Oilpatch fears delays as U.S. judge orders further review of KXL pipeline route

By Dan Healing

CALGARY — Potential delays in the completion of the Keystone XL pipeline following a U.S. judge’s order mean that Western Canadian oil producers could suffer current price discounts for a longer period of time, industry spokesmen say.

On Wednesday, U.S. District Court Judge Brian Morris ordered additional environmental study of the altered route through Nebraska for TransCanada Corp.’s proposed pipeline.

The potential setback illustrates how difficult it has become to relieve market access woes that have resulted in larger-than-usual price discounts for Western Canadian crude, said Chris Bloomer, CEO of the Canadian Energy Pipeline Association.

“We need the pipeline, we need it yesterday and we need more market access across the board,” he said in an interview.

“We’re not getting a fair price for our crude in the U.S. because of a lack of capacity. That’s just fundamentally an issue.”

The difference between Western Canadian Select and New York benchmark West Texas Intermediate crude was about US$25 per barrel on Wednesday, down from peaks over US$30 earlier this year but higher than historic averages in the mid-teens.

“These (decisions) need to continue to be calls to action for Canada to get its own house in order and get a diversified customer base,” said Tim McMillan, CEO of the Canadian Association of Petroleum Producers.

He pointed out almost all Canadian exports go to the U.S. even though Canada has the largest coastline in the world, lamenting that pipelines to take oil to tidewater like Northern Gateway and Energy East projects were cancelled.

Crude-by-rail exports from Canada reached an all-time record high of 199,000 barrels per day in May, up from about 131,000 bpd in May 2017, despite higher costs and a poorer safety record than pipeline shipments, Bloomer pointed out.

The U.S. lawsuit was brought by plaintiffs including the Indigenous Environmental Network and Northern Plains Resource Council after Nebraska state authorities approved an alternative route to the one TransCanada had proposed through the state.

The groups argued the U.S. State Department violated several acts in issuing a presidential permit for the pipeline without a proper environmental assessment of the changed route, but the judge rejected their request to revoke the permit issued by Donald Trump soon after he took office last year.

TransCanada spokesman Terry Cunha said the company was studying the ruling and had no immediate comment.

Environmental groups cheered the decision and called for TransCanada, which has not officially sanctioned the project, to abandon it.

“Today’s ruling is a victory for clean water, climate, and communities that would be threatened by the Keystone XL pipeline,” Sierra Club senior attorney Doug Hayes said in a news release.

“This proposed project has been stalled for nearly a decade because it would be all risk and no reward, and despite the Trump administration’s efforts, they cannot force this dirty tar sands pipeline on the American people.”

The proposed 1,897-kilometre, $10-billion Keystone XL pipeline would carry crude from Hardisty, Alta., to Steel City, Neb.

Two other export pipelines, the expansion of the Trans Mountain pipeline being sold to the federal government and Enbridge Inc.’s Line 3 pipeline replacement, also face uncertainty.

In 2017, Canada’s oil supply was 4.2 million bpd, which exceeded existing available pipeline capacity, according to CAPP.

In June, CAPP predicted total Canadian oil production will increase to 5.6 million bpd by 2035 mainly due to a rise in oilsands production to 4.2 million bpd from 2.65 million bpd in 2017.

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