Providing coverage of Alaska and northern Canada's oil and gas industry
August 2018

Vol. 23, No.34 Week of August 26, 2018

One down, two up

Court places another obstacle in way of Keystone XL, some now see it as doomed

Gary Park

for Petroleum News

The seemingly unending struggle to open new markets for Canadian oil has seen TransCanada’s Keystone XL rocked by what some believe is another crippling delay, while Enbridge’s Line 3 and Kinder Morgan’s Trans Mountain projects have edged closer to construction starts.

A United States federal court judge added to the years of delay for Keystone XL by ordering the State Department to undertake an environmental assessment of TransCanada’s proposed route revisions through Nebraska.

Judge Brian Morris said the new evaluation was necessary following the Nebraska Public Utilities Commission’s approval of the US$8 billion, 1,140-mile pipeline along an alternative route in the state, rather than the company’s desired route, which he said had not been properly studied.

TransCanada was poised to start preliminary work on Keystone XL, which had been scheduled to carry 830,000 barrels per day from Alberta to U.S. Gulf Coast refineries by the end of 2018, but instead faces a new round of uncertainty.

The result for Western Canadian producers is expected to be prolonged price discounts, with the recent spread between Western Canadian Select crude from the oil sands settling in the range of US$25 to US$30 a barrel this year, compared with sub-US$20 historic averages.

Diversifying customer base

Canadian industry leaders say the upshot is obvious: Action is needed to diversify the customer base otherwise hopes that Canadian crude production can continue on a growth curve from 4.2 million bpd to 5.6 million bpd in 2035 will be dashed.

Chris Bloomer, chief executive officer of the Canadian Energy Pipeline Association, told the Financial Post that “we need the pipeline, we need it yesterday and we need more market access across the board.”

“We’re not getting a fair price for our crude in the U.S. because of a lack of (pipeline) capacity. That’s just fundamentally an issue.”

Tim McMillan, chief executive officer of the Canadian Association of Petroleum Producers, said the new obstacle for Keystone XL should prompt a call for action “for Canada to get its own house in order” and find a way to access new markets.

He said Canada should be taking advantage of its vast coastlines that open the way for shipments to Asia and Europe, instead of forcing the cancellation of projects such as TransCanada’s Energy East and Enbridge’s Northern Gateway that offered combined exports of 1.6 million bpd.

Bloomer noted that the shortage of pipelines is compounding the risks of using rail which reached an all-time high in May of almost 200,000 bpd, up 70,000 bpd from a year earlier.

Former TransCanada executive Dennis McConaghy said the Keystone XL court ruling was based largely on a “technicality” that would not satisfy opponents on either side of the issue, with environmentalists, indigenous communities and others now insisting that Keystone XL would never be built.

The plaintiffs in the U.S. lawsuit were the Indigenous Environmental Network and Northern Plains Resource Council who argued that the State Department breached several acts in issuing a presidential permit for the pipeline without a required environmental assessment of the changed route, although Morris rejected their demand to revoke the permit issued by President Donald Trump in 2017.


Still pending is a Nebraska Supreme Court verdict, expected later this year, on an appeal by Omaha-based Domina Law, claiming that the Nebraska utilities commission did not have the authority to consider alternate routes.

TransCanada said it needed time to examine the decision by Judge Morris before commenting, but Sierra Club senior attorney Doug Hayes said the verdict was a “victory for clean water, climate and communities that would be threatened by the pipeline.

“This proposed project has been stalled for nearly a decade because it would be all risk and no reward and, despite the Trump administration’s efforts, they cannot force this dirty tar sands pipeline on the American people,” he said.

The remaining hopes for relief rest with Line 3 to double existing capacity from the oil sands to U.S. Midwest refineries to 760,000 bpd and the Trans Mountain plan to triple volumes to 890,000 bpd, targeting Asian buyers.

Federal Natural Resources Minister Amarjeet Sohi and Enbridge Vice President Leo Golden announced on Aug. 16 that construction has started on Line 3, while the National Energy Board said the same day that it was granting permission for work to commence on Trans Mountain.

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