It's time to let Keystone XL go, ambassador says
in 2020, it was estimated that total oil and gas employment in Alberta was 128,180, and thus the number of lost jobs represents 2.2 per cent of the total sector employment in the province
KENNEY CUTS PUBLIC SECTOR UNION WORKERS JOBS WHILE THROWING MONEY AT KXL EVEN NOW
© Nati Harnik/The Canadian Press Opponents of the Keystone XL pipeline demonstrate in Omaha, Nebraska in 2017.
Canada's ambassador to the United States says there's no chance of President Joe Biden walking back his decision to kill the Keystone XL pipeline — so she's turning her attention to other pressing bilateral issues.
"It's obviously very disappointing for Albertans and people in Saskatchewan who are already in a difficult situation," Kirsten Hillman said in an interview airing Saturday on CBC's The House.
"But I think that we need to now focus on moving forward with this administration, and there are so many ways in which we are going to be aligned with them to our mutual interest that I'm eager to to get going on that."
Biden vowed during last year's presidential campaign to rescind Donald Trump's permit for Keystone XL, which would have linked Alberta's oilsands with refineries on the U.S. Gulf Coast. And he did, making it one of the first executive orders he issued within hours of taking office on Wednesday.
While the move was applauded by progressives in his Democratic Party and in Canada, it struck a heavy blow in Alberta. TC energy, the company building the pipeline, halted construction and laid off a thousand workers.
Alberta Premier Jason Kenney lashed out this week at both Biden and Prime Minister Justin Trudeau, accusing the federal government of abandoning the oil and gas sector.THE ONLY TIME KENNEY MENTIONS UNION JOBS WHEN HE ISN'T ATTACKING THEMWITH UNION BUSTING LEGISLATIONHe released a letter to Trudeau on Friday calling on the federal government to retaliate by imposing economic sanctions on the United States or by demanding compensation for TC Energy and his government — which invested billions of provincial taxpayers' dollars into the project. The premier even took his case to Fox News on Friday.
"It's very frustrating that one of the first acts of the new president was, I think, to disrespect America's closest friend and ally, Canada, and to kill good-paying union jobs on both sides of the border and ultimately to make the United States more dependent on foreign oil imports from OPEC dictatorships," Kenney told the Fox audience. "We don't understand it."
Hillman didn't comment directly on Kenney's demands, insisting instead that Canada remains the "best partner" for helping Americans meet their energy needs.
"But we have to recognize that the Biden administration has put fighting climate change at the centre of their agenda," she said. "Not only their domestic agenda but their international agenda."
Goodbye, Keystone — hello 'Buy American'
Keystone's abrupt death isn't the only recent challenge to a Canada-U.S. relationship that's been severely tested over the past four years by Donald Trump. Many Canadians see Biden as not only a more reliable partner but as a friend to this country.
Some of his policies suggest otherwise. Hillman said she's already spoken to the White House about another Biden campaign promise — this one to restore "Buy American" requirements for major government contracts, a move that could freeze Canadian companies out of U.S. government work.
"Less than an hour after the end of the inauguration ceremony, we were in touch with top-level advisers in the White House and discussed many things," she said. "Among them was Buy America."
© Jim Watson/AFP/Getty Images U.S. President Joe Biden signs a series of orders in the Oval Office of the White House in Washington, DC, after being sworn in on January 20, 2021.
Biden is proposing a massive, $400 billion infrastructure program that would award contracts exclusively to U.S. companies. As big as that program is, it will be dwarfed by another Biden proposal — to invest $2 trillion in clean technologies and infrastructure.
Hillman said such protectionist measures are not new. In the past, Congress has imposed restrictions to limit or exclude foreign companies from bidding on infrastructure projects, or from supplying U.S. companies that do.
Canada has successfully negotiated exemptions to such policies before — most recently through the 2010 Canada-U.S. Agreement on Government Procurement, which gave companies in this country access to stimulus projects funded under the U.S. Recovery Act.
