Keystone XL pipeline future dependent on shippers

CALGARY — Further delays to TransCanada Corp.’s Keystone XL pipeline could sound a death knell for the massive Alberta-to-Texas bitumen line if shippers pull out, according to industry observers.

The $7-billion project was dealt a blow Thursday after the U.S. State Department put off a decision on the transborder line until early 2013 to review alternative routes, citing public concerns about XL traversing a sensitive water resource.

At a minimum the U.S. ruling presents a delay, at worse it could see key financial support being withdrawn from the $7-billion pipeline, said analysts.

“I believe it could lead to the project not going ahead because the shippers have sunset clauses,” said Juan Plessis, with Canaccord Capital, from Vancouver, B.C. “If TransCanada cannot reasonably expect to have a commencement date of Dec. 31, 2013, then the shippers are not bound to the original agreement.”

Conditions attached to shipper agreements filed with the National Energy Board include TransCanada proving by the end of 2011 it had all the U.S. regulatory approvals to launch the line “no later than Dec. 31, 2013.”

Observers now expect the project to be at least two years late because of the newest development and not built until the end of 2014 — assuming enough shippers stay on board.

“The critical issue is what happens to the 445,000 barrels per day plus of shipper contracts in place, which are necessary for the project to proceed.” said analyst Chad Friess, with UBS Research in a research note Friday. “With the delay, we expect most shippers will have the right to opt out of their contracts under various ‘sunset clauses’ and commit their volumes to other Gulf Coast projects, such as Enbridge’s Wrangler, which proposes to be on stream mid-2013.”

Rival Enbridge Inc. has forwarded an 800,000 barrel per day pipeline proposal which would move oil from benchmark pricing point Cushing, Oklahoma to near Houston, Texas.

Friess said a late 2014 completion would be tolerable to most shippers but added “there is no guarantee that a new route won’t meet the same resistance as the current one, which has been under review since 2008.”

TransCanada included 14 routes crossing Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas. when submitting its application to U.S. regulators. The final environmental impact statement approved by the state department in August noted alternative routes would disturb more land and add about $1.7 billion to the project.

The State Department move Thursday was seen as highly political, in part to placate influential Democratic voters in light of large public demonstrations against the pipeline, and help President Barack Obama administration’s avoid controversy around the project until after the 2012 U.S. election.

Environmental and landowner groups argued the 800,000 bpd Keystone would facilitate carbon-intense development of Alberta’s oilsands and could pollute the Ogallala aquifer in Nebraska.

“We don’t fault TransCanada for the fact that they have not received approval from the State Department, we fault the State Department and the Obama administration’s lack of leadership on this issue,” said Bill Day, with Keystone shipper Valero Energy Corp. on Friday. “This should have been approved a long time ago.”

Valero has been public with its support of Keystone since 2008, Day said. He added it was too early to say what direction the San Antonio, Texas, energy trader would take because of the delay, adding the company expected to speak with TransCanada soon on the issue.

Oilsands producer Cenovus Energy would not discuss its shipping agreements, but said the company was meeting with TransCanada for updates.

“Cenovus has taken a position on Keystone XL and we remain supportive of the project,” said spokeswoman Rhona DelFrari in an e-mail. “There has been a great deal of work already completed to determine this was the best route and we are hopeful any remaining concerns can be addressed so this pipeline gets built.”

Shipper options include Kinder Morgan’s proposed TransMountain pipeline expansion to the West Coast, Enbridge’s Wrangler and its equally controversial Northern Gateway pipeline project — which could be gaining force on the Keystone delay.

The 525,000 barrel per day line would ship Alberta bitumen to a marine terminal in British Columbia and on to Asian markets, opening new buyers for Canadian crude virtually limited to a U.S. market.

The Canadian Association of Petroleum Producers quickly assured investors that production would not be affected in the short term by Thursday’s announcement.

“Other alternatives are being pursued to ensure market access over the medium term,” said president David Collyer in a statement. “Delaying Keystone XL will motivate exploration of other markets for Canadian crude oil products,”

The sentiment was echoed by federal Finance Minister Jim Flaherty, who questioned the project’s survival if subjected to another lengthy regulatory review.

“It may mean that we may have to move quickly to ensure that we can export our oil to Asia through British Columbia,” Flaherty told Bloomberg Thursday at the Asia-Pacific Economic Cooperation summit in Honolulu.

If the alternative leads to a port, couldn’t US shippers fuel up there too?

China will build and own the port and have first claim on the oil shipped from there. They are talking 700,000 bbl/day and an oil tanker holds 2 million bbl so not that much traffic. If China were smart they would figure out a way to use Chinese cargo ships now returning from the west coast empty.

Washington talks about neighbourliness, then builds a higher wall
BARRIE McKENNA
OTTAWA....

Globe and Mail had an article last month that cites another new USA tariff proposal against BC, from Wash. Senator Murray and others, to be levied against containers.

When BC builds and maintains new and better ports, they could get taxed by DC....again

Similar scenario as the lumber dispute, where BC’s newer mills were more efficient.

This new tariff proposal from Washington seems timed with Kitamat moving forward and Keystone squashed but BC, Ottawa and Alberta are all looking to build Kitamat right now.

My understanding is China will help to finance Kitamat. They won’t own it, even if they do have the deepest pockets right now. The oil and other resources handled there will ship to South Korea and Japan and elsewhere.

As for the future for North Dakota oil and the American oil sands development, well, they are a bit hooped, for the time being, it seems.

I read that Burlington Northern railroad benefits, but rail cannot possibly supply oil like a pipeline can.

Who else really benefits from this latest Keystone delay? OPEC, for sure.

The new Alberta premier might not make much of an impression in DC next week, with any planned Keystone push. She is brand new to DC political pay to play too.

She should get a very good reception while visiting the governors of North and South Dakota and Texas though.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.