Related Articles
Forward article link
Share PDF with colleagues

Keystone XL's first hurdle passed

The challenges are not over for the pipeline which will run from Alberta to the Gulf Coast

When the Keystone XL pipeline was first proposed more than eight years ago, Russ Girling, TransCanada's chief executive (he was chief operating officer at the time), probably didn't imagine the bruising battles ahead, or that it would be President Donald Trump signing off on the project's presidential permit in 2017. But Girling was positively beaming as he watched Trump announce the approval of the permit in a 24 March Oval Office ceremony.

That Trump signed off on the line—which would move as much as 830,000 barrels a day of oil sands crude from Alberta to the Gulf Coast—wasn't a surprise, coming at the end of a self-imposed 60-day reevaluation period in which the verdict was never in doubt. Still, it was no doubt sweet vindication for TransCanada after being denied by the Obama administration and seeing #KXL become a battleground in a much larger war over climate change and the future of fossil fuels.

However, the presidential permit is hardly the end of the line for the project.

For one, oil markets look a whole lot different than they did in 2008, when barrels from the oil sands were in high demand and producers were desperate for new outlets. Oil prices are half what they were then, the shale industry has disrupted global oil supply dynamics, and new pipeline projects have emerged as competition, which has shaken up the picture on both ends of the pipe.

In Alberta, there simply aren't as many barrels to go around. Lower-for-longer oil prices have meant that big international players have slashed oil sands investments as returns have withered. This, in turn, is raising doubts about the ambitious growth forecasts that justified KXL in the first place. Newly approved pipeline projects that aim to take oil to Canada's west coast and south to the US will be competing for those barrels as well. On the receiving end, there is growing doubt about the long-term demand for the oil sands' high-cost, and carbon-intensive, barrels.

2.5m b/d - Government oil production target for 2020

TransCanada has acknowledged how much the landscape has changed. "The shippers, they have a different price environment. They are operating under a different supply forecast. There's different competition out there. So the shippers are going through their own analysis," the head of the company's liquids pipeline business Paul Miller told analysts in February. The company is confident those producers are still onboard and will commit to keeping the pipeline full. It will find out in the coming months.

It isn't just shifting markets that TransCanada has to contend with. The environmental groups that have stymied KXL are spoiling for a fight over the project with the Trump administration. Lawsuits are already being drawn up over how the Trump administration went about approving the project. Win or lose, those suits could keep the pipeline tied up in the courts for months, or even years, to come. "This project has already been defeated, and it will be once again," the Sierra Club said in a statement.

And while TransCanada has the Trump administration on side, it still has to win over the states KXL will pass through—Nebraska in particular. Nebraska's Public Service Commission, a state regulator, now holds the fate of the $8bn project in its hands. It will hold a series of public hearings over the summer that will no doubt draw boisterous opposition from green groups and landowners opposed to having the pipeline laid down across their land. Girling hinted at the tough slog ahead during the White House ceremony, telling Trump "we've got some work to do in Nebraska to get our permits there," after the president blithely asked when construction would start.

The Nebraska decision won't come until at least September. The company has said construction won't start until "well into 2018", which would mean first oil flowing through the pipeline in 2020 at the earliest.

So for all White House's enthusiasm, it may ultimately prove to be too little, too late.

Not over yet: the pipeline still faces many obstacles
Also in this section
Aramco advances plan to lease out pipelines
5 August 2020
The cash-strapped Saudi NOC is looking to replicate the recent divestment success of its Emirati counterpart Adnoc
ExxonMobil announces Power Play finalists
4 August 2020
Community voting is now open across the three categories for the awards, which champion inclusion and diversity by celebrating remarkable women and men in the LNG industry
Canadian LNG industry strikes a defiant note
3 August 2020
A lobby group for exports foresees a bright future despite a long history of setbacks