Keystone XL could be Canada's last big oil export pipeline
Oilpatch likely won't need much more capacity to move its product to market
Joe McMonigle called it perfectly.
The former chief of staff in the U.S. Department on Energy under president George W. Bush had guessed the morning after Donald Trump's election victory that the new president would revive Keystone XL within the first week of taking office.
On Tuesday, that's exactly what happened. McMonigle now anticipates TransCanada will reapply to the American government within the next two weeks and the State Department will make a decision within a few months. Trump said he wants to renegotiate the terms of the project with TransCanada, but McMonigle says that won't present a significant hurdle to the project.
With Trump's support for Keystone XL, Canada's oilpatch now has government approvals in place for three new pipelines, which raises the question whether Canada will ever need to construct another large-scale export pipeline again. After several years of battles between pipeline proponents and opponents, the construction of these three projects could put an end to the pipeline politics in Canada.
In our view, Trans Mountain plus the Keystone pipeline would make the Energy East pipeline less needed.- Divya Reddy, Eurasia Group
On Nov. 29 the federal government rubber-stamped the expansion of Kinder Morgan's Trans Mountain pipeline to the West Coast and the replacement of Enbridge's Line 3 to Wisconsin. Add Keystone XL to the list and the oilpatch is about to boost daily capacity by 1.79 million barrels. That is a considerable amount considering Western Canada currently produces about 3.7 million barrels per day of oil, all of which gets to market one way or the other.
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There is no guarantee all three projects will go ahead, even with approvals at the federal level. Trans Mountain faces court challenges and protests on the ground are expected during construction. Besides the renegotiations with the Trump administration, Keystone XL would still require state approval (including Nebraska) and the resolution of legal issues with landowners. Nevertheless, receiving approval at the highest level was the most significant hurdle.
Some saying TMX not needed. That's false. Both Line 3 and TMX needed soon. Then KXL needed soon after. <a href="https://twitter.com/hashtag/cdnpoli?src=hash">#cdnpoli</a> <a href="https://t.co/LgsFi41Pqv">pic.twitter.com/LgsFi41Pqv</a>—@trevortombe
The construction of three new oil export pipelines sounds like a dream scenario for the Canadian oilpatch, which has faced pipeline gridlock for several years. Still, the oil industry supports the Energy East proposal as well. Oil companies want a variety of markets to choose from to ensure the best price for their oil.
"Over the last decade we have been so constrained on pipeline capacity that we've been over-subscribed. We've had to send increasing volumes at times over rail that have meant poor net-backs, poor economics for Canada, poor royalties for government," said Tim McMillan, head of the Canadian Association of Petroleum Producers.
"We need an all-of-the-above approach to new and growing markets and our existing very large markets."
Energy East is only in the early stages of a lengthy regulatory review process, and considering that environmentalists, First Nations and provincial governments are increasing their influence on pipeline proposals every year, the project's future is tough to predict. Kinder Morgan faced considerable opposition for a pipeline that would cross two provinces. Energy East would go through six.
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What's clear at this point is that the growth of oil production in Canada may not warrant Energy East and its $15.7-billion price tag.
- An earlier version of this story stated that U.S. President Donald Trump had approved the Keystone XL pipeline. Trump has asked TransCanada to reapply for a permit for the pipeline, but has not yet approved it.Jan 25, 2017 2:56 PM ET