Canadian energy producers lobbying for U.S. approval of the Keystone XL pipeline are targeting undecided Democratic lawmakers in Washington in advance of a decision on the $5.3 billion project.
The Canadian Association of Petroleum Producers, which represents more than 100 energy producers including Canadian Oil Sands Ltd. (COS) and Exxon Mobil Corp. (XOM)’s Imperial Oil Ltd. (IMO), will travel to the U.S. capital next month to promote TransCanada Corp. (TRP)’s plan to carry Alberta oil-sands crude to Gulf Coast refineries. A decision by U.S. President Barack Obama on the pipeline is expected this year.
The association’s focus is “primarily on what I would characterize as moderate Democrats, those who are perhaps on the fence, who are perhaps looking for more information as to what will inform their decision,” President David Collyer said in a telephone interview last month.
The visit is part of an effort by global oil companies and North American politicians, including Canadian Prime Minister Stephen Harper, to get Keystone XL built. Approval may boost Canadian energy equities 20 percent on the promise of easing a glut of crude, according to Cormark Securities Inc. Rejection would further cloud prospects to find outlets for the rising production from the landlocked oil sands.
Output from Alberta, home to the world’s third-largest reserves of crude, will increase to 3.8 million barrels a day by 2022, double that of a decade earlier, according to Alberta’s Energy Resources Conservation Board regulator.
Keystone approval is poised to boost shares of oil-sands producers such as Canadian Natural Resources Ltd. (CNQ) and Cenovus Energy Inc. (CVE) by as much as 20 percent, said Todd Kepler, a Calgary-based oil and gas analyst at Cormark Securities.
“There really would be a positive sentiment shift toward a lot of these heavy-oil, large-cap producers in Canada, like Canadian Natural and Cenovus, just with that signing,” Kepler said in a May 7 phone interview from Calgary.
Canadian energy stocks have underperformed U.S. peers by about 12 percentage points in the year through May 17, as a glut of crude has widened the price gap between Canadian heavy oil and the main U.S. crude grade. The spread averaged about $22 a barrel in the past year, according to data compiled by Bloomberg.
“Investors are telling us that Canadian producers are less interesting to invest in until Keystone is resolved,” Canadian Oil Sands Chief Executive Officer Marcel Coutu said in a May 16 phone interview. Canadian Oil Sands shares have risen 2 percent this year in Toronto, while Cenovus has fallen 7 percent and Imperial Oil is down 6.2 percent.
The U.S. State Department must issue a so-called presidential permit to allow the pipeline to proceed because it would cross an international border. Last year, Obama denied a permit for Keystone XL, citing concerns it may be a threat to the ecologically sensitive Sand Hills region in Nebraska. Obama said he would decide on the pipeline this year, Republican North Dakota Senator and Keystone XL supporter John Hoeven said in March, after a meeting with the president and other Republican lawmakers.
The plan is under pressure from environmentalists, who say oil-sands operations release more carbon dioxide than most forms of conventional drilling. The Canadian government says the pipeline won’t increase emissions because the U.S. already imports heavy crude from countries such as Venezuela. Proponents say the project will increase North American energy independence and create jobs.
Last May, Calgary-based TransCanada resubmitted its plan with a new route from the Canadian border to connect to a pipeline in Steele City, Nebraska.
Lawmakers in Congress have said they may try to override Obama if he denies the permit a second time. The Republican-led House plans to vote before the end of May on a bill that would preemptively take the decision from Obama and deem the Keystone XL pipeline approved.
A State Department draft environmental analysis said the climate risks were minimal because the development in Alberta would happen with or without Keystone.
A spokeswoman for the Canadian petroleum association, Geraldine Anderson, said CAPP executives will visit Washington next month, and declined to provide more details. The group led a similar trip in February, when energy-company executives met officials inObama’s administration and legislators.
“In large part, we go to get the story straight,” said Coutu, who was in Washington with the Canadian group in February. “The problem is, environmentalists are not held to the same standard of proof as public companies like us are.”
Imperial Oil, whose previous CEO Bruce March joined the February visit, declined to say if its executives will be on the trip.
The company is confident Keystone XL will be built “because it is vital to the continued development of the North American energy market,” Leanne Dohy, a company spokeswoman, said in a May 15 e-mail.
Oil executives need to “broaden their approach” and reach out to the general population with a message that oil-sands crude is important for U.S. energy security, John O’Connell, CEO at Davis Rea Ltd. in Toronto, which manages about C$600 million ($584 million), including Cenovus shares, said by phone May 9. “You have to keep the pressure up on politicians and you also have to gain the hearts and minds of people who elect these clowns.”
Energy executives are working in tandem with Canadian politicians. Harper defended the pipeline at a May 16 event in New York moderated by former U.S. Treasury Secretary Robert Rubin for the Council on Foreign Relations.
Before Harper’s visit, environmental group 350.org released a letter from a group of academics saying the development of the oil sands would leave “no hope” of keeping global warming at a reasonable level.
On a visit to Washington last month, Canadian Natural Resources Minister Joe Oliver met with Democratic Senator Ron Wyden and Representative Fred Upton, a Michigan Republican, as well as Secretary of Interior Sally Jewell and Robert Hormats, the State Department’s Under Secretary for Economic Growth, Energy and the Environment.
Wyden, who in January became chairman of the Senate Energy and Natural Resources Committee, was one of 35 members of his party to oppose a budget amendment in March that would allow the pipeline to be built without Obama’s approval. Seventeen Democratic senators supported the project in a non-binding vote.
Wyden declined to discuss the meeting with Oliver.
“In a fragile economy, we ought to be looking at approaches that address our country’s needs,” Wyden said in an interview.
Saskatchewan Premier Brad Wall also met with Wyden on a March trip to support the pipeline while Alberta Premier Alison Redford visited Washington in April for the fourth time in 18 months.
On the same trip, Alberta Environment Minister Diana McQueen met with Democratic Representative Eliot Engel of New York. She assured him Keystone uses state-of-the-art technology that would make it safer than other pipelines, Engel said.
“It would be great for North America to be energy independent, and then we could go tell some of these other hostile governments to take their oil and shove it,” Engel, the ranking Democrat on the House Foreign Affairs Committee, said in an interview last month. “But would Keystone do that? That’s the question I have, and that’s what tips me over one way or the other.”