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In one of his first-day executive orders on 20 January,
President Joe Biden revoked a federal permit for part of the route
of the Keystone XL pipeline as part of a broad set of actions to
reverse the pro-fossil fuel legacy of his predecessor.
Revoking the permit was
incorporated into Biden's broader climate initiative on Day One to
order federal agencies "to capture the full costs of greenhouse gas
emissions as accurately as possible" and "immediately review and …
take action to address the promulgation of federal regulations and
other actions during the last four years that conflict with these
important national objectives."
The 1,200-mile pipeline has been proposed to deliver up to
830,000 barrels per day (b/d) of Canadian-produced crude through US
Plains states and the Midwest to refineries in Texas (see map).
Source: TC Energy
The southern part of the route from Cushing, Oklahoma, to Port
Arthur on the Texas Gulf Coast has been completed, but a federal
permit is necessary to establish the international crossing point
for the pipeline from Canada into Montana. Biden revoked that
permit, the latest twist in a decade of permitting and review
activities involving US agencies and presidential
administrations.
Canada Prime Minster Justin Trudeau said he was "disappointed"
by the decision, having previously raised it in a phone call with
then President-elect Biden.
Developer TC Energy released a statement on 20 January saying it
was "disappointed" as well, and was "suspending all activity on the
project" while reviewing its options. "The decision would overturn
an unprecedented, comprehensive regulatory process that lasted more
than a decade and repeatedly concluded the pipeline would transport
much needed energy in an environmentally responsible way while
enhancing North American energy security," TC Energy said.
On 21 January, TC Energy announced layoffs of nearly 1,000
workers it said were engaged in construction-related activity on
the project.
Biden's decision was hailed by environmental allies as a signal
of intent to rein in greenhouse gas (GHG) emissions. "Biden's
announcement that his administration will reject the Keystone XL
tar sands pipeline signals a decisive new era of climate leadership
for the United States," the Natural Resources Defense Council said
in a statement.
Congressional Republicans criticized the decision. In Montana,
where the pipeline would traverse about 295 miles, Senator John
Tester, a Democrat, said the cancellation would have "devastating
repercussions" for job growth in the state.
Said Representative Sam Graves (Republican-Missouri), ranking
member of the House Committee on Transportation and Infrastructure:
"Revoking the permit for this critical infrastructure project would
be a massive mistake. Pipelines provide the safest, most efficient,
most environmentally friendly means of transporting energy."
The American Petroleum Institute (API) in a statement also
referenced the safety of pipelines for moving crude and liquid
fuels and cited the economic benefits of the project. "Revoking the
Keystone XL pipeline is a significant step backwards both for
environmental progress and our economic recovery… and the economy
cannot recover at full speed unless we deliver reliable energy from
where it is to where it is needed," API said.
Tortured permitting history
The US$8-billion pipeline's permitting has had a tortured
history since a formal application was filed in the US in 2008.
President Barack Obama rejected the final permit for the pipeline
in 2012, then vetoed a Senate bill supporting the project in
January 2015, rejecting the permit again in
November 2015.
President Donald Trump revived the project in his first month in
office, as he invited TC Energy (then known as TransCanada) in
January 2017 to resubmit its application and directed the US
Department of Commerce to issue a decision within 60 days. In March
2019 and July 2020, Trump issued a Presidential Permit and
instructions to speed up construction. Biden has revoked this
permit and its update, contending that the Keystone XL project
"disserves the US national interest."
Over the last few years, the redesigned pipeline project brought
in as new partners the province of Alberta and First Nation tribes.
With permits in hand and an infusion of funding from Alberta, TC
Energy has been engaged in completing the northern section of the
pipeline. As recently as last month, TC Energy announced it had
awarded new construction contracts worth $1.6 billion.
As part of its completion plans, TC Energy on 17 January
announced a series of investments that it said would make Keystone
XL fully powered by renewable energy and thus significantly reduce
the pipeline's GHG emissions. "The company will achieve net-zero
emissions across the project operations when it is placed into
service in 2023 and has committed the operations will be fully
powered by renewable energy sources no later than 2030," TC Energy
said.
