5 Keystone XL pipeline hurdles still ahead

The controversial Keystone XL pipeline may go ahead in 2015 but the bill still faces some major hurdles, even with a Republican-controlled Senate.

Despite Obama's veto, Congress still has options to keep project alive

Republican Party control of both houses of the U.S. Congress gives Keystone XL pipeline supporters more clout in Washington, but will it be enough to overcome President Barack Obama's veto? (TransCanada Corp.)

As expected, on Feb. 24 U.S. President Barack Obama vetoed a Congressional bill that approved construction of the Keystone XL pipeline.

That bill would have bypassed the Obama administration's nearly completed review of the pipeline. A presidential permit is required because Keystone XL crosses the Canada-U.S. border.

Senators had voted 62-36 to pass the bill, five short of the count needed to overturn a potential rejection from the president. In the House of Representatives, the bill also failed to get the two-thirds majority that would be required to override a presidential veto. 

Along with the veto, the controversial TransCanada Pipeline project still faces other big hurdles in the U.S.

Keystone XL, which would transport up to 830,000 barrels per day of bitumen from Alberta's oilsands to the U.S. Gulf Coast, has been awaiting U.S. approval since 2008. Obama has said that Keystone XL will only go forward if it "does not significantly exacerbate the problem of carbon pollution."

The pipeline got a boost in November 2014, after pro-Keystone Republicans defeated anti-Keystone Democrats in several Senate races in the midterm elections, giving them a majority of Senate seats. Along with support from pro-Keystone Democratic Party senators, they have shown they have enough votes to overcome any anti-Keystone filibuster.

Five significant challenges still lie ahead for the Keystone XL pipeline.

1. Getting around the presidential veto power

It had already been called "the last hurdle" for the Keystone XL project — Obama's power to veto legislation passed by both houses of Congress.

What's next depends on the strategy of the pipeline's proponents in Congress. The latest veto may not be the last.

Sen. John Hoeven, R-N.D., sponsor of the long-stalled Keystone XL pipeline bill, strides to the Senate floor for a roll call vote on Jan. 12 as the Republican-controlled Senate moves ahead on a bill to construct the Keystone XL pipeline despite President Barack Obama's veto threat. (J. Scott Applewhite/Associated Press)

Until this year, the Democrat-controlled Senate had declined to deal with Keystone XL legislation coming from the Republican-controlled House of Representatives, thereby avoiding the veto issue.

With the Senate in Republican hands, Keystone XL approval became a priority for the party's leadership. Immediately after the November vote, Republican Senator John Hoeven of North Dakota said "Keystone will be one of the first things we pass."

Four Senate seats moved from anti-Keystone or wavering Democrats to pro-Keystone Republicans and none of the 57 Senate seats held by pro-Keystone senators changed hands.

That arithmetic also means there are enough pro-Keystone senators — more than 60 — to block a potential filibuster on the Senate floor. But the Senate vote also indicates they are short of the two-thirds majority (67 votes) needed to block a presidential veto.

The pro-Keystone factions may next test Obama's veto power by adding a pipeline clause to a major infrastructure bill.

2. Falling oil prices

In 2013 President Barack Obama said Keystone XL will only go forward if it 'does not significantly exacerbate the problem of carbon pollution.' (Carolyn Kaster/Associated Press)

Because the pipeline crosses an international boundary, approval of Keystone also required sign off by the U.S. State Department, which released an environmental impact study of the project last January, when oil was about $100 US a barrel.

That study concluded that Keystone XL would have minimal impact on greenhouse gas emissions because not building the pipeline would have only a small impact on oilsands production, since the oil could be shipped by rail.

But the State Department's report also says that at prices below $75 per barrel "higher transportation costs could have a substantial impact on oilsands production levels."

And that brings it back to Obama's stated criteria about climate change impact. If the State Department is correct, and if the price of oil stays below $75 — currently the price of U.S. crude is about $50 — some oilsands production won't happen because the cost will be too high without a pipeline.

On the other hand, TransCanada has filed an application for its Energy East pipeline to transport oilsands crude to Quebec and New Brunswick. If approved, Energy East could result in lower transportation costs for oilsands producers, at least lower than the rail alternative.

3. The Keystone XL price tag

TransCanada CEO Russ Girling says the price tag for Keystone XL has risen to $8 billion US, as the U.S. regulatory process drags into its seventh year. (Chris Young/Canadian Press)

TransCanada reported its third-quarter earnings on Nov. 4 and that included the information that the projected cost of Keystone XL has gone from an initial $5.4 billion US to $8 billion US. Executives cited approval delays — they had expected it would take two years and now they're at six years and counting — and "a lot tighter market."

That's still cheaper than the $12-billion price tag for Energy East. But that pipeline could also move 1.1 million barrels per day, versus Keystone's 830,000. Shipping the oil with Keystone XL will cost less than Energy East, TransCanada says.

TransCanada CEO Russ Girling said the company has already spent $2.4 billion US on Keystone XL.

By prior agreement, at $8 billion, project costs go from where shippers cover 25 per cent and TransCanada covers 75 per cent to each party covering half the cost. Nevertheless, Girling says the shippers "remain solidly behind Keystone XL."

4. The Nebraska court case

The Obama administration had been claiming they had to await the result of a Nebraska court case. That excuse is pretty much over after the Nebraska Supreme Court brought down their ruling on Jan. 9.

But not completely. Some of the landowners who brought the original suit have now launched two new cases because the court didn't answer a constitutional question at the centre of the case.

After a Nebraska state court ruled in early 2014 that a hastily passed state law, which gave former Republican governor Dave Heineman power to approve a new route for the pipeline, is unconstitutional, the case went to the Nebraska Supreme Court.

That was the court case that in April the U.S. State Department said made it necessary for them to put on hold their process for reviewing the project, since the ruling could have led to re-routing the pipeline.

That didn't happen in a ruling that the Associated Press called bizarre. None of the seven judges expressed agreement with what the Nebraska government had done and four judges called it unconstitutional. But in Nebraska, five judges must favour declaring a state law unconstitutional for that to happen and three of the judges sat out the decision. "So the pipeline lost 4-0 — and still won," AP wrote.

5. Public opposition

Keystone XL has become a focus of the U.S. environmental movement and some Native American groups, with the support of a number of celebrities, including Neil Young, Robert Redford and Robert Kennedy Jr.

Their view is backed by a large part of Obama's political base. However, labour unions are also part of that base and they say Keystone XL will create jobs.

Some Nebraska landowners also don't support the pipeline's route. TransCanada says it has deals with 84 per cent of the Nebraska landowners along the route and is now trying to reach deals with the rest. If not, that controversial Nebraska law gives the company what is called eminent domain rights to force a deal.

With files from Reuters, Associated Press


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