Anticipating an after-tax write-down of up to C$2.9 billion for the final quarter of 2015 and after 7 years of being messed around by the United States government, TransCanada has lashed out in all directions, launching a trade challenge and filing a separate lawsuit over the Obama administration’s refusal to issue a permit for the Keystone XL pipeline.
The announcement comes just as newly elected Prime Minister Justin Trudeau is trying to mend fences with the U.S. and is preparing for a March state dinner in Washington, D.C., at the same time the U.S. and Canada are working with Mexico to forge a North American energy and climate pact that would lay the groundwork for a continental energy market.
By initiating an action under Chapter 11 of the North American Free Trade Agreement, TransCanada is playing the ultimate underdog role.
And the White House is certain on that score, arguing that President Barack Obama and his administration acted lawfully in rejecting the pipeline, meeting the U.S. obligations to NAFTA.
NAFTA challengesTo date, no company outside of the United States has ever succeeded in a NAFTA challenge, although the agreement requires the NAFTA partners to treat foreign and domestic companies alike.
TransCanada, in signaling notice of its intent to seek US$15 billion in damages, said it has been “unjustly deprived of the value of its multi-billion dollar investment by the U.S. administration’s arbitrary action in November to reject Keystone XL.”
The company also filed a lawsuit in U.S. Federal Court in Texas against four members Obama’s cabinet, including Secretary of State John Kerry, which seeks to declare that Obama’s refusal to issue a presidential permit was without legal merit.
Lawrence Smith, a lawyer with the firm of Bennett Jones, said the manner in which Obama dismissed the pipeline provides TransCanada with the ammunition to mount its cases.
He said that by basing his decision on the use of XL to deliver “dirty oil” from the Alberta oil sands to Gulf Coast refineries in the wake of the United Nations climate-change summit in Paris before Christmas, Obama had made a “discriminatory” ruling.
Looking for a new presidentChris Hudson, of the Washington-based Hudson Institute, suggested TransCanada would “basically stop all dialogue between the two governments on pipelines” and related projects until a new president had been elected.
“The easier thing would have been to wait until there was someone new in the white House and then (TransCanada) could reapply for a presidential permit and get a quicker result” than the years it could face in a NAFTA hearing.
Bill McKibben, of 305.org, said any idea that NAFTA could be used to “overheat the planet’s atmosphere is, quite simply, insane. But the oil industry is so used to winning that I fear this kind of tantrum is predictable. Corporate power is truly out of control.”
Toronto trade lawyer Lawrence Herman said that although TransCanada is embarking on a “long shot” process, it does appear to have a solid case in arguing it was unfairly treated and Obama’s decision was politically motivated.
In its 27-page notice of intent to pursue the NAFTA challenge, TransCanada estimated it has spent US$4.3 billion on the US$8 billion venture to deliver 830,000 barrels per day of crude from the oil sands and the North Dakota Bakken to Texas refineries.
It was adamant that Obama was politically driven, acting contrary to the conclusions reached on Keystone XL by his administration’s own studies, with the State Department concluding the pipeline would not significantly increase global greenhouse gas emissions.
In denying a pipeline permit Obama said: “America is now a global leader when it comes to taking serious action to fight climate change and, frankly, approving this project would have undercut that global leadership.”
Claims decision politically drivenTransCanada said the administration “sought to explain its perverse decision by saying that the pipeline was perceived to be bad for the environment and that it had to appease those in the international community who held that (false) belief.”
“The politically driven denial of Keystone’s application was contrary to all precedent, inconsistent with any reasonable and expected application of the relevant rules and regulations.”
The company said no U.S. president has “ever prohibited the development of a significant, predominantly domestic facility. Nor has any president ever prohibited the development of any cross-corner commercial facility on the ground that he must restrict foreign and domestic commerce to enhance his influence in foreign affairs.”
It said the NAFTA claim “asserts that TransCanada had every reason to expect its application would be granted as the application met the same criteria the U.S. State Department applied when approving applications to construct other similar cross-border pipelines - including the existing Keystone pipeline, which was approved in under two years” and has now transported 1.1 billion barrels of Canadian and U.S. oil.
Although Trudeau has expressed his support for Keystone XL, a spokesman for Foreign Affairs Minister Stephane Dion said only that the TransCanada lawsuit was “not entirely unexpected” and fell within the company’s purview.
Could be important long termGreg Stringham, vice president of oil sands and markets with the Canadian Association of Petroleum Producers, told the Calgary Herald that the new legal twists will not help Canada secure new market access for its crude over the short term, but could be important in Canada’s ongoing relationship with its biggest energy export customer.
The dispute has given opponents of the proposed Trans-Pacific Partnership trade agreement a fresh argument on their lobbying to get Congress to kill the pact.
They say TransCanada is demonstrating how foreign companies could use the provisions of the TPP to challenge U.S. policy on the environment and other matters.
“I can’t think of many clearer signals that could have been offered to show how big a threat the TPP poses to our efforts to keep fossil fuels in the ground,” said Ben Beachy, a senior policy adviser to the Sierra Club.
The Communications Workers of America say the TransCanada claim is a case study in how the 12-nation TPP would give thousands more companies a new mechanism to challenge U.S. laws and regulations.