility if they think their management team will get death threats, that they will incur branch protests, or that some municipalities will sever ties,” said Ethan Bellamy, an energy analyst at the investment firm Robert W. Baird & Co. “This is a real business consideration going forward.”
‘Going to be hiccups’
But along the Texas Gulf Coast, the Keystone oil cannot arrive fast enough.
A decade ago, local companies redesigned refineries to process heavy grades of crude from countries like Venezuela, Mexico and Saudi Arabia. But transportation costs from those fields are high, and heavy Canadian crude via the Keystone is expected to provide a lower cost alternative that could ultimately boost profits for refiners, analysts said.
“Our Gulf Coast refineries were built like a glove into which Canadian heavy crude fits like a hand,” McNally said.
How long will they have to wait?
The prospect seemed close three years ago, when the southern leg of the Keystone that treks from Cushing, Okla., to Nederland was completed with minimal fanfare. But the attorneys who handle pipeline regulation struggle to make predictions.
Jauss, the former FERC official, pointed out that even once TransCanada had state-level approval, local planning boards likely will need to weigh in on issues like permits to move construction equipment.
“I wouldn’t expect a rapid green light from the other regulatory agencies that have to weigh in,” Jauss said. “There are definitely going to be hiccups along the way.”
“I wouldn’t expect a rapid green light from the other regulatory agencies that have to weigh in. There are definitely going to be hiccups along the way.” Fred Jauss, former official at the Federal Energ y Regulatory Commission