No link between Keystone and carve-out, says Hillman
Hillman was asked in The House interview if the federal government's muted response to the Keystone decision is tied to its hopes for getting a carve-out for Canadian businesses under Biden's Buy American policy. She said there's no connection.
"Our job here is to work with the administration to demonstrate to them, factually, that as they pursue their domestic goals, the highly integrated supply chains that we have with the United States are essential to protect and preserve for their economic recovery objectives," she said.
"I'm optimistic that we are going to be able to have meaningful conversations with them around how they can meet their policy objectives while also being sure that we protect our mutually supportive supply chains."
Hillman said she sees other opportunities for cross-border cooperation in the Biden administration's decision to rejoin the Paris climate accord and the president's vow to meet the goal of net-zero emissions by 2050.
Biden is proposing a massive, $400 billion infrastructure program that would award contracts exclusively to U.S. companies. As big as that program is, it will be dwarfed by another Biden proposal — to invest $2 trillion in clean technologies and infrastructure.
Hillman said such protectionist measures are not new. In the past, Congress has imposed restrictions to limit or exclude foreign companies from bidding on infrastructure projects, or from supplying U.S. companies that do.
Canada has successfully negotiated exemptions to such policies before — most recently through the 2010 Canada-U.S. Agreement on Government Procurement, which gave companies in this country access to stimulus projects funded under the U.S. Recovery Act.
No link between Keystone and carve-out, says Hillman
Hillman was asked in The House interview if the federal government's muted response to the Keystone decision is tied to its hopes for getting a carve-out for Canadian businesses under Biden's Buy American policy. She said there's no connection.
"Our job here is to work with the administration to demonstrate to them, factually, that as they pursue their domestic goals, the highly integrated supply chains that we have with the United States are essential to protect and preserve for their economic recovery objectives," she said.
"I'm optimistic that we are going to be able to have meaningful conversations with them around how they can meet their policy objectives while also being sure that we protect our mutually supportive supply chains."
Hillman said she sees other opportunities for cross-border cooperation in the Biden administration's decision to rejoin the Paris climate accord and the president's vow to meet the goal of net-zero emissions by 2050.
Canada's hopes for a green tech boom
Biden has nominated former secretary of state John Kerry as his special presidential envoy for the climate — a new cabinet-level position intended to underscore Biden's personal commitment to addressing climate change.
"That provides a lot of opportunities for green tech, for Canadian clean energy, for working together on emission standards, for innovation in our automotive industry," Hillman said.
The Trudeau government is trying to position Canada as a global leader in green technology fields. It introduced legislation requiring Canada to become a net-zero emitter by mid century and last month unveiled this country's first national strategy to develop hydrogen as a fuel source.
That's the long game, of course.
For now, the Trudeau government must also deal with the challenge here at home: preventing the fate of Keystone XL from becoming the dominant issue in Canada-U.S. relations that it was the last time a Democrat was in the Oval Office — and Joe Biden was his vice president.
Biden has nominated former secretary of state John Kerry as his special presidential envoy for the climate — a new cabinet-level position intended to underscore Biden's personal commitment to addressing climate change.
"That provides a lot of opportunities for green tech, for Canadian clean energy, for working together on emission standards, for innovation in our automotive industry," Hillman said.
The Trudeau government is trying to position Canada as a global leader in green technology fields. It introduced legislation requiring Canada to become a net-zero emitter by mid century and last month unveiled this country's first national strategy to develop hydrogen as a fuel source.
That's the long game, of course.
For now, the Trudeau government must also deal with the challenge here at home: preventing the fate of Keystone XL from becoming the dominant issue in Canada-U.S. relations that it was the last time a Democrat was in the Oval Office — and Joe Biden was his vice president.
Why the U.S. isn't in desperate need of the
Keystone XL pipeline
© CBC News
David Braziel, CEO of RBN Energy, an energy markets consultancy based in Houston, Texas, said that when the Keystone XL project was first announced, back in 2005, the U.S. was certainly in need of the additional capacity that would have been produced.
But as the project continued to stall, the industry found alternative supply chains. Producers began relying more on rail to transport oil supplies while other pipelines expanded incrementally to help move those additional barrels to U.S. markets, Braziel said.
