Washington —
It has been a decade since TransCanada first applied to build the Keystone XL heavy oil pipeline from Alberta to the Texas Gulf Coast, and the project’s fate is not much clearer today.

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The failure of Keystone XL and other pipeline proposals to overcome regulatory and court challenges continues to pressure Alberta oil prices, with Western Canada Select trading at more than a $30/b discount to WTI this month.

In the 10 years Canadian oil sands producers have waited for Keystone XL and other pipelines to add critical new takeaway capacity, the energy landscape south of the Canada/US border has changed dramatically: surging US light sweet output heading to export markets like Asia, and collapsing Venezuelan production, a chief competitor to Canadian oil sands in supplying US Gulf Coast refineries.

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Canadian oil sands producers are counting on three remaining proposals for new takeaway capacity: the 830,000 b/d Keystone XL pipeline, the newly government-owned 590,000 b/d Trans Mountain pipeline expansion to British Columbia, and a 370,000 b/d expansion of Enbridge’s Line 3 into the US Midwest.

“Obstacles for all three projects will persist, including potential regulatory delays, lawsuits and protests,” S&P Global Platts Analytics said in a recent report. “But we expect at least two to be built from late 2019 to late 2022, which will allow a major reduction in more expensive rail service.”

Enbridge’s Line 3 appears to be at the front of the pack, said Sandy Fielden, director of oil research at Morningstar Commodities and Energy.

Trans Mountain, which the Canadian government recently bought from Kinder Morgan, now sits at the back of the pack after a federal court in August overturned its permit approval over flawed consultations with indigenous groups along the route. After the court order, Platts Analytics pushed back its projected in-service to late 2022 at the earliest.

Fielden expects Keystone XL to eventually get built, given that all of its remaining challenges sit on the US side of the border and the Trump administration supports the project.

“The permit process in Nebraska is still creaking its way through, so it won’t happen until 2020 at least,” he said. “There is, of course, a lot of demand from the Canadian producers who are getting stiffed by discounts as well as from Gulf Coast refiners who might have to handle a complete Venezuela meltdown any minute now.”

TransCanada filed its first Keystone XL application to the US State Department on September 19, 2008, when executives couldn’t have predicted how the proposal would become such a huge symbol for environmentalists or that the project would dominate energy debates during state and federal elections for years.

A decade later, TransCanada says the project continues to draw strong interest for 20-year shipping contracts. But given the history of regulatory and court uncertainties, the company has yet to make a final investment decision.

TransCanada said in May that it would start clearing land in Montana this autumn in preparation for the start of construction in the second quarter of 2019. But that timeline may be in question after a US district judge in Montana ordered the State Department to conduct a new environmental impact statement.

The Montana case focused on Nebraska regulators’ decision in late 2017 to deny TransCanada’s preferred route but approve its “mainline alternative” route. The Montana judge declined to vacate the presidential permit “at this time,” but ordered the State Department to supplement its 2014 environmental review to consider the route approved by Nebraska.

Baird analyst Ethan Bellamy said the chances for Keystone XL to be built remain highest while President Donald Trump is in office, but the path ahead is uncertain regardless.

“If it’s going to happen, Keystone XL needs to get past the point of no return on construction and permitting with Trump in the White House,” he said. “Whatever happens, I’d expect Dakota Access-like protests to consume the route. It will be expensive, troublesome, litigious and politically toxic as it proceeds.”

–Meghan Gordon, meghan.gordon@spgloba.com

–Staff, newsdesk@spglobal.com

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