Bloomberg News

Keystone XL Pipeline Seen Moving Ahead on Alternative Route

January 19, 2012

(Updates with TransCanada’s new plan in fifth paragraph.)

Jan. 19 (Bloomberg) -- TransCanada Corp.’s $7 billion Keystone XL oil pipeline still will move ahead with an alternate route after President Barack Obama’s decision to deny a permit, investors, public officials and analysts say.

Obama blamed congressional Republicans yesterday for imposing a deadline on his decision, which he said left no time to approve the project. His administration invited TransCanada to reapply, an overture the Calgary-based company promptly said it would accept.

Denying the permit pushes a final decision on the pipeline into 2013, safely past this year’s presidential election. John Stephenson, who helps manage $2.7 billion for First Asset Management Inc. in Toronto, said he bought 350,000 shares yesterday as TransCanada fell the most in 18 months.

“This is clearly the biggest infrastructure project on the continent, and once the election is settled, we believe it will be approved,” Stephenson said in an interview. “All the waffling just gives people an opportunity to trade around it.”

TransCanada today said it may build U.S.-only pipeline segments, which don’t require federal approval, and apply later for permission to connect the pipeline to Canadian oil sands and complete Keystone XL as originally proposed.

Yesterday’s decision by the State Department was praised by environmentalists and was decried by the U.S. oil and gas industry and Republican presidential candidates and lawmakers, who had pushed Obama to approve the project as a way create jobs.

Congressional Deadline

Obama acted before a Feb. 21 deadline Congress set after he postponed a decision to allow for a review of of a revised route through Nebraska. TransCanada said the 1,661-mile (2,673- kilometer) project would carry 700,000 barrels of crude a day from Alberta’s oil sands to refineries on the U.S. Gulf of Mexico coast, crossing six states and creating an estimated 20,000 jobs.

Obama called Canadian Prime Minister Stephen Harper, who told the president Canada will seek to diversify its energy exports after Keystone was rejected. Harper “expressed his profound disappointment” with the Keystone decision, according to a statement from his office.

Currently, 99 percent of Canada’s crude exports go to the U.S., a figure that Harper wants to reduce in his bid to make Canada a “superpower” in global oil markets. Canada this month began hearings on a proposed pipeline from the oil sands to the British Columbia coast, where it could be shipped to Asian markets.

‘Proper Routing’

The State Department said in a report to Congress yesterday that the pipeline would create 5,000 to 6,000 construction jobs during the two years needed to build the project, based on labor expenses TransCanada included in its application.

“Once we get the proper routing done, I think it’s very appropriate that the country accept that as an oil source,” Anadarko Petroleum Corp. CEO Jim Hackett said Wednesday at a conference in Houston on North American energy prospects. “We have one of the most friendly nations to our country who has never stopped trade in my lifetime that is willing to send their supplies down to us as if it were domestic oil.”

Congress’s deadline would have forced Obama to choose in an election year between environmental supporters, who said the pipeline will worsen climate change and endanger drinking water supplies in Nebraska, and organized labor.

‘Politically Motivated’

The decision to deny the permit was “politically motivated” and will make the U.S. more dependent on foreign nations “that don’t share our interests,” U.S. Chamber of Commerce President Thomas Donohue said.

Environmental groups praised the decision, mindful that the pipeline still is a possibility.

“We’re going to declare victory today and tomorrow we’ll deal with the new application,” Susan Casey-Lefkowitz, director of the international program at the Natural Resources Defense Council, said in an interview. “I don’t think that they are predisposed to approving the pipeline.”

U.S. House Speaker John Boehner, an Ohio Republican, accused Obama of “selling out American jobs for politics,” and said Congress would consider adding pipeline language to a longer-term extension of the payroll tax cut sought by Obama, and the reauthorization of Federal Aviation Administration and surface transportation programs.

House Energy and Commerce Chairman Fred Upton, Republican from Michigan, said his committee has asked Secretary of State Hillary Clinton to testify next week on the decision.

American-Made Energy

“I’m disappointed that Republicans in Congress forced this decision, but it does not change my administration’s commitment to American-made energy,” Obama said in a statement. “We will continue to look for new ways to partner with the oil and gas industry to increase our energy security.”

TransCanada applied for a U.S. permit in 2008. Canada is the largest U.S. oil supplier at about 2.67 million barrels a day, compared with about 970,000 barrels a day from Venezuela, which ranked fourth in exports to the U.S. in the first 10 months of 2011, according to the Energy Department. Mexico and Saudi Arabia ranked second and third in shipments to the U.S.

“Until this pipeline is constructed, the U.S. will continue to import millions of barrels of conflict oil from the Middle East and Venezuela,” TransCanada Chief Executive Officer Russ Girling said in a statement. The company said the pipeline might still be ready to open in 2014 if the U.S. expedites review of its new application.

New Plans ‘Underway’

“While we are disappointed, TransCanada remains fully committed to the construction of Keystone XL,” Girling said. “Plans are already underway on a number of fronts to largely maintain the construction schedule of the project.”

Nebraska Governor Dave Heineman said today that the decision brought to a halt the environmental-review process underway in the state for a new pipeline route. Heineman, a Republican, says it’s unclear if the permit process must start over or if Nebraska can continue working on a route that takes the pipeline away from an environmentally sensitive region.

“It certainly is a major step backwards,” Heineman said in a telephone interview. “We need to make contact with TransCanada. We need to review our statutes relative to what the president did. We need to figure out if this means we have to start all over again.”

Alternate Pipelines

The ultimate fate of the project may rest on oil prices and whether alternate pipelines emerge, according Kevin Book, managing director at ClearView Energy Partners LLC, a Washington-based policy-analysis firm.

“We regard realization of the XL project as more likely under a Republican Administration in 2013, but we don’t believe the project is necessarily dead even if President Obama returns in 2013 for another term,” Book said in a client note yesterday.

If the U.S. rejects Keystone, two possible pipelines could send the crude west for export to Asian markets, according to Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. Canadian Prime Minister Stephen Harper touched on alternate export routes when he told Obama in a telephone call yesterday that Canada will seek to diversify its energy exports.

“If it’s not taken to the lower 48 states, I know that it will be developed and probably go to the Asian markets,” ConocoPhillips CEO Jim Mulva said yesterday at a conference in Houston. It would be a “significant lost opportunity for the United States.”

--With assistance from Katarzyna Klimasinska and Jim Snyder in Washington, Edward Klump and Bradley Olson in Houston and Jennifer Oldham in Denver. Editors: Timothy Franklin, Jon Morgan

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

To contact the editor responsible for this story: Timothy Franklin at tfranklin14@bloomberg.net


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