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Keystone XL Pipeline Will Have to Take New Route

Keystone
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By MarEx 2017-11-20 17:18:29

On Monday, the Nebraska Public Service Commission voted three to two to approve TransCanada's controversial Keystone XL pipeline – but not perhaps in the manner that the midstream firm had hoped. The commission approved an alternate route that would parallel the existing Keystone line, to the east of TransCanada's preferred route. The change would add five pipeline miles, a new pumping station, new electrical lines and – potentially – many years of litigation and permitting changes to the project.

TransCanada has already pursued federal permitting for its preferred route, and it is as-yet unclear how the change in location will affect the status of the approvals that the firm has already obtained. The U.S. State Department – which approved TransCanada's application for a cross-border pipeline in March – said Monday that it may have to examine the line's permit once more now that the route has changed. 

Given all the new legal complexity, some of the pipeline's opponents celebrated the pipeline's approval. "Today was a victory for everyone working to stop Keystone XL. TransCanada did not get their preferred route which means years of new review and legal challenges are now on the table," wrote Nebraska Democratic Party chair and anti-pipeline activist Jane Fleming Kleeb in a Twitter post. In comments to Politico, she added that "TransCanada will have to go back to the State Department because that route has never been reviewed by the feds."

TransCanada said in a statement that it will take time to look over the profitability of the new route, and it emphasized that it was still moving forward with the rest of its $24 billion portfolio of near-term capital projects. "As a result of today's decision, we will conduct a careful review of the Public Service Commission's ruling while assessing how the decision would impact the cost and schedule of the project," said Russ Girling, TransCanada's president and CEO.

The Keystone XL would connect tar sands operations in Alberta with an American pipeline network running all the way to the Gulf of Mexico, allowing Canadian oil firms to transport up to 800,000 bpd of crude to Gulf Coast refiners. In Canadian regulatory filings, consultants for TransCanada suggested that this will raise prices in the American markets that rely on a captive supply of Canadian oil (primarily the American Midwest). 

But the economics behind Keystone XL have changed in recent years. Falling oil prices have made Canada's oil sands less profitable relative to the American shale oil industry, which has lowered its costs and doubled in size since the pipeline was proposed. With an abundant supply of U.S. oil on the market – and U.S. overseas exports growing quickly – analysts say that it is likely that much of the oil transported by Keystone XL would have to be loaded onto tankers. TransCanada's review will likely examine whether the pipeline will be profitable for selling relatively low-priced tar sands oil into the international markets: Canadian WCS heavy grade typically sells at a discount of $10 or more to West Texas Intermediate, which sells at a $5 to $7 discount to the international Brent benchmark.