The U.S. is also counting on the expansion of the Trans Mountain Pipeline, which heads west from Alberta to B.C. and connects with a pipeline to Washington state, and Enbridge Line 3, which also begins in Alberta and crosses Minnesota to Superior, Wis.
In late July, the Trump administration approved the existing Keystone pipeline to ship 29 per cent more Canadian crude into the U.S. Midwest and Gulf Coast.
"So, there's a lot of additional capacity that could come on to fill the gaps. If the Keystone XL was there, [we would] definitely use it, but if it's not there, then there are other ways to get to market," Braziel said.
Andrew Lipow, CEO of Lipow Oil Associates, a petroleum consulting firm based in Houston, Texas, said the Keystone XL pipeline certainly could have been used to increase crude oil production that ultimately would have been delivered to U.S. refineries, many of them on the Gulf Coast, displacing imports from other parts of the world.
"And those other imports that the Gulf Coast relies on come from areas of the world that may be politically unstable or have other supply issues," he said.
Major exporter
As well, while shale production has resulted in the U.S. becoming a major exporter of crude oil, that oil is of the "light sweet variety," Lipow said. And many U.S. refineries are configured to prefer the heavy sour crude that comes from Alberta.
"The Canadian crude is actually less expensive than the light sweet crude coming out of the shale producing regions [in the U.S.]," he said.
Still, while the U.S. refineries would prefer Alberta crude pumped through Keystone XL, they can still use U.S. crude oil, he said.
Meanwhile, U.S. motorists are unlikely to see any spike in gas prices as a result of the Keystone XL decision, Mabee said.
"It's not going to leave Americans paying three times as much for their gasoline," he said. "It probably won't affect their price at all."
© TC Energy/The Associated Press A lot has changed since the Keystone XL pipeline project was first proposed in 2005. For one thing, the U.S. has increased its own oil production and has become far less dependent on imports.
Ramped up domestic oil production and alternative supply routes have lessened the U.S.'s need for the hundreds of thousands of barrels of oil that would have been pumped daily through the now-cancelled Keystone XL pipeline, some industry experts say.
On Wednesday, not long after being sworn in as president of the United States, Joe Biden fulfilled a campaign promise by signing an executive order scuttling the 1,897-kilometre pipeline expansion as part of the administration's effort to fight climate change.
The project, first announced in 2005, would have carried 830,000 barrels of crude a day from the oilsands in Alberta to Nebraska and connected with the original Keystone pipeline that runs to Gulf Coast refineries.
"I really don't think that this works out to be a major, significant change to American oil supply right now," said Warren Mabee, director of Queen's University's Institute for Energy and Environmental Policy.
"The flow of oil out of Canada ... is now a much smaller part of any big U.S. energy strategy. They've got the capacity in the States to be able to make up for that. They're not really counting on the additional capacity, the growth that Keystone XL would bring."
A 'gut punch'
Prime Minister Justin Trudeau said he was disappointed with Biden's decision, but Alberta Premier Jason Kenney called it a "gut punch" and federal Conservative Leader Erin O'Toole described it as "devastating."
Ramped up domestic oil production and alternative supply routes have lessened the U.S.'s need for the hundreds of thousands of barrels of oil that would have been pumped daily through the now-cancelled Keystone XL pipeline, some industry experts say.
On Wednesday, not long after being sworn in as president of the United States, Joe Biden fulfilled a campaign promise by signing an executive order scuttling the 1,897-kilometre pipeline expansion as part of the administration's effort to fight climate change.
The project, first announced in 2005, would have carried 830,000 barrels of crude a day from the oilsands in Alberta to Nebraska and connected with the original Keystone pipeline that runs to Gulf Coast refineries.
"I really don't think that this works out to be a major, significant change to American oil supply right now," said Warren Mabee, director of Queen's University's Institute for Energy and Environmental Policy.
"The flow of oil out of Canada ... is now a much smaller part of any big U.S. energy strategy. They've got the capacity in the States to be able to make up for that. They're not really counting on the additional capacity, the growth that Keystone XL would bring."
