Fresh Keystone XL cancellation 'disappointing' for Canadian energy industry as TC Energy shares fall
CALGARY — The Canadian energy industry reacted with disappointment and anger — but not necessarily surprise — Monday following reports that incoming U.S. president Joe Biden would revoke presidential permits for TC Energy’s long-delayed Keystone XL pipeline on his first day in office.
The revelation sent shares in TC Energy down down 4.5 per cent, or $2.57 each, to $54.00, dashing hopes that a series of modifications might win over the Democratic candidate and keep the US$14.4-billion, 830,000-barrels-per-day pipeline project linking Alberta and the U.S. Gulf Coast alive.
TC Energy, in a move that was perhaps too little, too late, on Monday announced its commitment that Keystone XL would achieve a net-zero carbon emissions profile in 2023 and would be fully powered by renewable energy by 2030. The Calgary-based pipeline giant has previously pledged the entire project would be built with union labour and that green-energy training would be provided to workers. The company has also committed to selling stakes in the line to Indigenous communities along the route.
“Since it was initially proposed more than 10 years ago, the Keystone XL project has evolved with the needs of North America, our communities and the environment,” Keystone XL president Richard Prior said in a release Monday.
Despite these efforts, analysts said the project’s impending cancellation should not be a surprise to either the company or the Alberta provincial government, which invested $1.5 billion in Keystone XL in 2020 and committed to $6 billion in loan guarantees that would have been available this year.
“It wasn’t a surprise. The president-elect had campaigned on it,” said Kevin Book, managing director of ClearView Energy Partners LLC, a Washington, D.C.-based energy policy analysis and consulting firm. “There’s a recent trend of American politicians keeping campaign promises no matter how many solar panels are involved.”
The pipeline project had been blocked previously by former U.S. president Barack Obama, then revived by executive order under outgoing President Donald Trump.
On expectations that the pipeline would be cancelled again, Stifel FirstEnergy analyst Ian Gillies cut his target price on TC Energy by $7 per share to $66 per share because Keystone XL was the company’s “main driver for growth” and its focus will now shift to expanding its natural gas pipelines and Bruce Power nuclear plant.
Gillies said that other pipeline projects, including Enbridge Inc.’s Line 3 pipeline replacement, will allow Canadian oil producers to move all their product to market even without Keystone XL.
Still, Canadian oil and gas executives called the loss of Keystone XL a disappointment on Monday.
“TC Energy has done a strong job of trying to meet the expectations of the Biden administration on decarbonizing that line,” Explorers and Producers Association of Canada president Tristan Goodman said.
Goodman said the Canadian industry would soon have new pipeline capacity from the federally owned Trans Mountain expansion project and options to send Canadian crude to overseas markets. In the United States, he said, there will continue to be a need for heavy crude oil, either from Canada, Venezuela or Mexico.
After more than 10 years of delays, executives in Calgary said the pipeline remains an important piece of infrastructure for both the Canadian and U.S. energy industries and are concerned about the future of the domestic energy industry if the project is scrapped.
“It’s an incredibly strong project from an ESG standpoint. It’s got a strong reconciliation element to it,” Business Council of Alberta chief executive Adam Legge said of Keystone XL. “It’s really a model project and it speaks to the relationship between the two countries.”
Legge said he hopes Prime Minister Justin Trudeau reaches out to Biden before inauguration in an attempt to protect the project.
Similarly, Canadian Manufacturers and Exporters chief executive Dennis Darby said the project needed “a strong show of support from the federal government” because the cancelled pipeline would have negative implications for business across Canada.
“It’s not just about Alberta. It’s about manufacturers that make pipes, machines, tires. We need to make sure that’s not lost,” he said.
Alberta Premier Jason Kenney also called on Trudeau to “send a clear message” to Biden on the need for the pipeline.
“I do believe it’s important that in the next 48 hours that Prime Minister Justin Trudeau reach out directly to the U.S. administration,” he said.
Kenney said his government is prepared to sue the U.S. to, at a minimum, recover costs of the project that has been under construction since last spring should Biden cancel its permits this week.
“We believe that we have very strong arguments for legal recourse for damages incurred,” he said. “I believe this is without precedent for an American administration to retroactively seek to cancel a piece of infrastructure, a border crossing, that already exists.”
The potential to recover the money Alberta has lost on this project is fairly small because TC Energy’s previous attempt to sue the U.S. were difficult, said Richard Masson, executive fellow at the University of Calgary School of Public Policy.
“To me, it seems like the billion and a half dollars that has mostly been invested is pretty much at risk,” he said, adding that the additional $6-billion loan guarantee is likely not lost for the provincial government yet, because construction work would halt likely halt Wednesday before those dollars are spent.
TC Energy did not respond to a request for comment Monday on how many people are currently working on the Keystone XL project in the U.S.
A company website shows pump stations and pipe yards were built in Montana and South Dakota last year and some ground work was carried out in Nebraska for the Keystone XL project. TC Energy also built the section of the pipeline that crosses the Saskatchewan/Montana border last year.
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