Bloomberg News

Harper Sees Keystone Pipeline Prevailing With Jobs Over Nebraska

October 24, 2011

Oct. 24 (Bloomberg) -- Canadian Prime Minister Stephen Harper says U.S. approval of Keystone XL, a proposed 1,661-mile pipeline from Alberta to Texas, is a “no brainer” because demand for oil and jobs will overwhelm opposition from Nebraska lawmakers.

“The need for energy in the U.S. is enormous, the alternatives for the U.S. are not good, on every level,” Harper, 52, said in a Bloomberg Television interview. Harper said he’s “confident” the pipeline will be built.

The promise of jobs will outweigh protests over the $7 billion pipeline, the prime minster said in a Sept. 21 interview. At a time when almost one in 10 Americans is unemployed, TransCanada Corp. expects to create 20,000 jobs to build the pipeline, Chief Executive Officer Russell Girling told reporters on Oct. 7. Work for suppliers and indirect staff related to Keystone would add 118,000 jobs, according to Michigan Representative Fred Upton, who heads the House Energy and Commerce Committee.

Harper’s confidence is bolstered by his ability to wring trade concessions from President Barack Obama and his predecessor, George W. Bush. Since taking office in 2006, Harper has ironed out differences over lumber duties, won an exemption for Canada on “Buy American” provisions and agreed to negotiate new measures to ease congestion at the U.S. border.

Harper is betting his efforts will culminate in the approval this year of TransCanada’s pipeline to the Gulf of Mexico, over objections from lawmakers and residents of Nebraska who say it threatens a water source in their state.

Poses Danger

“The vast majority of Nebraskans want the pipeline re- routed away from where it can pose a danger,” Jane Kleeb, executive director of Bold Nebraska, a residents’ group, said in a telephone interview. Nebraska has been the focus of the Keystone opposition because the pipeline would cross the Ogallala aquifer, which supplies 30 percent of the water used in the U.S. for agriculture.

Nebraska’s top three political officials, Democratic Senator Ben Nelson and Governor Dave Heineman and Senator Mike Johanns, both Republicans, have come out against the pipeline’s route through their state.

State lawmakers are weighing whether to call a special session to pass legislation that could force TransCanada to re- route the pipeline due to concerns that a spill could soil drinking water, State Senator Ken Haar, a pipeline opponent, said in a telephone interview. He said the proposal by Canada’s second-biggest pipeline operator is drawing as much attention as the University of Nebraska football team.

“There are two things that just about every Nebraskan is talking about,” he said. “One is Cornhusker football and the other is the Keystone pipeline.”

Secure Access

The pipeline proposed by Calgary-based TransCanada, which would move 700,000 barrels of crude a day, would secure market access for oil companies such as Suncor Energy Inc. and Canadian Natural Resources Ltd., also based in Calgary, and sustain an investment boom in Canada’s energy sector. Toronto-based Canadian Imperial Bank of Commerce estimates cumulative investments in Alberta’s oil sands may rise to C$180 billion ($171 billion) and create 300,000 jobs by the end of this decade.

The pipeline will generate $20.9 billion in new spending in the U.S. and more than $585 million in state and local taxes along the pipeline route, according to a study from the Waco, Texas-based Perryman Group, a financial analysis firm commissioned by TransCanada.

Nebraska and the other states along the Keystone XL route allow the use of condemnation, or so-called eminent domain, that permits companies like TransCanada to seize land for oil and gas pipelines. Some residents are likely to contest whether TransCanada should be granted that right, David Domina, a trial lawyer in the state, has said.

Eminent Domain

TransCanada has acquired 90 percent of the right of way it needs to build the pipeline in Nebraska, and for the remaining 10 percent the company may use eminent domain, CEO Girling said.

Harper’s efforts to improve relations with the U.S. began during a helicopter ride over the Yucatan Peninsula in a March 2006 meeting with then-President Bush in Mexico. The newly elected Harper made clear his displeasure over U.S. border- crossing rules and duties on lumber imports.

“If he’s got a problem, he’s willing to express it in a way that’s clear for all to understand,” Bush said at a joint press conference with Harper at the time in Cancun. “That’s the way I like to deal with people.”

By moving past trade disputes that had distracted his Canadian predecessors, Harper has turned the focus onto the two countries’ close energy and economic links. That contrasts with previous Liberal Party governments that battled the U.S. over issues ranging from Iraq to softwood lumber.

