Next challenge for Keystone XL is regaining oilpatch support
Trump has revived the pipeline proposal, but there are other obstacles ahead
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.
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.
- Deciphering Trump's curious comments on Keystone XL pipeline
- ANALYSIS: Keystone XL could be Canada's last big oil export 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.
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'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.
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.