Copyright of the Daily Oil Bulletin 2018
Nebraska Regulators Approve Keystone XL Pipeline Route; TransCanada Evaluating Decision
TransCanada Corporation says it will evaluate the decision of the Nebraska Public Service Commission (PSC), which today approved an alternative route for the proposed Keystone XL pipeline project through the state.
"As a result of today's decision, we will conduct a careful review of the Public Service Commission's ruling while assessing how the decision would impact the cost and schedule of the project," said Russ Girling, TransCanada's president and chief executive officer.
Apart from Keystone XL, TransCanada will continue to advance its $24 billion near-term capital program in addition to other longer-term opportunities.
Nebraska regulators voted their approval on Monday for the Keystone XL pipeline route through the state, lifting the last big regulatory obstacle for the long-delayed project that U.S. President Donald Trump wants built.
The 3-2 decision by the PSC helps clear the way for the proposed pipeline linking Alberta's oilsands to U.S. refineries, but is likely to be challenged in court by the project's opponents who say it poses an environmental risk.
TransCanada earlier indicated it will need time to review the order although a positive decision would give “greater visibility” for a final investment decision on the pipeline, which will transport 830,000 bbls/d of oil from Hardisty, Alta., to the United States.
The company also is continuing to review shipping contracts following an open season which closed Oct. 31, 2017. Keystone XL initially was underpinned by 500,000 bbls per day of firm 20-year contracts and TransCanada will be targeting similar contracts this time, Paul Miller, executive vice-president and president of liquids pipelines, said a third quarter conference call.
If TransCanada decides to proceed with the project, it likely won’t be in service until after 2020 at the earliest as it does not anticipate it would be ready to begin construction until well into 2018, with work expected to take the better part of two years plus.
Trump signed a presidential order earlier this year to allow the pipeline to cross the border after former President Barack Obama refused to do so.
The decision today, though, wasn’t wrinkle-free: The commission approved an alternative route that was immediately targeted by foes as lacking adequate vetting, according to a Bloomberg report.
Jane Kleeb, president of the environmental advocacy group Bold Alliance, said green-lighting the alternative may have helped the commission reach a "middle ground solution.” But it opens new questions that she said her group would explore in federal court.
That view mirrored a dissenting opinion from commissioner Crystal Rhoades, who spoke before the final vote. TransCanada didn’t meet "the burden of proof” in determining that the pipeline is in the state’s public interest, Rhoades said. The alternative route, she said, needed more study on both the state and federal level, and it failed to give landowners along that different path the ability to address the commission.
For example, she said Nebraska’s Department of Environmental Quality didn’t analyze the alternative route at all in its 2013 report. "It is clear” TransCanada “never intended it to be considered," Rhoades said.
‘Years of study’
In its post-hearing brief, TransCanada told the panel its "preferred route was the product of literally years of study, analysis and refinement by Keystone, federal agencies and Nebraska agencies," and that no alternate route, even one paralleling the Keystone mainline as the approved path does, was truly comparable.
TransCanada didn’t immediately respond to emails and telephone calls seeking comment.
The panel’s decision overrode the objections of environmental conservationists, Native American tribes and landowners along the pipeline’s prospective route. The project had the support of the state’s governor, Republican Pete Ricketts, its chamber of commerce, trade unions and the petroleum industry.
With Nebraska’s go-ahead in hand, TransCanada still must formally decide whether to proceed with construction on the line.
"Nebraska's decision today greatly diminishes the political risk for the project, likely clearing the way for increased volumes of West Canadian heavy crude (WCS) to reach the Gulf Coast,” Zachary Rogers, refining and oil markets research analyst at Wood Mackenzie, said in a news release. “The pipeline's commercial viability is strengthened as declining heavy oil production in Mexico and ongoing Venezuelan risk has recently tightened the heavy-crude market in the Gulf Coast."