Lumber Dispute

Canada’s growing clout in Washington helped Harper overcome irritants with Bush over lumber duties and win an exemption from Obama on “Buy American” provisions in the 2009 U.S. stimulus bill. In another victory for Harper, Obama agreed earlier this year to commit to take steps easing border delays.

Helping Harper have been the Canadian economy and financial system, which have fared better than the U.S. in recent years, putting Canada on “the radar screen in terms of the leadership in Washington,” said Jeremy Leonard, a research director at the Institute for Research on Public Policy in Montreal.

Canadian growth will average 2.2 percent between 2011 and 2013, according to estimates by the International Monetary Fund, the fastest among Group of Seven countries.

“The Canadian economy matters a little bit more to the Americans now than it did in the 2000s and that’s good news for Canada in the sense it will take some of the focus off security, security, security,” Leonard said.

Canada Trade

Canada, the U.S.’s largest export market, bought $186.5 billion of American goods in the first eight months of this year, a 43 percent increase from the same period in 2009. Canadian banks such as Toronto-based Bank of Montreal and CIBC have acquired $16.7 billion worth of assets in the U.S. since the start of 2008, one-third the value of all acquisitions by foreign lenders, according to Bloomberg data.

Over the past 10 years, Canada’s Standard & Poor’s/TSX benchmark stock index has advanced about 171 percent in U.S. dollar terms, compared with a 26 percent gain for the Dow Jones Industrial Average.

Canadian government bonds have returned 79 percent over the past decade, or 180 percent in U.S. dollars, according to a Bank of America Merrill Lynch index. U.S. government notes have returned 69 percent over that time.

‘Slippery Slope’

The world’s biggest trade relationship has struggled from the impact of tighter border security following the Sept. 11 terrorist attacks. Relations with the U.S. had already soured under the previous Liberal governments of Jean Chretien, who kept Canadian troops out of Iraq, and Paul Martin, who clashed with Bush over the Kyoto accord on climate change and refused to participate in the U.S.-led missile-defense system.

A month before the elections that brought Harper to power, Ambassador David Wilkins rebuked Martin for criticizing the U.S. during the campaign in order to shore up his support, saying in December 2005 the acrimony threatened to turn into a “slippery slope.”

Within four months of meeting Bush in Cancun, Harper reached an agreement to end the softwood lumber dispute, announced C$17 billion in new military spending, renewed Canada’s participation in the North American Aerospace Defense Command Treaty and extended the mission in Afghanistan.

U.S. Vulnerable

It’s a “business-like” approach to foreign policy, said John Kirton of the University of Toronto. Harper’s key contribution to U.S. relations has been to draw the attention of policy makers in Washington by shoring up the country’s military and deploying troops when needed, and then exploiting Canada’s economic strengths.

“He’s an economist, and has a rational understanding of where there’s economic capability and vulnerability,” Kirton said.

In particular, Harper has taken every opportunity to remind Americans they are vulnerable because their oil comes from unstable places like the Middle East and Venezuela.

Harper is “trying to awaken the American public,” said Paul Cellucci, a former governor of Massachusetts who served as U.S. ambassador in Ottawa between 2001 and 2005. “The fact that we get more oil in Canada than Saudi Arabia or any other country in the world, I don’t think that’s well known in the United States.”

Secure Supply

Cellucci said he expects the U.S. will approve the pipeline this year because the Obama administration “will recognize that it’s a lot of jobs, it’s important for our economy, it’s a secure supply of oil.”

The share of Canada’s exports to the U.S. have been steadily declining since 2000, a trend that accelerated as the global recession curbed demand for Canadian exports. The value of goods shipped to the U.S. in the final quarter of 2010 fell to 71 percent of total Canadian exports, its lowest level since 1982, before rising to 73 percent this year. The U.S.’s share of Canadian imports this year has fallen to 61 percent, its lowest since at least 1971, after rising to as high as 78 percent in 1998.

Harper says there are limits to how much Canada can decouple from the U.S.

“We’re under no illusion,” Harper said in the interview with Bloomberg Television in New York. The countries’ close ties are “a fact that’s, I think, going to be a dominant feature of the Canadian economy for many years to come, and we don’t walk away from that.”

--With assistance from Brian Wingfield and Katarzyna Klimasinska in Washington, Jeremy Van Loon in Calgary. Editors: Paul Badertscher, David Scanlan

To contact the reporters on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net,

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.


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