U.S. Keystone decision may delay TransCanada six months

TransCanada Corp. (TRP)’s timeline for the Keystone XL pipeline may be pushed back at least six months if the Obama administration doesn’t issue final approval by the end of June, extending lower Canadian crude prices that threaten oil-sands growth.

TransCanada expects a decision by mid-year to complete its pipeline by early 2015. If a decision is pushed past September, the company faces choosing between spending more or delaying startup until mid-2015, Alex Pourbaix, TransCanada’s president of energy and oil pipelines, said today in an interview at the IHS CERAWeek conference in Houston. Some analysts predict a longer review of the conduit, which would transport 830,000 barrels a day of oil-sands crude to the Gulf Coast.

“We would love nothing more than to put those Americans to work as soon as possible, and hopefully this year, but that’s going to take ultimately a final decision on the permit by the State Department,” Pourbaix said.

The U.S. State Department released a draft environmental assessment last week, as it decides whether to approve the $5.3 billion conduit. Environmentalists opposed to the pipeline say it would speed up oil-sands development and lead to more global warming. Canadian heavy-crude prices have plummeted to a record low compared with U.S. crude because oil-sands output can’t get to Gulf Coast refineries.

Shelving Projects

A later decision “prolongs the pain” at least half a year for oil-sands developers by keeping the gap between Canadian and U.S. crude near a record, Phil Skolnick, an analyst at Canaccord Genuity Corp. in New York, said by phone yesterday. “If Keystone XL doesn’t happen or gets delayed a full year plus, you’re talking about projects having to be put on the shelf.”

TransCanada rose 0.7 percent to C$48.69 at the close in Toronto.

The State Department, led by John Kerry, doesn’t have a “specific date” targeted for a Keystone XL decision, Beth Gosselin, a spokeswoman, said in an e-mail yesterday. It’s reviewing the pipeline project because the conduit crosses an international border.

Final Phase

The department will begin its final phase of the review after a 45-day comment period ends, Gosselin said. It will then consult with eight federal agencies, a process that can last as long as 90 days, to form a recommendation for Kerry, she said. Federal agencies have 15 days to review the final decision.

“There’s too many imponderables. You don’t know if Kerry and Obama want to delay it further or expedite it,” Michael Formuziewich, who helps manage C$2.2 billion ($2.1 billion) at Leon Frazer and Associates Inc. in Toronto, including TransCanada shares, said in a phone interview yesterday. “Right now, the market is not that shocked at the idea that it would be delayed.”

Canadian heavy-oil prices fell to $42.50 a barrel less than U.S. crude on Dec. 14, the widest gap since Bloomberg began keeping track, because oil-sands producers can’t easily export crude to other markets, resulting in a glut. Western Canada Select was $25.80 less than West Texas Intermediate today.

2008 Proposal

TransCanada applied to build Keystone XL from Alberta to the Gulf Coast in 2008. The company split up the project last year and started building a leg from Cushing, Oklahoma, to Texas, after U.S. President Barack Obama rejected the line amid concerns it threatened an aquifer in Nebraska. The company rerouted the northern leg in Nebraska to avoid the most sensitive areas and re-applied for approval in May.

The State Department, in its draft environmental assessment, said Keystone XL wouldn’t worsen climate change because oil-sands projects would be developed regardless of whether a pipeline was built. It didn’t issue a recommendation on whether Keystone XL should be built.

TransCanada’s Pourbaix called the report “gratifying” in a phone interview yesterday. The “right decision” would be for the U.S. to speed its review of Keystone XL, Pourbaix said.

“I expect that the decision will come some time around the middle of the year,” and the line will be built by early 2015, he said.

The company is ready to begin construction once it gets approval, Pourbaix said. TransCanada has procured and stored all the pipe and other major equipment along the route and secured the necessary labor agreements, he said.

Read previous FuelFix coverage of the debate over the Keystone XL pipeline:

Texans join activists at Keystone XL rally in D.C. (Feb. 17)
Keystone for climate: Could Obama craft a horse trade? (Feb. 15)
Pipeline protesters arrested at White House (Feb. 13)
Man walking route of Keystone XL (Feb. 6)
Obama faces angry liberals over pipeline (Feb. 1)
Despite injunction, activists continue plans to thwart Keystone XL (Jan. 29)
Keystone XL activists arrested outside TransCanada Houston office (Jan. 7)
Texas tree protesters to descend as Keystone XL moves on (Dec. 19)
Texas judge dissolves restraining order on Keystone XL (Dec. 13)