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Next challenge for Keystone XL is regaining oilpatch support

With pro-pipeline President Donald Trump sitting in the White House, the big challenge for the Keystone XL pipeline proposal is to regain support in Alberta's oilpatch, according to the former chief executive of Calgary-based TransCanada.

Trump has revived the pipeline proposal, but there are other obstacles ahead

The next big hurdle for TransCanada's Keystone XL project will be convincing oilpatch companies to recommit to lengthy contracts. (Terray Sylvester/Reuters)

With pro-pipeline President Donald Trump sitting in the White House, the big challenge now for the Keystone XL proposal is to regain support in Alberta's oilpatch, says the former chief executive of Calgary-based TransCanada.

Former U.S. president Barack Obama rejected Keystone XL, but the project is enjoying a second life after Trump revived the proposal in January as one of his first acts after taking power. 

These are tough things for shippers to do in the best of times.- Hal Kvisle, former TransCanada CEO

Former TransCanada chief executive Hal Kvisle says the next hurdle will be convincing oilpatch companies that the pipeline still makes sense to export oil and that's why they need to re-commit to lengthy contracts.

"These are tough things for shippers to do in the best of times. The balance sheet commitment it takes to sign a long-term contract to move oil through an expensive pipeline, that's a big financial commitment for any company to make," said Kvisle in an interview. 

"It's easier to make when you're at the top of the cycle, oil is $100 a barrel. It's tougher to make today, when oil is $50 a barrel."

The oilpatch has a few different proposed pipelines to choose from, as the Canadian government has approved Kinder Morgan's Trans Mountain project and Enbridge's Line 3 replacement project. Enbridge's CEO said last month that two projects will provide enough capacity to move Canadian oil production until at least the mid-2020s. 

Enbridge's Line 3 will transport an additional 370,000 barrels per day of oil.

TransCanada said Tuesday in an email that its discussions with customers "are ongoing." In addition, the company has suspended its $15-billion lawsuit against the United States, which it had launched under the North American Free Trade Agreement after Obama rejected the pipeline.

Kvisle — who conceived the Keystone XL pipeline during his time as chief executive from May 2001 to June 30, 2010 — still follows the project closely. He owns shares in the company and has many friends who still work for TransCanada.

"One should never lose sight of the fact that Keystone XL is the lowest-cost way to get Alberta oil to the highest-value market. That's why Keystone XL was conceived in the first place," he said.

Environmental activists have targeted the Keystone XL pipeline for several years. 1:18

Alberta oil producers want to ship oil to Canada's coastal waters and exported at world prices. Keystone XL does not provide that access, but it would give direct access to the numerous refineries in the Houston area near the U.S. Gulf Coast. The pipeline would ship up to 830,000 barrels of oil per day. 

Trump influential

Trump's support for Keystone XL hasn't wavered since he took office, and he reaffirmed his belief in the project in a speech last week.

"Bottom line, Obama didn't sign it. Could be 42,000 jobs, somewhere around there, a lot of jobs, didn't sign it," he said.

Trump's backing should smooth out some of the hurdles the project faces, according to Kvisle. He points to the controversial Dakota Access pipeline project in North Dakota as an example. The Army Corps of Engineers delayed the project as Obama's support for the project waned. However, once Trump took power, the Corps reversed its decision and said further environmental studies were no longer needed.

"If you have a president who overtly supports these kinds of projects, it changes the mindset of all of the regulators, of all the other politicians, of all of the state governors," said Kvisle. 
Opponents of the Keystone XL and Dakota Access pipelines hold a rally as they protest U.S. President Donald Trump's executive orders advancing their construction, at Lafayette Park next to the White House on Jan. 24. (Saul Loeb/AFP/Getty Images)

Trump has been clear he wants TransCanada to use American steel for the project, which Kvisle said isn't a problem since the company always planned to buy steel from a mill in Arkansas.

During construction, Kvisle said, TransCanada will continue to face opposition from protesters. For several years activists targeted Keystone XL and made it a lightning rod for the climate change debate. After Obama rejected the project, the company wrote off nearly $3 billion.

"It was effectively thrown in the ditch by the efforts of activists. So, that's clearly a big issue for a company like TransCanada," said Kvisle.

The U.S. State Department has until late March to review TransCanada's latest application for Keystone XL.

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