Vol. 25, No.33 Week of August 16, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

XL battles headwinds; Canadian cabinet minister bullish on project

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Gary Park

for Petroleum News

For 12 years, Keystone XL has probably been through more twists and turns than any oil pipeline project in North American history, but it’s possible the issue will be resolved within six months.

Whether that will be good or bad news for Canadian producers is an open question.

The undertaking by TC Energy (previously TransCanada) to ship an extra 830,000 barrels per day of raw bitumen from the Alberta oil sands to Texas Gulf Coast refineries has tangled with U.S. federal and state regulators, a variety of courts and two U.S. presidents - Barack Obama who scuttled what were supposed to have been final approvals and Donald Trump who reversed that decision.

Now XL is facing what could be its ultimate undoing if Joe Biden moves into the White House and, according to Democratic campaign officials, endorses July’s U.S. Supreme Court decision upholding a lower court ruling that blocked a key environmental permit for the pipeline.

When asked by investment analysts to deliver his verdict on XL, Mark Little, chief executive officer of oil sands producer Suncor Energy, offered a cryptic: “I don’t know.”

He said TC Energy is “working through the latest court rulings, so it’s delaying any construction across waterways, but if you talk to TC they’re still plowing ahead and working hard to make this thing happen. So there’s lots of resolve there to keep it going.”

Among the sideline experts, less than 50% are ready to bet on the pipeline actually being completed.

Positive views

However, one of those is Canada’s Natural Resources Minister Seamus O’Regan, who said his government is “intent on getting the pipeline (built).”

For now, he is working closely with the current U.S. Energy Secretary Dan Brouillette “to make sure our joint interests are met.”

At the same time, O’Regan said he is “very serious about combating climate change” and to that end is defending the Canadian government’s goal of achieving net zero carbon emissions by 2050.

“For all of us who want to see a transition (through wind power and improving energy efficiency) to lower emissions we need to have Alberta on side ... and the need for a prosperous, innovative, healthy oil and gas industry” to advance progress on cleaner sources of energy.

One other voice of hope on Canada’s chances to complete pipeline projects in the U.S. is Al Monaco, chief executive officer of Enbridge, North America’s largest pipeline company.

He does not expect a Biden victory would change Enbridge’s pipeline business in the Lower 48, noting his company worked well with even the Obama administration.

Unlike the US$14.4 billion XL venture, Monaco said Enbridge is focused primarily on permitting with state-level agencies, especially for the US$7.6 billion Line 3 replacement to U.S. Midwest refineries, while having only limited dealings with the administration in Washington, D.C.

Increased capacity

TC Energy got a quiet boost in late July when the Trump administration issued a permit to raise capacity on the existing Keystone system to 760,000 bpd from the current 590,000 bpd.

Chief Executive Officer Russ Girling said the approval “will allow us to respond to market demand and to fully utilize (the system) to safely deliver additional crude from Canada to the refining centers in the U.S. Midwest and the Gulf Coast.”

“In the U.S. we are making progress on a revised 2020 construction plan (for XL), which is focused in areas where all of our permits and approvals are in place and includes facilities and pre-construction activities,” he said.

The company said it expects to resolve two legal challenges to XL - the first challenging the project’s presidential permit and the other challenging its ability to work around waterways and wetland - by early 2021 at the latest.

TC has signed 20-year contracts to start moving an extra 50,000 bpd next year, representing “unequivocally good news,” said the company and Dennis McConaghy, a former TC executive.

“This is not overwhelming, but in a world with all the things that Alberta has gone through with constrained pipeline capacity, it is still significant,” McConaghy told the Calgary Herald.

A company spokesman said that taking the next step to the new maximum level would require an open season and more time to prepare the pipeline.

Dinara Millington, vice president at the Canadian Energy Research Institute, said the initial 50,000 bpd increase would “alleviate some short-term pain for producers” once a post-COVID recovery takes hold.


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