Keystone XL Delayed…Again

You wouldn’t believe it, but the Keystone XL project, now a decade old, has hit yet another legal snag, which could delay construction once again.

A U.S. federal judge ruled that the State Department must conduct a new environmental review of the project after the pipeline’s route was changed. The State Department is responsible for one of the permits that the project must obtain because it crosses the U.S.-Canadian border.

The project was forced to change routes in Nebraska to avoid sensitive areas. Nebraska regulators gave the project approval, but only for the revised route. But the rerouting of the project subjects the project to new legal scrutiny. The Indigenous Environmental Network and other groups sued and a federal judge agreed with them, arguing that the State Department must redo the environmental assessment because the changed route is “interdependent” on the entire project.

The U.S. government said that it was only responsible for the cross-border section, but the judge called that argument “unpersuasive” since, as Bloomberg notes, the revised route will be longer, will require additional pump station and power line infrastructure and would cross different water bodies. “Federal Defendants cannot escape their responsibility under [the National Environmental Policy Act] to evaluate the Mainline Alternative route,” the U.S. District Court for the District of Montana Great Falls Division wrote, referring to the revised route through Nebraska.

The ruling was “a rejection of the Trump administration’s attempt to flout the law and force Keystone XL on the American people,” Jackie Prange, a lawyer for the Natural Resources Defense Council, told Reuters.

Meanwhile, Keystone XL still has a case before the Nebraska Supreme Court. TransCanada has said it would not begin construction before the second quarter of 2019, although it is unclear if that timeline is overly optimistic now, given the latest legal setback.

The roadblock is yet another blow to Canada’s oil industry, which has fruitlessly spent years trying to build a major pipeline to transport oil from Alberta. The industry has been frustrated at every turn, with pipelines aiming east, west and south all delayed or derailed. The Energy East pipeline, which would have carried oil across nearly the entire continent of North America to Canadian refineries in the East was scrapped. The Northern Gateway project, which would have carried oil to the Pacific Coast, was also nixed.

The Trans Mountain Expansion is still alive, although it too has faced years of trouble. The political problems have become so acute that the Canadian government has had to step in and nationalize the project because the risk to its corporate sponsor, Kinder Morgan, had become too much to bear. Now, the Canadian taxpayer is on the hook for the project.

Enbridge’s Line 3 replacement is tentatively moving forward, although some hurdles still remain. Also, indigenous and environmental groups have threatened massive resistance to its construction.

Then there is Keystone XL, which was thought to have had its path cleared by the Trump administration.

The inability to build new pipelines has led to a crash in Canadian oil prices. Western Canada Select (WCS), a benchmark that tracks heavy oil in Alberta, recently traded at a $30-per-barrel discount to WTI. That discount recently narrowed ever-so-slightly because WTI fell sharply this week, largely due to a bearish report from the EIA combined with fears of financial contagion from the currency crisis in Turkey. Still, Canadian oil producers are selling their oil for less than $40 per barrel.

The wide discount won’t go away until new pipeline capacity comes online. But no new pipelines are expected until the Line 3 replacement and expansion comes online, which is slated for late 2019, a timeline that could slip if there are any delays. Even if it does come online, it likely won’t be enough to solve the bottlenecks, particularly since Canada’s oil production has climbed over the past year.

That is why the industry so desperately wants either the Trans Mountain expansion or Keystone XL to move forward. It is unclear if there is sufficient demand for both pipelines, but oil producers will continue to suffer without at least one of them.

By Nick Cunningham of Oilprice.com