Vol. 26, No.49 Week of December 05, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

Seeking Keystone payback

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TC Energy starts trade action to recover US$15 billion from US government

Gary Park

Petroleum News

Pipeline giant TC Energy has formally launched a bid to recover US$15 billion from the U.S. government following President Joe Biden’s decision to shred a permit for the Keystone XL project.

The Calgary-based company said it has filed paperwork under a part of the North American Free Trade Agreement rules that allows companies to seek compensation for lost investment.

The case is proceeding under the rules of NAFTA which existed at the time approvals were granted for the pipeline to carry 830,000 barrels per day of bitumen from the Alberta oil sands to Gulf Coast refineries and tanker ports.

TC Energy is requesting that the dispute should be heard by an international arbitration panel under the provisions of NAFTA.

“The U.S. decision to revoke the permit was unfair and inequitable,” the company said, blaming the U.S. for putting Keystone XL on a 13-year “regulatory roller-coaster.”

NAFTA has since been succeeded by the Canada-U.S.-Mexico Agreement, CUSMA, but NAFTA was the trade law on the books when the project started, said Erin LeBlanc, a lecturer at the Smith School of Business in Ontario.

“It’s the largest claim for a Canadian organization against the U.S. government,” she said.

The pipeline was originally proposed under the Obama administration, which ultimately rejected the application on environmental grounds. President Donald Trump then revived the project, only to have Biden deliver the knock-out blow on his first day in office in January.

Responsibility to shareholders

“As a public company, TC Energy has a responsibility to our shareholders to seek recovery of the losses incurred due to the permit revocation,” the company said in a statement.

Richard Prior, TC Energy’s senior vice president for liquids pipelines, said his company has no intention of reviving the pipeline even if it wins the trade hearing.

“We’re not doing this for symbolic or political purposes. This is a business decision,” he said. “This is just about recovering the destroyed value of the investment.”

LeBlanc said governments in Canada and the U.S. will follow the proceedings closely because of the claim involved, while other companies will study how the case gets handled.

She said TC Energy has some “valid claims,” given the view at Biden’s decision “amounts to indirect expropriation without compensation. (TC Energy’s) investment was brought down to a value of zero by one stroke of the pen.”

LeBlanc said TC Energy could also claim it was unfairly singled out by a decision that had no ties to a “policy change that affected a bunch of other organizations.”

No US losses under NAFTA

However, trade lawyer Mark Warner said the company faces a steep uphill climb given that the U.S. has “never lost a single case that’s been brought under the NAFTA Chapter 11. That’s not to say it is impossible, but the (trade) cases that have succeeded have tended to succeed against Canada and Mexico.”

Because politics was a factor in the cancellation of Keystone XL that could prove to be TC Energy’s best argument, especially if the Biden administration decides it is prepared to settle for pennies on the dollar to avoid a protracted fight.

The company has attracted support from one big-name U.S. lawmaker, rebel Democratic Senator Joe Manchin.

He called on Biden to responsibly increase energy supplies for U.S. consumers by allowing Keystone XL to be built and take advantage of oil “from Canada, one of our closest allies.”

“This is about American energy independence and the fact that hard-working Americans should not depend on foreign actors like OPEC+ for our energy security and instead focus on the real challenges facing our country’s future,” he said.

Since February, Manchin has sided with Republicans in urging Biden to rethink cancelling the presidential permit for the pipeline, insisting that pipelines “continue to be the safest mode to transport our oil and natural gas resources and to support thousands of high-paying American union jobs.”

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