Keystone XL, a US$8-billion oil pipeline that was set to flow from Alberta to Nebraska, is officially scrapped, the project’s owner, TC Energy, confirmed on Wednesday.
Although Alberta is now on the hook for more than $1 billion in lost profit after the cancellation of the expansion pipeline, there is division over the impacts of its termination. Industry experts are concerned about the waterfall effects on the Canadian economy, while environmentalists tout the cancellation as a win.
“Canada has the oil, but now we have fewer options to get the oil out,” explained Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy.
“Keystone would have provided more flexibility for oil producers, but without it, refineries in the Gulf Coast may turn to other producers, like Saudi Arabia or Columbia, for the product.”
Keystone XL, a 1,947-kilometre pipeline, was designed to carry 830,000 barrels a day of crude oil from Hardisty, Alta., to Steele City, Neb. From there, it would connect with the company’s existing facilities to reach the U.S. Gulf Coast — one of the world’s biggest oil refining hubs.
But TC Energy, the Calgary-based company, cancelled it after conducting a comprehensive review of its options and consulting with the Alberta government. This comes months after U.S. President Joe Biden revoked a key permit needed for a U.S. stretch of the 1,200-mile project.
Keystone’s demise follows the cancellations of Northern Gateway and TransCanada Corp.’s Energy East, as well as a delay in Trans Mountain, which the Canadian government bought in 2019 for $4.5 billion from Kinder Morgan.
Although the cancellation is a win for environmental groups and many Indigenous communities, there’s still an impact on Canada, including a loss of revenue and jobs and a need for more reliance on rail to ship the product.
Loss of revenue
Oil sands are a huge resource in Canada. The country is the fourth-largest producer and third-largest exporter of oil in the world, according to the federal government.
And despite the cancellation of the Keystone pipeline, the demand for Canada’s oil is still there, Masson said.
He explained that over the past few years, Canada has produced a lot of oil but because of a lack of pipelines, it meant the product was not getting it out to refineries, meaning Alberta had to cut back its production of oil.
“Which means a loss of revenue because we could not get it to market,” he said.
And this is what is happening now.
“We have a situation, where COVID is mostly done and oil sands have ramped up production and shipping 200,000 barrels a day plus a day by rail because we don’t have the pipeline capacity, which is more expensive,” Masson said. “Keystone would have provided more flexibility for oil producers.”
If all the pipelines are full, then refineries can push prices lower and producers in Alberta “don’t have a choice,” he added.
Refineries, especially in the Gulf Coast, he said, have the ability to bring in crude oil via ship, so they have the option to take someone else’s oil if they don’t like the price Alberta is charging.
“So Keystone was not needed immediately, but was part of getting back in better balance so we have options to reach different markets and we wouldn’t end up with big disruptions or too much price pressures for buyers.”
Oil will still ship, but through rail
According to the federal government, as production of oil increased in Western Canada in 2018, it began to outpace pipeline capacity, meaning shipments of crude oil by rail increased to fill the gap, more than doubling from their 2017 levels.
And with the cancellation of the Keystone pipeline, Canada’s reliance on rail to ship oil has increased, Masson said.
But, transporting crude oil by rail is a lot riskier and costlier than using pipelines.
For example, he said the Keystone pipeline would have cost $10 to $12 a barrel to get oil to Gulf Coast from Alberta, while rail would cost $20. On top of that, Masson said with more oil shipping through rail, that means there’s more a chance of derailment and winter storms impacting supply.
“So generally it’s more expensive, which could mean less oil from Canada and more oil from other places,” he said.
“Many environmentalists see cutting off pipeline as cutting off oil supply, but the reality is that if you cut off oil supply from Canada, the oil will still move, but in a less efficient and less safe way.”
A win for environmentalists
The Keystone project has been tangled in a decade-plus battle that pitted the energy industry against environmentalists and many Indigenous communities opposed to the pipeline.
After its official cancellation on Wednesday, many environmentalists welcomed its demise, calling it a landmark moment in the fight against climate change.
“This victory is thanks to Indigenous land defenders who fought the Keystone XL pipeline for over a decade,” said Clayton Thomas Muller, Canada senior campaigns specialist at 350.org, in a statement.
“With Keystone XL cancelled, it’s time to turn our attention to the Indigenous-led resistance to the Line 3 and the Trans Mountain tarsands pipelines.”
Many environmental groups, like 350.org., were fiercely opposed to the project, seeing the reliance on oil and gas as incompatible with limiting carbon emissions. The pipeline’s proposed path was also criticized for endangering wildlife and destruction of habitats.
The organization, named after the safe concentration of carbon dioxide in the atmosphere, said its efforts were never about just one pipeline.
“The termination of this zombie pipeline sets precedent for President Biden and polluters to stop (Enbridge Inc.’s ) Line 3, Dakota Access, and all fossil fuel projects,” added ground campaign manager Kendall Mackey.
While some Indigenous groups opposed the pipeline, some communities see oil and gas development as a solution to poverty on reserves.
Dale Swampy, president of the National Coalition of Chiefs, had complained in January that its cancellation would mean fewer jobs for Indigenous people in constructing and supplying goods and services for it.
“It’s quite a blow to the First Nations that are involved right now in working with TC Energy to access employment training and contracting opportunities,” Swampy told the Canadian Press in January.
“Within Alberta, First Nations are pretty closely entrenched with all of the activities occurring with the oil and gas industry. Any change, especially a big change like this, really affects our bands’ ability to keep our people employed.”
Alberta on the hook for $1.3 billion
Alberta Premier Jason Kenney announced Wednesday that the province is expected to be out $1.3 billion following the decision by TC Energy Corp.
Lori Williams, a political science professor at Mount Royal University in Calgary, said the number may actually be higher, costing Albertans way more in taxes.
“(The government) has given us an estimate of what the cost will be. My guess is that it’s a low estimate,” she said.
“Basically, it’s all over except for the counting of how much it’s going to cost Albertans. It’s going to hurt the government. It’s going to raise questions about Jason Kenney’s judgment — investing so much money in a project that had a significant chance of not continuing.”
— with files from the Canadian Press and Reuters