TC Energy said it would achieve net-zero emissions by purchasing
renewable energy to operate the pipeline, and would purchase
renewable energy credits or carbon offsets for the balance of
emissions. The company said its renewable energy purchases would
spur $1.7 billion of new green energy investments along the
pipeline route.
Emissions and other environmental concerns
But some tribal nations and environmental groups have long
argued the project should be canceled because of its environmental
impact, both along the route and through direct and indirect GHG
emissions. They have filed a number of lawsuits, succeeding most
notably at the US District Court for Montana in April 2020, which
stayed a water-crossing permit by the US Army Corps of Engineers
known as a Nationwide Permit 12 (NWP12). The US Court of Appeals
for the Ninth Circuit upheld the stay of the NWP12, which led the
Corps on 13 January to revise the permit for this and
other oil and natural gas pipelines.
NRDC, Sierra Club, and other climate groups have highlighted
both the direct GHG emissions of the project and the indirect
emissions from upstream production, downstream refining, and fuel
usage that would be incentivized by the project.
In response, TC Energy has pointed to both its renewable power
commitment and the ability of Canadian oil sands producers to
reduce their methane and carbon dioxide emissions as well. Canadian
oil sands producers have reduced their emissions intensity (carbon
emissions per barrel of oil and gas) by 21% since 2015, and trade
groups are projecting additional reductions of 27% by 2030.
"Canada and the United States are among the most environmentally
responsible countries in the world, with some of the strictest
standards for fossil fuel production," said Richard Prior,
president of Keystone XL, owned by TC Energy.
But those reductions are inadequate, say environmental groups
who continue to argue the pipeline would be inconsistent with US
and Canadian climate change objectives.
Impact in Canada
As significant as Keystone XL is for TC Energy, it's perhaps
equally important to Western Canadian oil producers and Alberta,
where crude that would be shipped on Keystone XL is produced. Price
volatility for Western Canadian Sedimentary Basin crude has cost
producers more than $10 billion over the last decade, according to
some industry estimates, as access to outlets for production have
been limited.
Alberta Premier Jason Kenney signed agreements in March 2020 for
a $1.1 billion equity stake in Keystone XL and to guarantee
$4.2 billion in construction loans. "All we ask at this point is
that President-elect Biden show Canada the respect to actually sit
down and hear our case about how we can be partners in prosperity,
partners in combating climate change, partners in energy security,"
Kenney said on 18 January during a press conference. "Surely, the
relationship between Canada and the United States is worth at least
having that discussion."
Canada has a net-zero emissions target for 2050, announced in
December 2020, and Canadian environmental groups have argued
Keystone XL and another proposed oil sands pipeline, the Trans
Mountain Extension, run counter to those goals. Oil companies and
some government agencies have said the economic activity generated
by the oil and pipeline projects will fund clean energy programs,
and that the oil production itself can be achieved with greatly
reduced emissions.
Taking this line of argument, Trudeau said at a press conference
on 19 January: "We've had a clear and consistent position
supporting this project for years. Our government is making sure
that Canada's views are heard and considered by the incoming
administration at the highest levels."
TC Energy's stock price has been unaffected by Biden's
announcement. Shares closed on 20 January at $44.25/share, down
$0.18/share on the day, and were $44.66/share at the start of
trading on 22 January. Shares have risen about 10% since 1 January,
despite the apparent halt to the project (see graph below).
Nonetheless, the canceled permit led to the construction layoffs
and will result in financial adjustments by TC Energy. "The company
will cease capitalizing costs, including interest during
construction, effective January 20, 2021, being the date of the
decision, and will evaluate the carrying value of its investment in
the pipeline, net of project recoveries. Absent intervening
actions, these steps could result in a substantive, predominantly
non-cash after-tax charge to earnings in first quarter 2021," TC
Energy announced on 20 January. "TC Energy will also modify its
previously announced financing plans as it would no longer expect
to issue hybrid securities or common shares under its dividend
reinvestment plan to partially fund the project."
Source: TC Energy
Posted 22 January 2021 by Kevin Adler, Chief Editor