Keystone XL setback will cost Canadian industry ‘millions’, says association

CALGARY – Bitterness and frustration were the reactions from the Canadian oil industry after a U.S. judge ordered a halt to the Keystone XL pipeline project until it passes further environmental review.

The decision on Thursday means longer delays in finding a way to drain a glut of oil in Western Canada that has driven price discounts to multi-year highs and stalled investment, said Tim McMillan, CEO of the Canadian Association of Petroleum Producers.

“It’s a vulnerability that we can’t control and will cost us hundreds of millions if not billions of dollars as a nation and thousands of jobs,” he said Friday.

“And the only reason it does have such a massive impact on us is self-inflicted wounds here at home on projects that could have given us resilience against this sort of ruling.”

U.S. District Judge Brian Morris found Thursday that the potential impact of TransCanada Corp.’s $10-billion pipeline had not been considered as required by federal law. Environmentalists and Native American groups had sued to stop the project, citing property rights and potential oil spills.

The judge, who was appointed by former president Barack Obama, issued a federal court order blocking a Trump administration permit for construction of the pipeline.

TransCanada remains committed to the project, spokesman Terry Cunha wrote in a brief email on Friday, adding the company has received the judge’s ruling and is reviewing it.

RELATED: US federal court judge halts construction on the Keystone XL Pipeline

The Calgary-based pipeline company’s shares fell by as much as 2.75 per cent in early trading on the Toronto Stock Exchange.

The setback in the United States is a “wake-up call” that shows how important it is for Canada to build pipelines such as the delayed Trans Mountain expansion to the West Coast that allow access to other markets, said Chris Bloomer, CEO of the Canadian Energy Pipeline Association.

“This impacts infrastructure that’s moving Canadian energy. The impact is going to be that we’re going to sell our energy at a discount,” he said.

The shortage of export pipeline space as oilsands production grows in Alberta has been blamed for the recent widening of the difference between Western Canadian Select bitumen blend and New York-traded West Texas Intermediate to as much as US$52 per barrel, more than three times the typical discount.

Analysts say as much as 110,000 barrels a day of crude oil is currently being left in the ground in Western Canada rather than being produced and sold at unprofitable prices.

“This is the world’s longest tug of war, with Western Canadian oil prices as the rope,” said Zachary Rogers, a refining and oil markets research analyst at Wood Mackenzie.

The judge’s ruling doesn’t kill the Keystone XL project, he said in a report, adding he expects the fight to continue in the courts or lead to an additional U.S. State Department review followed by President Donald Trump approving the line again.

A spokeswoman for Natural Resources Minister Amarjeet Sohi said the Liberal government was “disappointed” by the Montana court’s decision.

“It is important for good, middle-class jobs in Canada and for a successful energy export market,” said Vanessa Adams. “The project has received all necessary approvals in Canada.”

The pipeline has to operate within the hard cap Alberta put on all oilsands emissions and that cap is a critical piece of Canada’s climate change actions, she added.

Conservative natural resources critic Shannon Stubbs said the Liberals made a mistake not seeking intervener status in the case originally and they should work with U.S. officials on an appeal.

In a report, analysts at Tudor Picking & Holt said the ruling makes it more unlikely that TransCanada will be able to start construction in the spring of 2019 as expected.

Last January, TransCanada said it had secured shipping commitments totalling roughly 500,000 barrels a day on the line, including a deal with the Alberta government to ship 50,000 barrels a day of provincially owned crude.

Other Keystone XL shippers include major Calgary-based oilsands producers Canadian Natural Resources Ltd., Suncor Energy Inc. and Cenovus Energy Inc.

The 1,897-kilometre pipeline would carry as much as 830,000 barrels of crude per day from Hardisty, Alta., to Steel City, Neb., and on through a half dozen states to refineries on the Gulf Coast.

Becky Mitchell, chairwoman of the Northern Plains Resource Council, a plaintiff in the Montana legal action against Keystone XL, said her environmental organization is thrilled with the ruling.

The company and opponents of the project have been in a decade-long dispute that has involved standoffs between protesters and law enforcement.

In 2008, the State Department issued a presidential permit for the pipeline and TransCanada filed paperwork to expand the project. After years of legal wrangling, Obama rejected the permit in 2015.

The company responded by seeking $15 billion in damages. Trump signed executive actions to again advance construction of the project in 2017.