500 years from now I'll worry about our oil running out. Until then, I'll enjoy the benefits of all of Canada's wealth.
If you can...
Keystone delay may force shippers to opt out
U.S. decision puts project 2 years behind
Further delays to Trans Canada Corp.'s Keystone XL pipeline could sound a death knell for the massive Alberta-to-Texas bitumen line if shippers pull out, according to industry observers.
The $7-billion project was dealt a blow Thursday after the U.S. State Department put off a decision on the transborder line until early 2013 to review alternative routes, citing public concerns about XL traversing a sensitive water resource.
At a minimum, the U.S. ruling presents a delay; at worst it could see key financial support being withdrawn from the $7-billion pipeline, said analysts. "I believe it could lead to the project not going ahead because the shippers have sunset clauses," said Juan Plessis, with Canaccord Capital, from Vancouver.
"If TransCanada cannot reasonably expect to have a commencement date of December 31, 2013, then the shippers are not bound to the original agreement."
Conditions attached to shipper agreements filed with the National Energy Board include TransCanada proving by the end of 2011 it had all the U.S. regulatory approvals to launch the line "no later than December 31, 2013." Observers now expect the project to be at least two years late because of the newest development and not built until the end of 2014 - assuming enough shippers stay on board.
"The critical issue is what happens to the 445,000 barrels per day plus of shipper contracts in place, which are necessary for the project to proceed, said analyst Chad Friess, with UBS Research in a research note Friday.
"With the delay, we expect most shippers will have the right to opt out of their contracts under various 'sunset clauses' and commit their volumes to other Gulf Coast projects, such as Enbridge's Wrangler, which proposes to be on stream mid 2013."
Rival Enbridge Inc. has forwarded an 800,000 barrel per day pipeline proposal which would move oil from benchmark pricing point Cushing, Okla., to near Houston, Texas.
Friess said a late 2014 completion would be tolerable to most shippers, but added "there is no guarantee that a new route won't meet the same resistance as the current one, which has been under review since 2008."
TransCanada included 14 routes crossing Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas. when submitting its application to U.S. regulators.
The final environmental impact statement approved by the State Department in August noted alternative routes would disturb more land and add about $1.7 billion to the project.
The State Department move Thursday was seen as highly political, in part to placate influential Democratic voters in light of large public demonstrations against the pipeline, and help President Barack Obama's administration avoid controversy around the project until after the 2012 U.S. election.
Environmental and landowner groups argued the 800,000-barrelper-day Keystone would facilitate carbon-intense development of Alberta's oilsands and could pollute the Ogallala aquifer in Nebraska.
Oilsands producer Cenovus Energy would not discuss its shipping agreements, but said it was meeting with TransCanada for updates. "Cenovus has taken a position on Keystone XL and we remain supportive of the project," a spokeswoman, Rhona DelFrari, wrote in an e-mail. "There has been a great deal of work already completed to determine this was the best route and we are hopeful any remaining concerns can be addressed so this pipeline gets built."
Shipper options include Kinder Morgan's proposed TransMountain pipeline expansion to the West Coast, Enbridge's Wrangler and its equally controversial Northern Gateway pipeline project, which could be gaining force on the Keystone delay. The 525,000-barrel-per-day line would ship Alberta bitumen to a marine terminal in British Columbia and on to Asian markets, opening new buyers for Canadian crude.
The Canadian Association of Petroleum Producers quickly assured investors production would not be affected in the short term by Thursday's announcement. "Other alternatives are being pursued to ensure market access over the medium term," president David Collyer said. "Delaying Keystone XL will motivate exploration of other markets for Canadian crude oil products,"
The sentiment was echoed by federal Finance Minister Jim Flaherty, who questioned the project's survival if subjected to another lengthy regulatory review.
"It may mean that we may have to move quickly to ensure that we can export our oil to Asia through British Columbia," Flaherty said at the Asia-Pacific Economic Cooperation summit in Honolulu.