Obama's Keystone Carbon Test Sets Precedent: TransCanada

Rejecting TransCanada Corp. (TRP)’s $5.4 billion Keystone XL pipeline due to carbon emissions in the oil sands would set a precedent for all U.S. infrastructure projects, Chief Executive Officer Russ Girling said.

It would be harder to build car plants and T-shirt factories, as well as other cross-border pipelines, if President Barack Obama makes a decision on the proposed 830,000-barrel-a-day line based primarily on emissions from oil-sands development, Girling said yesterday in an interview at Bloomberg’s Toronto office. New factories may face reviews based on their energy sources, he said.

“This has become a precedent for infrastructure in the U.S.” Girling said. “We’re not going to build any other export access into the U.S. out of Canada until we resolve this issue.”

Oil-sands developers are counting on Keystone XL to lift heavy crude prices by connecting them to the U.S. Gulf Coast, the world’s largest refining center, as they double production by 2025. Environmentalists are trying to block the line because they say it would encourage oil-sands development, which releases more of the carbon dioxide that scientists say is warming the planet than extracting some conventional crudes.

Calgary-based TransCanada, the country’s second-biggest pipeline operator, rose 0.4 percent to C$48.16 at 9:49 a.m. in Toronto.

Pipeline Punt

Girling said he expects an environmental report from the U.S. State Department to be released in “weeks, not months.” The department continues to ask TransCanada questions about the project, though inquiries have slowed, Girling said. While he sees a final decision by the end of March, he also said there is a chance it may be left to the next U.S. administration.

“There is a possibility that this gets stretched out,” he said. “That very well could happen.”

A glut of oil caused by a lack of transportation options for Alberta production has led to Canadian heavy crude selling for $23.50 a barrel less than the U.S. benchmark. Oil-sands output will more than double to 4.5 million barrels a day by 2025 from last year, according to the Canadian Association of Petroleum Producers.

Keystone XL won’t be found in the U.S. national interest if it worsens climate change, Obama said in a June speech. That test threatens other cross-border pipeline projects such as Enbridge Inc. (ENB)’s proposed expansion of its Alberta Clipper conduit from Alberta to Wisconsin, Girling said.

Enbridge Approval

Canada’s National Energy Board approved Enbridge’s Northern Gateway oil-sands pipeline from Alberta to the Pacific Coast yesterday, subject to 209 conditions. The conditions include liability coverage of C$950 million ($887 million) and a responsibility to lead research efforts into the effects of heavy-oil spills in marine and fresh water environments. The government has 180 days to rule on the project.

TransCanada would consider expanding Keystone XL by adding pumping stations and twinning portions of the line, Girling said. The company requires approval of the pipeline first, he said, declining to specify how big Keystone XL could eventually get.

“I wouldn’t say it’s infinite, but we can continue to
expand,” said Girling, 51.

Another way to move Canadian oil to the Gulf Coast that TransCanada may consider is converting its 16,656-kilometer (10,350-mile) ANR natural gas pipeline to carry crude and reversing it so it runs from the U.S. Midwest to the Gulf of Mexico. That would also include connecting the system with its existing Keystone oil line in Illinois, the CEO said.

Sends Message

“The key issue right now is can you get oil across the border,” he said. “You have to get across the border first and then there’s other ways to get to the Gulf Coast.”

Keystone XL is scheduled to begin operating in 2016, four years after its original targeted start date, after delays due to environmental opposition. The pipeline needs presidential approval because it crosses the U.S.-Canada border. TransCanada requires 24 months to build the line.

A U.S. denial would be a “message to Canada,” Girling said.

“I’m not sure exactly what the message would be; is that the relationship is no longer as important as it’s been historically?” Girling said. “I just don’t think that makes any sense.”

Obama rejected TransCanada’s initial application after officials in Nebraska said the pipeline would imperil ecologically sensitive lands. TransCanada then split the project in two to build the southern leg that didn’t require a presidential permit first and reapplied for a rerouted northern leg in May 2012.

A draft report by the State Department said Keystone XL wouldn’t cause increased greenhouse gas emissions because projects in the oil sands, the world’s third-largest crude reserves, would be developed anyway and transported to market by rail.

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