Assuming Keystone XL gets built, the biggest winners will likely be West Canadian producers, he suggested. “By ensuring a cheaper, more efficient route to the U.S. Gulf Coast, WCS (Western Canada Select) would likely not need to be discounted to the extent we've seen over the past few years."
Wood Mackenzie’s current forecast points to pipeline takeaway capacity potentially exceeding crude supply in the early 2020s, putting additional upward price pressure on WCS and negatively affecting heavy refiners, especially in the U.S. Midwest, said Rogers.
“As we stated in our submission to the Nebraska Public Service Commission, this pipeline will mean greater energy security for all North Americans by making sure people have access to Alberta’s responsibly developed energy resources,” added Alberta Premier Rachel Notley.
“This is another step in our broader effort to bring more Alberta oil to the world, diversify our markets and maximize the value we as Albertans get. Today, U.S. decision makers carefully considered a pipeline and granted an approval.
“We continue to urge Canadian decision makers to follow this example so we can have access to global markets from Canadian ports, supporting good Canadian jobs. While we are very pleased with Nebraska’s approval, it underscores that Canadian regulators need to keep pace if we are going to build a truly diversified set of markets.”
Natural Resources Minister Jim Carr said that Nebraska's decision “will result in good, middle-class jobs for workers on both sides of the Canada–U.S. border.
"Our government has always supported the Keystone XL project,” he said. “With Nebraska's decision, the project has now secured all the required approvals in both Canada and the U.S. The Keystone XL pipeline will create thousands of good jobs for Canadians during construction, mostly in Alberta, while strengthening the Canadian resource industry as a whole. The project also bolsters North American energy security and economic competitiveness.
"Our government's support of this important project, along with our approval of the Line 3 replacement and the increased capacity on the Alberta Clipper Project (Enbridge's Line 67), is creating almost 10,000 well-paying, middle-class jobs and will further strengthen the cross-border energy relationship. Combined with the thousands of jobs created during the construction of the Trans Mountain pipeline expansion, these energy projects will bring significant economic benefits to Canada for years to come.”
Carr added: "Canada and the United States share a highly integrated energy market in which environmental and energy security interests are closely linked. U.S. consumers benefit from having a secure and reliable supply of energy at their doorstep. Canada is that source.
"Canada is a leader in the safe and responsible transportation of our natural resources and has strong safety standards for federally regulated pipelines."
The Canadian Energy Pipeline Association (CEPA) is pleased with the PSC’s decision to approve the Keystone XL pipeline. This is a long-awaited step forward for this critical project, which will offer significant economic benefits for Canada.
The Canadian portion of the pipeline is 529 kilometres long, which will generate 4,500 jobs during construction.
“The Keystone XL project has been subject to a lengthy and detailed review and environmental assessment process. It will be built and operated to the highest safety standards with world-class regulatory oversight throughout the entire lifecycle of the pipeline,” the industry group stated.
With Canada’s pipelines near capacity, Keystone XL will ease the pressure on the system. “It’s a start, but more pipeline infrastructure is required to avoid the use of alternate forms of transportation that pose higher safety risks.”
Added Karen Harbert, president and CEO of the U.S. Chamber of Commerce’s Global Energy Institute: “The Keystone XL pipeline project has unfortunately become the poster child for the need to reform our permitting process so that we may fully realize North America’s energy potential. We’re pleased that the project has cleared this final hurdle, and appreciate the Nebraska PSC’s thorough review and endorsement. After years of government delays, the decision as to whether to move forward with the pipeline now rests with the company that will be making the investment.”
However, today’s decision is no guarantee the pipeline will ever be built as Nebraska opted not to give TransCanada its preferred route through the state, said Keystone XL opponent Mike Hudema, Greenpeace climate and energy campaigner. “Given last week's reminder of the dangers pipelines like Keystone XL pose, [the 5,000 bbl spill in South Dakoka] the resistance to this project will continue to grow and TransCanada will face legal challenges, and resistance to its construction plans on the land and in the banks.”
-With files from Bloomberg, Reuters