TransCanada delay could fix Obama administration’s Keystone dilemma

Wayne Knox, Assistant Construction Manager - Contractor for TransCanada's Keystone XL project looks at a pipe before it's lowered into the ground in Wood County, Wednesday, Oct. 24, 2012, in Winnsboro. (Cody Duty / Houston Chronicle)
Wayne Knox, Assistant Construction Manager – Contractor for TransCanada’s Keystone XL project looks at a pipe before it’s lowered into the ground in Wood County, Wednesday, Oct. 24, 2012, in Winnsboro. (Cody Duty / Houston Chronicle)

WASHINGTON — President Barack Obama wants to give a yes or no to Keystone XL before leaving office, despite TransCanada Corp.’s bid to pause a State Department review of the controversial pipeline project.

The Calgary company Monday called for a delay while a Nebraska route review is underway, a process that could take seven months to a year. That timeline could push a final decision until after a new president is elected, possibly averting a widely expected denial from the Obama administration.

White House press secretary Josh Earnest said Tuesday the Obama administration wants to “shield” the review process “from the political debate.”

“Advocates on both sides of this issue have politicized this particular infrastructure project,” Earnest said, adding that “there’s probably no infrastructure project in the history of the United States that’s been as politicized as this one.”

It was not clear Tuesday whether the State Department would formally accede to TransCanada’s request for a timeout. Spokeswoman Elizabeth Trudeau said the State Department was reviewing and preparing a response to the request, which comes near the end of its own scrutiny of whether Keystone XL is in the “national interest.”

“We received the letter, we’re looking at it, we’re going to get back to them,” Trudeau said. But in the meantime, the review is proceeding. “We’d like to finish this review process as swiftly as possible — we have a commitment to do that — and we’re going to continue the review,” Trudeau said.

In the seven years since TransCanada first sought a presidential permit for Keystone XL, the proposed pipeline has become a lightning rod in broader debates over fossil fuels and climate change.

“The president has worked hard to try to ensure that the eventual determination is one that is focused on the merits of the application,” Earnest added. Earnest stressed that Obama would still like to make a final determination on Keystone XL before his term ends.

TransCanada’s requested delay offered the promise of preserving a pathway for the pipeline — possibly by ensuring another president would be in charge of the decision. Analysts said that for the pipeline company, the delay was likely viewed as a better outcome than an outright denial.

“Records of decision tend to be durable,” noted Kevin Book, managing director of the research and strategy firm ClearView Energy Partners. “TransCanada appears to be thinking that ‘nothing’ is better than ‘no.’”

Environmentalists want Obama to deny a permit for the pipeline immediately. He has been critical of the project — questioning the number of jobs it would support, speculating that the oil it transports might not stay in the United States and insisting he would only support Keystone XL if it “does not significantly exacerbate greenhouse gas pollution.”

But the project divides Democrats, so any decision by Obama risks alienating a faction of his party. Some environmentalists staunchly oppose Keystone XL because it would provide a new avenue for oil sands crude extracted in Alberta, Canada, while some unions and oil-patch Democrats back it. And despite the election of a Liberal Party leader in Canada, Keystone XL remains a top priority for the country.

For TransCanada, a delay would be relatively well timed, coming amid a crude price collapse that has prompted some energy companies to halt Canadian oil sands projects and lessened some of the clamor for new options to move the bitumen harvested in Alberta.

A pause also would buy time for new president to be elected. Republican presidential candidates have said they support the project, while Democrats Bernie Sanders and Hillary Clinton oppose it.

Shippers with contracted space on Keystone XL remain committed to the project, said TransCanada CEO Russ Girling in an earnings call Tuesday.

“This project remains very much in demand by our customers,” Girling said. “The need to move this crude oil safely between a supply location and a market location doesn’t go away.”

In the seven years since TransCanada first applied for a permit to build Keystone XL, oil sands producers with contracted space on the pipeline have turned to an oft-costlier alternative — rail — to get existing production out of Alberta.

Slowed growth in new oil sands production has lessened some of the zeal for new pipeline capacity to accommodate supplies as they come online. Pipeline expansions by Enbridge also relieved some of the pressure.

“In the current price environment, the commercial case for Keystone XL is on hold, so why not pause the application too?” Book said.

“With oil prices down and Canadian production growth slowed or declining as a result and combined with the fact that the Enbridge expansions have removed bottlenecks for Canadian crude movements to the U.S. Gulf Coast, there is also no compelling need for Keystone in the near to mid term,” said John Auers, executive vice president of Turner, Mason & Co. So TransCanada’s decision “makes sense.”

TransCanada has relatively little ongoing spending on Keystone XL while it is in regulatory limbo. Some funding goes to that regulatory process and to maintain stockpiled equipment for Keystone XL. Some of that gear has been deployed to other projects in the meantime.

After spending $2.4 billion on Keystone XL, TransCanada is committed to gaining approval, Girling said. If a presidential permit is authorized, it would take another two to two and a half years to build the 1,179-mile Keystone XL from Alberta and across three states to Steele City, Neb., where it meets up with other pipelines.

TransCanada has already built a 487-mile-long leg of Keystone that runs from Cushing, Okla., to Nederland, Texas. And the company is continuing construction on a 48-mile pipeline that will extend its existing Keystone pipeline system to refineries in Houston, Texas. That project is expected to begin operations next year.

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