A 'gut punch'
Prime Minister Justin Trudeau said he was disappointed with Biden's decision, but Alberta Premier Jason Kenney called it a "gut punch" and federal Conservative Leader Erin O'Toole described it as "devastating."
© Evan Vucci/The Associated Press U.S. President Joe Biden signs executive orders on his first day in office. He wasted little time cancelling the Keystone XL project.
While supporters of the project north of the border say the decision represents a major loss for Canadian jobs and oil production, it likely won't have a similar negative impact on U.S. oil supply, some experts say.
And that makes the prospect of changing the administration's mind even more unlikely.
"A decade ago, we were integral," Mabee said. "In fact, the United States would think of Canada as part of the United States when they were looking at their energy supply. And I don't think that's the case anymore."
As well, there was no guarantee that adding 800,000 barrels a day of capacity would lead to 800,000 barrels a day of additional production in the oilsands, said Mabee.
With Canada already moving 500,000 barrels a day by rail to the U.S., Keystone XL may have just picked up the slack from the rail system, he said.
Weaned off imports
Video: How Joe Biden’s plans to block Keystone XL pipeline will affect Alberta (Global News)
TIRED OLD TORIES 44 YEARS IN POWER
While supporters of the project north of the border say the decision represents a major loss for Canadian jobs and oil production, it likely won't have a similar negative impact on U.S. oil supply, some experts say.
And that makes the prospect of changing the administration's mind even more unlikely.
"A decade ago, we were integral," Mabee said. "In fact, the United States would think of Canada as part of the United States when they were looking at their energy supply. And I don't think that's the case anymore."
As well, there was no guarantee that adding 800,000 barrels a day of capacity would lead to 800,000 barrels a day of additional production in the oilsands, said Mabee.
With Canada already moving 500,000 barrels a day by rail to the U.S., Keystone XL may have just picked up the slack from the rail system, he said.
Weaned off imports
Video: How Joe Biden’s plans to block Keystone XL pipeline will affect Alberta (Global News)
TIRED OLD TORIES 44 YEARS IN POWER
THEY WERE THE SHILLS FOR BIG OIL
KENNEY JUST KEPT SHOVELING THEM MONEY
THEY DON'T NEED
In the years since Keystone XL was first proposed, the U.S. significantly increased its oil production through the hydraulic fracturing of shale. This resulted in a 230 per cent surge in U.S. crude production, or an extra 6.9 million barrels a day, said Michael Tran, managing director of global energy strategy at RBC Capital Markets. Total U.S. crude imports have dropped significantly as well.
According to the U.S. Energy Information Administration, in 2019, the U.S. produced about 19.25 million barrels per day and consumed about 20.4 million barrels.
Since the 1990s, Canada's share of total crude oil imports to the U.S. has increased, accounting for 56 per cent of the supply in 2019.
However, by that time, total U.S. crude oil imports were down by about one-third compared to 2005 volumes.
"So the U.S. has just really weaned its way off of global imports in a really big way during that period," Tran said. "The domestic shale revolution has completely altered the U.S. landscape and its dependency on foreign oil.
"The U.S. need for Canadian oil is not to the same urgent degree as it has been in the past."
In the years since Keystone XL was first proposed, the U.S. significantly increased its oil production through the hydraulic fracturing of shale. This resulted in a 230 per cent surge in U.S. crude production, or an extra 6.9 million barrels a day, said Michael Tran, managing director of global energy strategy at RBC Capital Markets. Total U.S. crude imports have dropped significantly as well.
According to the U.S. Energy Information Administration, in 2019, the U.S. produced about 19.25 million barrels per day and consumed about 20.4 million barrels.
Since the 1990s, Canada's share of total crude oil imports to the U.S. has increased, accounting for 56 per cent of the supply in 2019.
However, by that time, total U.S. crude oil imports were down by about one-third compared to 2005 volumes.
"So the U.S. has just really weaned its way off of global imports in a really big way during that period," Tran said. "The domestic shale revolution has completely altered the U.S. landscape and its dependency on foreign oil.
