Updated: Biden makes strong case for TMX, Energy East

President Joe Biden rescinds Keystone XL pipeline permit – now what?

President Joe Biden signed executive order cancelling permit for Keystone XL pipeline. | Joe Biden Twitter

President Joe Biden has officially nixed the on-again, off-again US$8 billion Keystone XL pipeline by signing an executive order that rescinds a permit allowing for its construction.

Immediately following Biden's executive order rescinding a permit for the pipeline, TC Energy Corporation (TSX, NYSE:TRP) immediately announced it is suspending all work on the project, will cease financing it and started laying off thousands of workers.

"TC Energy will review the decision, assess its implications, and consider its options," the company said in a press release. "However, as a result of the expected revocation of the presidential permit, advancement of the project will be suspended."

The expansion of the existing Keystone pipeline would deliver up to 800,000 barrels per day of Alberta oil to heavy oil refineries in the U.S., mainly on the Gulf Coast. A portion of the pipeline that crosses the Canada-U.S. border is already built.

Biden’s rescinding of the permit starts Canada-U.S. relations off on a bad footing. And it makes the Trudeau government’s decision to complete the Trans Mountain pipeline expansion, which no American president can touch,  seem like a smart hedge against fickle American politics.

“It also makes it smart to start rethinking other ones – Northern Gateway, Energy East,” said Dan McTeague, president of Canadians for Affordable Energy. “If the Americans don’t want us, then let’s ramp up our exports to other countries, like China.”

Alberta Premier Jason Kenney said the decision to rescind the pipeline's permit was "a gut-punch" and an "insult."

"Sadly, it is an insult directed at the United States' most important ally and trading partner on Day One of a new administration," Kenney said. "Today, as I speak, over 2,000 women and men have lost their jobs."

Kenney called on Trudeau to ask for a sit-down with Biden to discuss the decision.

"If, however, the U.S. government refuses to open the door to a constructive and respectful dialogue about these issues, then it is clear that the Government of Canada must impose meaningful trade and economic sanctions," Kenney said.

He also said Alberta, which made a $1.5 billion equity investment in the project, will also go to court.

But if Kenney expects the Trudeau government to come out swinging on Alberta's behalf, he may be disappointed. A number of high profile Canadian ministers reacted to Biden's decision Wednesday with a shrug.

"The president made his decision, and we respect that decision," Natural Resources Minister Seamus O'Regan said Wednesday in an address to the Surrey Board of Trade.

Biden’s cancellation of the Keystone XL project also raises concerns about other pipelines – notably one that the governor of Michigan has ordered shut down: Line 5, which runs through Michigan, but which supplies Ontario’s refineries and petrochemical industries with oil.

Biden may well be drawn into that dispute, since pipelines that cross international borders are a federal jurisdiction. If the American government backed Michigan’s move to order Line 5 shut down, then Canada will have much bigger problems to worry about than the cancellation of a pipeline that hasn’t been built yet, McTeague said.

“It would deliver a lethal blow to Eastern Canada,” McTeague warned.

Biden’s decision to rescind Trump’s earlier executive order is not necessarily the final nail in the coffin, some observers say.

Trudeau is expected to be more simpatico with Joe Biden than he was with Trump, and a Biden administration can be expected to be much more aligned with the Trudeau government’s policies on climate change policies, which includes a transition away from emissions intensive fossil fuels.

“Transition doesn’t mean that we’re not going to be using oil and gas in 10 years’ time, which is what some people think,” said Gary Mar, a former Alberta Progressive Conservative cabinet minister, and now president of the Canada West Foundation.  “So you should be interested in energy that is committed to reducing the amount of GHGs that are associated with its production.”

TC Energy, which owns the Keystone pipeline, just recently announced that the new Keystone XL pipeline would be powered exclusively with renewable energy.

“I could see a pathway to bring the KXL back to the table at some point down the road,” Mar said. “If the two countries can come to an agreement on a broad set of policy outcomes – say methane emissions, the increased of use of renewables, clean fuel standards – maybe then the KXL, as part of a broader table of issues to deal with, can get approved.”

Biden can also expect to come under heavy pressure from American refiners and consumers. Anything that restricts the flow of Canadian heavy oil to American refineries is an energy security issue, says the American Petroleum Institute (API).

“Because of increased domestic oil production, U.S. net petroleum imports in 2019 were the lowest since 1954, according to the U.S. Energy Information Administration,” the API said. “Even so, the U.S. still imported 6.8 million barrels of oil per day last year. Canada supplied 56% of that.

“The KXL pipeline, long delayed by political wrangling, is important to the United States’ energy security in that it strengthens this country’s energy relationship with Canada, our No. 1 source of imported oil,” the API stated.

“More specifically, it would deliver heavy crude oil that many Gulf Coast refiners need – especially important because heavy crude imports from Venezuela and Mexico have decreased.”

Should the Keystone XL pipeline be killed once and for all, Alberta producers will still have new pipeline access via the Trans Mountain pipeline expansion and Line 3, and can always move oil by rail.

The last time the project was cancelled, by Barack Obama, TC Energy turned its attention to the Energy East pipeline project. Whether that project gets put back on the drawing board may depend on how much support the project might get from the Canadian government.

It  may also depend on whether Alberta oil producers will actually need a third new pipeline. A recent projection by the Canadian Energy Regulator has suggested that Alberta may not need three new pipelines, depending on the stringency of climate change policies, which could lower previous forecasts for future oil sands growth.

This story has been updated with reactions from Alberta Premier Jason Kenney and TC Energy.

nbennett@biv.com

@nbennett_biv