TransCanada stop, go

Abandons application for Keystone XL; announces fourth stage of layoffs; remains upbeat on C$48 billion of projects in the works

GARY PARK

For Petroleum News Bakken

TransCanada’s hopes of adding TransUS to its title got shelved with the rejection of Keystone XL, followed by the company’s own decision to withdraw a disputed application to route the pipeline through Nebraska.

Although a TransCanada spokesman said the company has reserved the right to reapply, possibly under a new U.S. administration, Paul Miller, the executive in charge of liquids pipelines, has also estimated 40 percent of the US$2.4 billion sunk into Keystone XL so far could be recovered by using a stockpile of pipe on other projects.

Whatever happens to that venture, the Calgary-based pipeline said it is committed to completing the second leg of its Keystone system to deliver heavy and light crude to Texas Gulf Coast refineries.

Its options include seeking a Presidential Permit for an alternative venture to ship oil sands crude across the Canada-U.S. border, or even mounting a legal challenge under the North American Free Trade Agreement.

Attention to smaller projects

Its attention has turned to smaller, less high profile projects, such as expansions to its existing natural gas networks, gas pipelines in Mexico, regional oil pipelines in Western Canada and power generation facilities.

TransCanada told investors it has C$35 billion in large-scale undertakings on the go and C$13 billion in small- to medium-sized developments that are scheduled to start service over the next three years.

That list includes a US$500 million natural gas pipeline in Mexico and a C$570 million expansion of gas pipelines in Western Canada by its Nova Gas Transmission subsidiary.

Chief Executive Officer Russ Girling left no doubt with investors that he is far from crushed.

“We’re at the worst combined commodity cycle that I’ve seen in my career, yet our assets are performing exceedingly well,” he said. “With our strong and growing cash flows as well as our industry-leading dividend coverage ratios, we’re well positioned to grow that dividend” which TransCanada said in 2014 that it planned to at least double to an annual growth rate of 8-10 percent through 2017.

Hundreds of layoffs

On the growth front, TransCanada in October won the rights for its sixth pipeline in Mexico and plans to invest an additional C$3 billion in that country by 2017, said Robert Jones, president of Mexico operations.

“We see a number of short- and long-term opportunities,” he said, referring to the Mexican government’s plans to hold five pipeline auctions by the end of January.

With its latest contract, TransCanada has rights to develop and operate 1,400 miles of pipelines.

Those undertakings coincide with Mexico’s overhaul of its energy industry that ended the state-run monopolies, which have opened the door to a 75 percent expansion of that country’s pipeline infrastructure involving US$10 billion of investment on 24 projects.

What compounds the appeal of Mexico for TransCanada is the more straightforward approval process that the company faces in the U.S. and Canada and less push back once approvals are granted.

Project with less regulatory risk

Rebecca Hazan, a portfolio manager who holds TransCanada shares, said the company has the cash flow “right now to do these smaller projects. Then we’ll wait and see what happens with the later ones.”

The Nova expansion comes on top of C$7.5 billion of projects already announced for the subsidiary, of which C$2.8 billion worth has received regulatory approval.

Girling said the Nova system sits “on top of extensive natural gas supplies, making it well-positioned to unlock the resource and reliably and efficiently link it to growing markets.”

TransCanada said transportation growth in northwestern Alberta and northeastern British Columbia is needed to meet signed contracts for 2.7 billion cubic feet per day of deliveries.

Costs rise, hopes strong

Ian Anderson, president of the company’s Canadian unit, blamed the increase on three factors — the slump in the value of the Canadian dollar against its U.S. counterpart; scope changes to the pipeline; and delays in the regulatory process.

And a final calculation of the price tag won’t be available until Kinder Morgan knows the full extent of conditions that would accompany any approval by the National Energy Board and the Canadian government.

So far, Canada’s federal regulator has issued 145 draft conditions, which the company said are achievable.

A spokeswoman for the pipeline said Kinder Morgan retains strong backing from committed shippers, who have the option to abandon their contracts if the project cost exceeds C$6.8 billion or regulatory approval stretches past the end of 2017.

She also said demand remains high for the increase in pipeline capacity to 890,000 barrels per day from the existing 300,000 bpd on a system that connects the Alberta oil sands with a tanker terminal in Greater Vancouver and refineries in Washington state.

But the prospect of increased tanker traffic in a densely populated area underpins much of the opposition to Trans Mountain from regional jurisdictions, environmentalists and First Nations.

One of the leading sources of unease for the proponent is the prospect that Canada’s new Liberal government could force Kinder Morgan back to the starting line, depending on what changes it makes to federal environmental reviews.

However, Natural Resources Minister Jim Carr has indicated that it’s possible the Trans Mountain expansion and TransCanada’s Atlantic-bound Energy East application will continue to move along their current paths.

—GARY PARK