TransCanada supports Keystone XL pipeline despite U.S. court setback

‘It’s a frustrating setback’: Alberta energy minister on latest Keystone XL decision
Nov. 9: Alberta's energy minister said the latest setback in the Keystone XL pipeline expansion project out of Montana is frustrating, but added the NDP government will not quit.

TransCanada Corp. says it doesn’t know when it will be able to build its Keystone XL pipeline after a Montana judge stopped it last week but it is confident the project will make money once it is built and in service.

It’s too soon to say what the decision by U.S. District Judge Brian Morris last Thursday will mean to the timeline and cost of the pipeline, Paul Miller, liquids pipeline president, said at TransCanada’s investor day in Toronto on Tuesday.

The project was proposed in 2008, denied by former president Barack Obama in 2015 (leading to a $2.9-billion non-cash write-down for TransCanada) and resurrected by President Donald Trump in 2017.

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“It’s important to remember our commercial model on XL has not changed materially,” Miller said.

“All historical costs, plus (cost of construction), since 2009 are captured for toll determination. The write-down we took in 2015 does not remove these costs from rate-making purposes. We share capital cost variances equally with our shippers.”

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He said the pipeline capacity, minus an amount that must be reserved for spot shipments, is now fully committed.

Nov. 9: A Montana judge has filed an injunction to stop construction of the Keystone XL Pipeline, stating that Washington failed to assess the project’s impact on the environment. As Eric Sorensen reports, oil industry insiders say it’s taking a heavy toll on the economy.

Montana judge blocks Keystone XL pipeline construction
Montana judge blocks Keystone XL pipeline construction

READ MORE: Alberta to keep working on other ways to move oil amid latest Keystone XL setback

Indigenous and environmental groups sued TransCanada and the U.S. State Department after Nebraska authorities approved an alternative route to the one TransCanada had proposed through the state, arguing it hadn’t properly studied it.

In his decision, Morris agreed the analysis didn’t fully cover the cumulative effects of greenhouse gas emissions, the effects of current oil prices on the pipeline’s viability or include updated modelling of potential oil spills.

The proposed 1,897-kilometre pipeline would carry as much as 830,000 barrels a day of crude from Hardisty, Alta., to Steel City, Neb., where it would meet up with other pipelines to the U.S. Gulf Coast.

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TransCanada is examining the deficiencies identified by the judge to determine what affect meeting them will have on the schedule and its last cost estimate of about $10 billion, Miller said.

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The lack of export pipeline access from Western Canada has been blamed for steep discounts for crude oil compared with New York-traded West Texas Intermediate, prompting some producers to reduce oil production and leading to record levels of crude-by-rail shipping.

READ MORE: Keystone XL pipeline blocked by federal judge in Montana, throwing project’s future into doubt

Oilsands producer Cenovus Energy Inc. has called on the Alberta government to impose production cuts to bring supply in line with takeaway capacity and protect royalties but companies with refineries that benefit from lower prices or contracted export pipeline space oppose the move.

“As far as timing around the pipeline, the need for Keystone XL has never been greater,” Miller said at investor day.

“When you’re looking at US$40 to $50 differentials on WCS (Western Canadian Select bitumen-blend oil) versus WTI, whether it’s in this administration or the next administration, XL is a project that the industry needs and is a valuable piece of infrastructure for the North American economy.”

TransCanada told investors it expects to raise its dividend at an average annual rate of eight to 10 per cent through 2021, an outlook supported by expected growth in earnings and cash flow.

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The pipeline operator has increased its dividend on common shares in each of the last 18 years.

Comparable earnings before interest, taxes, depreciation and amortization are expected to grow to about $10 billion in 2021, a 35 per cent increase from the $7.4 billion in 2017, TransCanada said.

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READ MORE: Additional environmental assessment ordered for Keystone XL pipeline

Nov. 9: Months after the Keystone XL pipeline through the U.S. was approved by the Trump administration, an American court put everything on hold. Vinesh Pratap has more on the implications in Alberta.

U.S. court puts previously-approved Keystone XL on hold
U.S. court puts previously-approved Keystone XL on hold