The Keystone XL pipeline may be the first shovel-ready project buried by foot-dragging.
While the Obama administration allows the proposed pipeline, which would move oil from Canada’s oil sands region in northern Alberta to Gulf Coast refineries, to languish, market demands will ensure the oil is transported south by other routes. By the time Keystone gets the green light from the State Department, there may be no demand for it.
Last week, the administration said it would consider alternative routes for the Keystone project to avoid environmentally sensitive areas. It’s a political non-decision that avoids angering key Democratic constituents before next year’s presidential election. Approving the pipeline would have angered environmentalists; rejecting it would have angered labor unions.
Keystone’s stagnation, though, is good news for Houston-based Enterprise Product Partners, which has teamed with Canada’s Enbridge to build its own Alberta-to-the-Gulf network.
Enbridge already has lines to move oil from Alberta to Chicago – avoiding the need for State Department approval – and from there to Cushing, Okla.
Enterprise’s proposed Wrangler line would transport the oil from Cushing to the Houston area.
“Wrangler becomes the only game in town if Keystone’s going to be pushed back a year,” said Jeff Dietert, an analyst with Houston-based Simmons & Company International. “Producers and shippers are going to be interested in moving crude sooner than that.”
Pipelines don’t compete the same way that, say, retailers do. Demand is measured by long-term commitments for oil and other products. But Enterprise CEO Mike Creel acknowledged that with Keystone on hold, more people may see Wrangler as the best option for moving oil to the Gulf.
“We’ve had a very good reception so far,” he said. “We’ve got the right support from producers and shippers.”
As I wrote this summer, increased oil production from Canada and shale formations in places like North Dakota have resulted in a glut of oil at the pipeline hub in Cushing. That oversupply is keeping prices on West Texas Intermediate crude lower than the world price, which is what most refiners are paying.
The question is how much additional pipeline capacity is needed to bring prices into balance, which would, in theory, result in lower gasoline prices at the pump.
“There’s been a lot of debate about how much really needs to be built,” said John Cusick, an analyst with Wunderlich Securities in New York. “You just hear so much about all of the crude that’s stranded in Cushing.”
In addition to the Wrangler project, other companies are considering ways to get more oil to the Gulf. Houston-based ConocoPhillips, for example, has put its share of the Seaway pipeline up for sale. Currently, the line moves oil from the Gulf Coast inland to supply ConocoPhillips’ Midwestern refineries.
But with the sale – Enterprise owns the remaining interest in the line – the new owners may decide to reverse the flow.
As other companies move in, last week’s delay leaves Keystone’s future far more uncertain than either the administration or the company behind the project, TransCanada, are willing to admit.
“We remain confident Keystone XL will ultimately be approved,” TransCanada’s chief executive, Russ Girling, said in a statement. “This project is too important to the U.S. economy, the Canadian economy and the national interest of the United States for it not to proceed.”
But it’s not likely Keystone will seem as important a year from now, or that TransCanada or its customers will stick with the project through the latest delay.
With Keystone buried in uncertainty, Enterprise and Enbridge have gained the upper hand.
Loren Steffy is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at firstname.lastname@example.org. His blog is at http://blogs.chron.com/lorensteffy. Follow him on his Facebook fan page and on Twitter at twitter.com/lsteffy.