Story by The Calgary Herald
Rejection of the Keystone XL pipeline will complicate and add cost to getting western Canadian oil to U.S. markets but it isn’t expect to actually prevent any shipments reaching south of the border, observers say.
The decision announced Friday by U.S. President Barack Obama was greeted with disappointment by Calgary oil producers, industry insiders and local businesspeople who observed that Canadian crude is being singled out by the United States with a trade impediment while other countries have free rein.
Suncor Energy Inc. president and chief executive Steve Williams said in a statement that the U.S. decision, made seven years after Calgary-based pipeline firm TransCanada Corp.’s initial application, hurts Americans as much as it does Canadians.
“Clearly we’re disappointed in today’s decision. Keystone XL is important infrastructure not only for producers in the U.S. Bakken (centred on North Dakota) and Canada as it would provide expanded connectivity to the Gulf Coast, but also for U.S. refiners as it would provide security of supply from a long-time energy provider and trading partner,” he said.
The Calgary-based company, Canada’s largest oil producer by market capitalization, says it has 600,000 barrels per day of current access to world markets, including 80,000 bpd of rail loading capacity, as an alternative to the 830,000-bpd Keystone XL.
Analyst Stephen Paget of FirstEnergy Capital said the rejection will lead to more crude-by-rail shipping, a transport mode which has expanded enormously over the past three years despite higher costs while KXL awaits the presidential permit required for a pipeline that crosses the Canada-U.S. border.
“This is about positioning ahead of Paris (climate talks),” he said. “The fact-that-must-not-be-named, of course, is that U.S. oil production has gone up by four million barrel per day, which is more than Canada produces. That fact is unmentionable right now and Obama can move forward with this air of having done something about climate change…
“It’s a rejection of Canadian oil with no corresponding rejection of other oil.”
Paget said rail shipping declined over the summer as pipeline “workarounds” came on stream but he expects it will rise again as Canadian oil production increases, driven mainly by new oilsands production.
Paget covers TransCanada, a company which has commercial support for $35 billion in projects, including the $8-billion Keystone line.
“It’s never good to lose an application on a major project. But they have been preparing the market to some extent for this,” he said. “They said last year they would accelerate their dividend growth rate by eight to 10 per cent through 2017, with or without XL.”
TransCanada president and CEO Russ Girling said in a statement Friday the denial is a result of “misplaced symbolism” and that “rhetoric won out over reason.” He was not available for interviews.
He pointed out the U.S. must import seven million barrel of oil per day to meet demand in spite of higher domestic production, adding that the decision deals a damaging blow to jobs, the economy and the environment on both sides of the border.
“By dismissing the 9,000 jobs for Americans building Keystone XL as ‘only temporary,’ the administration has ignored the value of infrastructure jobs and has taken away work from those who seek it. In total, some 42,000 related jobs would not be created in the U.S. value chain as a result of this decision,” the statement reads.
Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers, said Canadian oil will find new paths to markets and continue to create jobs and wealth for Canadians, despite Obama’s political decision.
“The Keystone XL pipeline deserved to be approved on the facts of its environmental, economic and energy security merits,” he said.
He pointed out Alberta set greenhouse gas emission regulations in 2007 and recently increased its carbon price. Among the top suppliers of oil imports to the United States (Canada, Mexico, Nigeria, Saudi Arabia and Iraq, Venezuela), only Canada has GHG rules in place, he said.
Mike Tims, vice-chairman of Matco Investments Ltd. of Calgary, said its difficult to say whether the Keystone rejection on its own will affect the energy investment climate in Alberta. But he conceded that higher costs associated with rail transport aren’t good for an industry already suffering from low commodity prices and poor access to capital markets.
The Calgary Chamber of Commerce, whose members have been sideswiped by oilpatch layoffs and restricted spending due to low commodity prices, issued a call for Canada to push through pipeline projects to bring oil to coastal export points.
“The rejection of Keystone XL by President Obama shows the further need for Canada to take our destiny into our own hands,” said president and CEO Adam Legge. “As Canadians, we need to work together to find the solutions that will get our products to tidewater, now with an increased focus on those projects that live exclusively within our borders.”
Canadian Natural Resources Ltd., Canada’s largest producer of heavy oil, is one of the few identified committed shippers on Keystone XL. A spokesman said Friday the company would not comment on its rejection.
“If the decision had been based on facts and science, then we believe Keystone XL would have been approved,” said Reg Curran, spokesman for thermal oilsands producer Cenovus Energy Inc., in a statement. The company has contracted to ship 75,000 bpd on the pipeline and has 70,000 bpd of rail-loading capacity an an Edmonton-area terminal it bought this year.
The lack of transport capacity has made new oil projects in Canada less attractive — Royal Dutch Shell Plc said last week market access was a factor in its decision to shelve its 80,000-bpd Carmon Creek oilsands drilling development in northern Alberta.
A Fraser Institute study released in August showed moving oil and gas by pipeline was 4.5 times safer than moving the same volume the same distance by rail in the decade ended in 2013 in Canada, although both transport methods were considered low risk.