"The U.S. need for Canadian oil is not to the same urgent degree as it has been in the past."
© CBC NewsDavid Braziel, CEO of RBN Energy, an energy markets consultancy based in Houston, Texas, said that when the Keystone XL project was first announced, back in 2005, the U.S. was certainly in need of the additional capacity that would have been produced.
But as the project continued to stall, the industry found alternative supply chains. Producers began relying more on rail to transport oil supplies while other pipelines expanded incrementally to help move those additional barrels to U.S. markets, Braziel said.
The U.S. is also counting on the expansion of the Trans Mountain Pipeline, which heads west from Alberta to B.C. and connects with a pipeline to Washington state, and Enbridge Line 3, which also begins in Alberta and crosses Minnesota to Superior, Wis.
In late July, the Trump administration approved the existing Keystone pipeline to ship 29 per cent more Canadian crude into the U.S. Midwest and Gulf Coast.
"So, there's a lot of additional capacity that could come on to fill the gaps. If the Keystone XL was there, [we would] definitely use it, but if it's not there, then there are other ways to get to market," Braziel said.
Andrew Lipow, CEO of Lipow Oil Associates, a petroleum consulting firm based in Houston, Texas, said the Keystone XL pipeline certainly could have been used to increase crude oil production that ultimately would have been delivered to U.S. refineries, many of them on the Gulf Coast, displacing imports from other parts of the world.
"And those other imports that the Gulf Coast relies on come from areas of the world that may be politically unstable or have other supply issues," he said.
Major exporter
As well, while shale production has resulted in the U.S. becoming a major exporter of crude oil, that oil is of the "light sweet variety," Lipow said. And many U.S. refineries are configured to prefer the heavy sour crude that comes from Alberta.
"The Canadian crude is actually less expensive than the light sweet crude coming out of the shale producing regions [in the U.S.]," he said.
Still, while the U.S. refineries would prefer Alberta crude pumped through Keystone XL, they can still use U.S. crude oil, he said.
Meanwhile, U.S. motorists are unlikely to see any spike in gas prices as a result of the Keystone XL decision, Mabee said.
"It's not going to leave Americans paying three times as much for their gasoline," he said. "It probably won't affect their price at all."
Biden's Keystone XL death sentence requires Canada's oil sector to innovate
In one of his first acts of office, U.S. President Joe Biden has issued an executive order that effectively kills the Keystone XL pipeline project
Obama’s rejection
It’s worth remembering that Keystone XL was rejected previously by Barack Obama’s administration in 2015, after several years of controversy, and that the environmental concerns used to justify that decision have not gone away. This decision should have been expected and planned for.
But it would seem that both Alberta and TC Energy (formerly TransCanada) felt that there was a good chance the project would proceed despite Biden’s election win. Early in January 2021, TC Energy opened bidding on existing pipeline space expected to be freed up by the construction of the new line.
The Keystone XL cancellation will significantly impact Canada and Alberta. TC Energy has estimated that Canada would have added 2,800 jobs directly associated with this project, mostly in Alberta, and contends the United States would have seen 10,400 new positions.
Let’s put that in perspective: in 2020, it was estimated that total oil and gas employment in Alberta was 128,180, and thus the number of lost jobs represents 2.2 per cent of the total sector employment in the province — a very significant proportion for a single project.
Energy East born again?
So what’s next?
There have been reports that some of the pipe and materials may be sold for scrap if Keystone XL can’t move forward. In reality, the majority of the actual pipe has not yet been laid, meaning pipes could easily be repurposed for other projects. So some investment may be recovered over an extended time.
Indeed, TC Energy may look to the past when figuring out its next move.
One option that might be explored is revisiting Energy East, a pipeline that would have seen 1.1 million barrels per day of Alberta oil travel over 3,000 kilometres to reach tidewater at Saint John, N.B.
Energy East was arguably the most complicated infrastructure project ever imagined in Canada, involving the federal government, six provincial legislatures, hundreds of municipalities and 180 traditional Indigenous territories. The project would have crossed thousands of waterways ranging from streams to major waterways including the South Saskatchewan, Red, Ottawa, and St. Lawrence rivers.
