TransCanada Corporation took a brief victory lap yesterday with the announcement that it had lined up enough shipping contracts to (barely) justify building its Keystone XL pipeline. But it didn’t take long for climate hawks to shred the company’s claim that the project makes economic sense—and to scorch the Alberta government for subsidizing the project.
TransCanada said early Thursday that it had lined up “approximately 500,000 barrels per day of firm, 20-year commitments,” Bloomberg reports. But “the statement didn’t say that a final decision has been made by the company to proceed” with the 830,000-barrel-per-day project,” the news agency notes. “The pipeline operator said it will continue to secure additional long-term contracts for the pipe.”
Within a couple of hours, the Natural Resources Defense Council and Oil Change International came back with critiques pointing to the continuing fragility of Keystone’s business prospects—and to the decision, confirmed by Premier Rachel Notley’s office, to offer up what Oil Change called a “bailout pledge” to ship 50,000 barrels of oil per day for 20 years.
Notley claimed the deal was not a subsidy. “We are ourselves a shipper at the end of the day,” she said. “We’ve got these three pipelines, and we as a government are looking at the best way to work with each proponent to support them as effectively as we can.”
But Oil Change Senior Analyst Adam Scott wasn’t sold. “Any project that needs a government bailout amid a quagmire of ongoing legal and regulatory challenges has little chance of moving forward,” he said.
“When even Enbridge is calling this a subsidy, you know Alberta’s XL bailout is another desperate attempt at a lifeline for a pipeline that will never be built,” Scott added. “Keystone XL would be a disaster for the climate, and watching governments bend over backwards to be a part of that is heartbreaking in a year where you could barely catch your breath between climate disasters.”
NRDC, meanwhile, focused on Keystone’s still-tenuous business prospects.
“While TransCanada is out with bold statements that make it sound like the pipeline is now on the verge of construction, reality paints a much harsher picture for the project’s prospects,” wrote Policy Analyst Josh Axelrod. “Since the Trump administration revived Keystone XL from the dead early last year, the obstacles in its path have grown to considerable heights. Today’s announcement from TransCanada doesn’t change any of that. In fact, it just highlights how hard it will be for the company to ever move forward.”
TransCanada faces federal litigation challenging its cross-border shipping permit, state litigation in Nebraska that will likely take two to three years to resolve, future lawsuits in the same state over the company’s expected seizure of ranchland under eminent domain, and new safety legislation in Nebraska, prompted by a 210,000-gallon oil spill along an existing stretch of the Keystone line in South Dakota.
Beyond the legalities, “shipper interest in Keystone XL, as evidenced by TransCanada’s announcement, is extremely weak (and may be weaker than the company had previously disclosed to investors in November),” Axelrod noted. “The company only secured contracts for 60% of the pipeline’s 830,000 barrel-per-day capacity, a number that includes the subsidy from Alberta. This means that true commercial interest would only fill 54% of the line. Traditionally, pipelines only move ahead with shipper commitments above 80% of capacity.”
On top of those realities, TransCanada faces deep uncertainty around the outcome of U.S. midterm elections November 6, “fierce competition” from two other pipelines, and continuing protests on the scale of the opposition to the Dakota Access pipeline. “More than 10,000 people have committed to the Promise to Protect and are following developments with the pipeline closely,” Axelrod said.
And after all that—TransCanada is proposing a multi-decade project when Canadian tar sands/oil sands production is expected to peak in 2039 with relatively high oil prices, or in the mid-2020s if prices follow recent trends.
“A lot of that growth will depend on projects breaking ground that currently have no capital investment behind them and may never see it return as investors, major oil players, and even countries move to keep their money out of the tar sands,” Axelrod argued. “Add accelerating climate policy ambitions to the mix, and the need for significant new export capacity for Alberta’s high-carbon, low-quality crude seems like a bad bet.”