TransCanada Corp. remains firmly committed to its US$8-billion Keystone XL project but it is too early to assess the impact that last week’s negative court ruling will have on its schedule, company executives said Tuesday.
A federal judge in Montana last week quashed the presidential permit that had been issued by President Donald Trump, saying the State Department had failed to provide sufficient analysis and reasons for reversing former president Barack Obama’s 2015 decision to reject the application.
TransCanada is also awaiting a decision from the Nebraska Supreme Court on a challenge to the state’s approval of the Keystone XL route.
“Throughout all this, we remain fully committed to KXL,” Paul Miller, TransCanada’s president for liquid pipelines, told investors Tuesday. “The need for KXL has never been greater,” he added, noting the steep discount that Western Canadian producers are currently being forced to accept on their crude.
Western Canadian Select – the benchmark for oil sands crude – is currently trading at US$43.23 a barrel below the level for West Texas Intermediate, according to Net Energy, a Calgary trading company. WTI has slumped after hitting a recent high-water mark in early October, dropping 7.1 per cent on Tuesday to close at US$55.69 a barrel.
To move crude to market, producers are turning to more expensive rail options – and even trucks – while some companies are cutting back production and essentially storing the oil underground until prices improve.
“KXL is a project that the industry needs and is a valuable piece of infrastructure for the North American economy,” Mr. Miller said.
The company executive said producers and refiners who want to move crude on the line remain on board, and that the pipeline is virtually 100-per-cent committed with long-term contracts.
The 1,900-kilometre pipeline would move 830,000 barrels per day of crude from Alberta to southern Nebraska, where it would connect with the system moving oil to the Gulf Coast refining hub.
Earlier in the session, TransCanada chief executive Russ Girling said the U.S. Gulf Coast remains the best market for Canadian oil sands producers, and Keystone XL would provide a low-cost transport to refineries that are specifically configured to process heavy crude. Assuming the project proceeds, the company is considering taking on a joint-venture partner to provide some equity financing and reduce TransCanada’s need to take on debt.
However, the company is still reviewing what needs to be done to address the deficiencies that the federal judge identified in striking down the permit, though the State Department will lead that process. Analysts said last week that the legal setback could delay the project for a year.
In a ruling released last Thursday, U.S. District Court Judge Brian Morris wrote that the State Department analysis of the project failed to adequately assess the cumulative effects of greenhouse gas emissions and the impact on Native American land resources.
Even without Keystone XL, TransCanada would have enough capital projects to continue its growth trajectory, with about $28-billion worth of projects either under way or in late planning stages. They include expansion of Alberta’s natural gas gathering system; major gas pipelines in Mexico; and the $6.2-billion Coastal Gaslink, which will connect the gas fields of northeastern B.C. with a liquefied natural gas terminal being built by LNG Canada, a consortium led by Royal Dutch Shell PLC. TransCanada is also participating in the $8-billion life extension for six reactors at Ontario’s Bruce Power, in which the company has a 48.5-per-cent stake, while the Ontario Municipal Retirement System owns 48.5 per cent, and employees and their unions have the remaining 3 per cent.
Given that growth plan, TransCanada expects to continue to boost its dividend at an annual rate of 6 per cent to 8 per cent through 2021.