The project was hugely controversial, and was cancelled in 2017 — partly because former president Donald Trump had re-approved Keystone XL earlier that year.
Rethinking pipelines
But before backing yet another pipeline project, Alberta and all of Canada ultimately need to decide if more pipeline capacity is really needed.
Keystone XL struggled to find investors prior to Alberta’s decision to provide funds. The frequently cited “Canadian discount” in oil prices, which entails Canadian oil being sold at lower prices than the West Texas Intermediate (WTI) index, has in recent months been reduced as oil prices have begun to recover.
In Ottawa and in Washington, policies to address the climate emergency have taken precedence over new investment in conventional, fossil fuel-based industries.
The future of Canada’s oil sector may not be in volume, but in value.
Consider that four to five per cent of the volume of oil becomes high-value products like plastics, rubber and chemicals; these products can account for 40 per cent or more of the value derived from a barrel of oil.
New refineries are being designed that focus on these value-added products and minimize bulk fuel products; these new facilities may be smaller and require far less in terms of input, reducing the need for new pipelines.
The death of Keystone XL is a wake-up call for the oil sector. The old way of doing business is fading away, and it must innovate to survive.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Warren Mabee receives funding from the Canada Research Chairs foundation and from the Natural Sciences and Engineering Research Council.
In one of his first acts of office, U.S. President Joe Biden has issued an executive order that effectively kills the Keystone XL pipeline project
.
© (AP Photo/Evan Vucci) U.S. President Joe Biden signs his first executive order in the Oval Office of the White House on Jan. 20, 2021, in Washington.
The order states that the pipeline “disserves the U.S. national interest” and that approving it would be inconsistent with his campaign climate pledges.
Alberta Premier Jason Kenney called the move a “gut punch” and an “insult” and has threatened legal action to recoup Alberta’s $1.5 billion investment in the project.
Prime Minister Justin Trudeau issued a statement that expressed disappointment, but struck a far more conciliatory tone. He signalled a desire to work with the Biden administration and implicitly conceded that the pipeline won’t be resurrected again.
While the reaction from Alberta implies Biden’s move came as a shock, the truth is that cancelling Keystone XL was a key part of Biden’s election platform and was telegraphed clearly throughout the campaign.
The order states that the pipeline “disserves the U.S. national interest” and that approving it would be inconsistent with his campaign climate pledges.
Alberta Premier Jason Kenney called the move a “gut punch” and an “insult” and has threatened legal action to recoup Alberta’s $1.5 billion investment in the project.
Prime Minister Justin Trudeau issued a statement that expressed disappointment, but struck a far more conciliatory tone. He signalled a desire to work with the Biden administration and implicitly conceded that the pipeline won’t be resurrected again.
While the reaction from Alberta implies Biden’s move came as a shock, the truth is that cancelling Keystone XL was a key part of Biden’s election platform and was telegraphed clearly throughout the campaign.
Obama’s rejection
It’s worth remembering that Keystone XL was rejected previously by Barack Obama’s administration in 2015, after several years of controversy, and that the environmental concerns used to justify that decision have not gone away. This decision should have been expected and planned for.
But it would seem that both Alberta and TC Energy (formerly TransCanada) felt that there was a good chance the project would proceed despite Biden’s election win. Early in January 2021, TC Energy opened bidding on existing pipeline space expected to be freed up by the construction of the new line.
The Keystone XL cancellation will significantly impact Canada and Alberta. TC Energy has estimated that Canada would have added 2,800 jobs directly associated with this project, mostly in Alberta, and contends the United States would have seen 10,400 new positions.
Let’s put that in perspective: in 2020, it was estimated that total oil and gas employment in Alberta was 128,180, and thus the number of lost jobs represents 2.2 per cent of the total sector employment in the province — a very significant proportion for a single project.
© THE CANADIAN PRESS/Alex Panetta Pipes intended for construction of the Keystone XL pipeline are shown in Gascoyne, N.D. in April 2015.
