TransCanada CEO says shippers still want Keystone XL
Obama administration denied pipeline, but company can re-apply
Ongoing uncertainty around the contentious Keystone XL oil pipeline hasn't scared away companies that would use it to ship crude between Alberta and the U.S. Gulf Coast, TransCanada's CEO told investors Thursday.
"Despite the delays in permitting, I guess what I'd tell you is that the interest in this project continues to grow," Russ Girling said at a CIBC conference in Whistler, B.C.
"The marketplace is saying that it needs it."
On Wednesday, the Obama administration rejected a permit for the US$7.6-billion project, but left the door open for TransCanada to apply for a new one.
A State Department decision had been expected by the end of last year, but it was delayed — ostensibly to allow time for TransCanada to work out a new route that avoids ecologically sensitive areas of Nebraska.
However, the delay was widely seen as a way for the Obama administration to avoid offending environmentalists -- an important segment of its supporters — ahead of the presidential election in November.
The Republicans responded by attaching a condition to a bill on payroll tax cuts, forcing the president to make a move by Feb. 21.
Obama said Wednesday that the deadline didn't allow enough time to adequately study a new route, so he had no choice but to reject the project. He said the decision had less to do with the pipeline's merits than with the arbitrary deadline the Republicans had set.
On Thursday, U.S. Ambassador David Jacobson reiterated that view in an interview with The Globe and Mail.
"I know it should not be perceived as a rejection of the pipeline, but instead as a rejection of this 60-day time line that was imposed with the extension of the payroll tax deduction," he said.
While admitting he's "extremely disappointed" by the decision, Girling said TransCanada will file a new application and expects the pipeline could start up by the end of 2014.
So much information has already been amassed over three years of study that Girling expects a new process can proceed relatively quickly.
"I don't think that regulators have any desire to duplicate work that's already been done," Girling said.
The only outstanding issues are in Nebraska, where TransCanada and regulators are close to picking the best route to avoid the Ogallala aquifer and the Sandhills region. After that would come public consultation and environmental study.
Girling also repeated the company's view that it may be possible to start building the southern leg of Keystone XL — the most urgently needed portion — between Oklahoma and Texas ahead of the rest.
Analysts meanwhile, are wondering whether TransCanada customers will flee to competing projects if Keystone XL takes too long.
Most customers that have signed up to together ship some 830,000 barrels per day on Keystone XL could live with an early 2013 State Department decision, said UBS Investment Research analsyt Chad Friess in a note to clients.
"But we do expect some migration of commitments towards Enbridge's Gulf Coast alternative, though not enough to condemn the (Keystone XL) project," he wrote in a note to clients.
FirstEnergy Capital analyst Steven Paget wrote: "We were surprised that TransCanada did not publicly condemn the political gamesmanship surrounding the imposition of this 60-day deadline as it was obviously counterproductive."
Reapplying for a new permit will likely push an approval "well beyond" 2013, with an in-service date possible in 2016, he said.
"TransCanada can certainly reapply for a permit for a modified pipeline, but we foresee several possible problems with this: for instance, shippers may walk away from their contracts with TransCanada," he wrote.
"If this happens, another pipeline company could lure away these shippers if it could convince them that it could deliver a functioning pipeline sooner than TransCanada has done."
The rejection means a financial hit for TransCanada, Paget said. Keystone XL would have added $1 billion in earnings before interest, taxes, depreciation and amortization by 2015, but now that's not expected to arrive until at least a year later.