With a federal judge in Montana delivering another legal blow to TransCanada’s Keystone XL pipeline last week, industry experts warn the dearth of infrastructure to transport Alberta oil to world markets could be costing Canada over $80 million per day.
The decision means further delays moving the glut of oil out of Western Canada and into international markets, which is driving down prices to multi-year lows while discouraging investment and costing thousands of jobs, said former TransCanada Corp. executive Dennis McConaghy, who has 30 years of experience in the Canadian energy industry.
“It’s a body blow, there’s no question. It means a longer period of time for more discounts to Alberta oil, more lack of big pipe scale market access, less capital investment, less production, and less cash flow coming back into Canada,” he said.
On Nov. 8, U.S. District Court judge Brian Morris granted an injunction to stop the 1,900-kilometre pipeline, ruling that the U.S. State Department didn’t consider carefully the viability of the $10-billion project facing lower oil prices, or ways to protect against spills and the impacts of greenhouse gas emissions.
Morris also considered environmental and Native American groups’ lawsuits to stop the much-troubled project in his ruling, which also cited property rights infringement.
Keystone XL was first proposed a decade ago but got shot down by President Barrack Obama in 2015 and then brought back to life under President Donald Trump in 2017. Morris was appointed in 2013 by Obama.
The pipeline would ship up to 830,000 barrels of crude per day from 200 kilometres east of Red Deer, Alberta, to Steele City, Nebraska, where it could move to refineries in Texas on the U.S. Gulf Coast.
TransCanada said it is too early to tell what the delay will mean for the pipeline’s timeline or additional costs, but told stakeholders it is “fully committed” to getting the project built.
“As far as timing around the pipeline, the need for Keystone XL has never been greater,” TransCanada’s liquids pipeline president Paul Miller told investors at an event in Toronto on Nov. 13, The Canadian Press reported.
McConaghy, who wrote a book on the trials and tribulations of Keystone XL, said “the tactics that TransCanada with the Trump administration has been working on will soon likely be made public.”
He added Trump could pursue executive action, although a trip to the appeal court could be problematic because it would have to go to the 9th circuit, which is held in San Francisco and is one of the most leftist appeal courts in the United States.
Alberta Energy Minister Marg McCuaig-Boyd said the ruling by a foreign court underpins the urgent need for Canada to build pipelines within its own borders to gain market access and boost Canadian oil prices.
The lack of pipeline space is blamed for the almost $40 difference in price reduction between Western Canadian Select (WCS) bitumen oil and the standard West Texas Intermediate (WTI) crude. At press time, WCS sold for just under $18 per barrel whereas WTI sold for over $56 per barrel.
“Today’s differential tells the story. We’re giving our resources away cheap. Canada is losing over $80 million a day. We need market access,” McCuaig-Boyd told reporters on Nov. 9.
Pressure on Ottawa
McConaghy said this latest delay for Keystone XL puts more pressure on the Trudeau government to follow through with getting the $4.5 billion Trans Mountain pipeline built, which it purchased from Kinder Morgan in May.
Warren Mabee, director of the Queen’s University Institute for Energy and Environmental Policy, argues the depressed prices for Canadian oil would see a jump if one of the two pipelines gets constructed, but especially if Trans Mountain could get product overseas.
“The big saviour for the Canadian system would be an independent pipeline system that would allow us to move product to international markets in Rotterdam or Hong Kong or Jakarta,” he said.
“Those would be the opportunities where we could actually achieve something closer to the Brent Crude price, which right now is higher than West Texas prices.”
Mabee agrees there is tremendous pressure on both the Alberta and Canada governments to get both pipelines built. He says its incumbent upon both governments to discuss with Canadians what the energy future looks like and what’s at stake economically if the pipelines don’t get built.
The delays with the pipelines has frustrated the oil industry and some say Ottawa needs to step up and respond more forcefully to the heavy hand of the courts that block key oil infrastructure projects.
“In both cases, the grounds for the judges’ decisions can only be described as socio-political bias, rather than the even-handed objective jurisprudence that the citizens of both countries are entitled to,” Gwyn Morgan, former chief executive and founder of Encana Corporation, said in an email.
“This is a very disturbing trend that not only leads to economic gridlock, but also a weakening of respect for [the] legal system as a whole.”
As far as Keystone goes, Mabee said he expects a six-month to one-year delay once the environmental assessments are completed.
“It is a monkey wrench in the gears, it is a roadblock on the road, but I wouldn’t go as far as to say it is a nail in the coffin,” he said.
Jared Gnam is a freelance reporter based in Vancouver.