The loss of Keystone XL also will impact future projects in the province’s oilsands. We know that one of the reasons that companies are reducing investments in the oilsands is that there is a transport bottleneck that affects the ability to get new product to market.
Keystone XL would have been able to move 830,000 barrels per day. Total Canadian oilsands production is only 2.9 million barrels per day, so adding Keystone XL may have attracted new investment to the oilsands to take advantage of this transportation capacity, which in turn would have meant billions in royalties to the province. GDP growth resulting from this investment would have benefited all of Canada.
The cancellation of Keystone XL could leave Alberta out-of-pocket for the $1.5 billion invested by the government earlier this year. This investment — almost $400 for each individual in the province — may be recouped through legal means or reinvested by the company, or simply written off.
The province also made $6 billion in loan guarantees that may be recovered. Overall, however, the province will likely lose money on this deal — and the voters ultimately will decide the price.
The loss of Keystone XL also will impact future projects in the province’s oilsands. We know that one of the reasons that companies are reducing investments in the oilsands is that there is a transport bottleneck that affects the ability to get new product to market.
Keystone XL would have been able to move 830,000 barrels per day. Total Canadian oilsands production is only 2.9 million barrels per day, so adding Keystone XL may have attracted new investment to the oilsands to take advantage of this transportation capacity, which in turn would have meant billions in royalties to the province. GDP growth resulting from this investment would have benefited all of Canada.
The cancellation of Keystone XL could leave Alberta out-of-pocket for the $1.5 billion invested by the government earlier this year. This investment — almost $400 for each individual in the province — may be recouped through legal means or reinvested by the company, or simply written off.
The province also made $6 billion in loan guarantees that may be recovered. Overall, however, the province will likely lose money on this deal — and the voters ultimately will decide the price.
Energy East born again?
So what’s next?
There have been reports that some of the pipe and materials may be sold for scrap if Keystone XL can’t move forward. In reality, the majority of the actual pipe has not yet been laid, meaning pipes could easily be repurposed for other projects. So some investment may be recovered over an extended time.
Indeed, TC Energy may look to the past when figuring out its next move.
One option that might be explored is revisiting Energy East, a pipeline that would have seen 1.1 million barrels per day of Alberta oil travel over 3,000 kilometres to reach tidewater at Saint John, N.B.
Energy East was arguably the most complicated infrastructure project ever imagined in Canada, involving the federal government, six provincial legislatures, hundreds of municipalities and 180 traditional Indigenous territories. The project would have crossed thousands of waterways ranging from streams to major waterways including the South Saskatchewan, Red, Ottawa, and St. Lawrence rivers.
The project was hugely controversial, and was cancelled in 2017 — partly because former president Donald Trump had re-approved Keystone XL earlier that year.
© THE CANADIAN PRESS/Paul Chiasson Security guards try to restrain a demonstrator from interrupting the National Energy Board public hearing into the ultimately doomed Energy East pipeline project in August 2016 in Montréal.
Rethinking pipelines
But before backing yet another pipeline project, Alberta and all of Canada ultimately need to decide if more pipeline capacity is really needed.
Keystone XL struggled to find investors prior to Alberta’s decision to provide funds. The frequently cited “Canadian discount” in oil prices, which entails Canadian oil being sold at lower prices than the West Texas Intermediate (WTI) index, has in recent months been reduced as oil prices have begun to recover.
In Ottawa and in Washington, policies to address the climate emergency have taken precedence over new investment in conventional, fossil fuel-based industries.
The future of Canada’s oil sector may not be in volume, but in value.
Consider that four to five per cent of the volume of oil becomes high-value products like plastics, rubber and chemicals; these products can account for 40 per cent or more of the value derived from a barrel of oil.
New refineries are being designed that focus on these value-added products and minimize bulk fuel products; these new facilities may be smaller and require far less in terms of input, reducing the need for new pipelines.
The death of Keystone XL is a wake-up call for the oil sector. The old way of doing business is fading away, and it must innovate to survive.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
Warren Mabee receives funding from the Canada Research Chairs foundation and from the Natural Sciences and Engineering Research Council.
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