Keystone XL's decade-long slog toward reality just got longer

By kevin orland and rachel adams-heard on 11/9/2018
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Photo: TransCanada.

CALGARY (Bloomberg) -- TransCanada Corp.’s $8 billion Keystone XL pipeline may face another eight months of delay after a court ruling raised issues with a 4-year-old environmental review. A Montana federal judge, Thursday, found that the 2014 environmental assessment by the Obama administration fell short. President Donald Trump used that review in a March 2017 decision allowing the project to proceed. Now, the U.S. must consider oil prices, greenhouse-gas emissions and formulate a new spill-response strategy before allowing the pipeline to move forward, U.S. District Judge Brian Morris wrote in a ruling.

TransCanada first proposed the 1,179-mi (1,897-km) pipeline expansion in 2008. Designed to haul crude from Canada’s oil sands to refiners on the U.S. Gulf Coast, Keystone XL became a focal point for environmental opposition to fossil fuels. The conduit would help alleviate bottlenecks that have driven oil prices in Western Canada to as much as $50/bbl below the U.S. benchmark.

On Friday, TransCanada said it’s reviewing the ruling and that it remains “committed to building this important energy infrastructure project.”

Resolving deficiencies

Adding greenhouse-gas impacts and other aspects of Morris’ ruling to the government review probably will add at least eight months to the project’s timeline, Tudor Pickering Holt & Co. analyst Matthew Taylor said.

The ruling won’t imperil the project’s ultimate prospects for reaching completion, said Katie Bays, an analyst at Height Securities LLC.

“We do not view this ruling as a major risk for the pipeline and expect the State Department can resolve all the deficiencies identified by the court,” Bays said. It’s a “largely symbolic” ruling that will compel the State Department “to spill a little more ink.”

Investors’ reaction to the decision was largely negative. Shares of Calgary-based TransCanada fell 2.5% to $38.50 at 10:10 a.m. in Toronto. The ruling also weighed the S&P/TSX energy index, with 39 of its 48 companies declining.

Bloomberg Intelligence analyst Brandon Barnes characterized the ruling as “not that big of a deal” and said the issue may be cleared up even before a pending Nebraska Supreme Court decision is resolved.

Canadian oil producers have a “compelling need” for the pipeline, Robert Catellier, an analyst at Canadian Imperial Bank of Commerce, wrote in a note to clients. “Given market concerns over how the company would fund the project, there may also be some question as to the company’s appetite to pursue it, which has become a decade-long distraction.”

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