Pipeline Prospects: Keystone XL Resurgence Cautioned by Tariff Discussions

News Analysis

President-elect Donald Trump has committed to signing an executive order on his first day to reinstate federal approvals for the controversial Keystone XL Pipeline, while also vowing to impose tariffs on imports from Canada.

“On one side, [Trump] claims he advocates for free trade to lower energy costs for consumers, yet simultaneously threatens tariffs on the barrels presumably transported through that pipeline, which would drive up consumer prices.”

The president-elect’s references to imposing a 25 percent tariff on Canadian imports indicate he is leveraging this reality, according to Johnston. This has prompted discussions “among everyone north of the border” about strategies “to reduce our risk away” from the United States, given that most pipelines currently run southward.

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Canadian producers annually deliver over $150 billion in petroleum products to the United States, described by Baiton as “our largest, and at times, our only customer for nearly every product this country produces.”

However, she argues that this relationship is ineffective, noting, “Due to this dependence on one market, Canada holds minimal negotiating power with the U.S.” and calling for measures to “establish a tariff-proof economy.”

“It’s time to develop more transportation routes to alternative markets, including LNG export facilities, pipelines, and port expansions, so we are no longer tied to a single customer,” Baiton stated.

Johnston believes “it is plausible” that Trump’s foreseen executive order could prompt Canadian producers to reissue a pipeline proposal to improve pipeline accessibility and expand shipping capacities.

Yet for some, such a move raises a valid concern. “Why would [Canadian producers] further deepen U.S. dependence just as that dependence is being leveraged for trade concessions?” he questioned.

TC Energy aimed to enhance shipping capacity by up to 730,000 bpd of tar sands crude from Alberta to refineries and export terminals in Texas and Louisiana.

Despite securing federal approvals in 2014, President Barack Obama vetoed its permit in 2015, while Trump reinstated its approval on his inauguration day, Jan. 20, 2017. Four years later, President Joe Biden revoked the approval reinstated by Trump.

This means any regulatory relief Trump may grant will be moot because reviving Keystone would necessitate a new sponsor to package and submit a fresh application.

A Determination to Succeed

While Keystone XL faced setbacks, the Trans Mountain Pipeline, which has been in operation since the early 1950s, has made strides to nearly triple access for Alberta producers to the Pacific market.

After an expansion completed in May 2024 increased capacity from 300,000 bpd to 890,000 bpd, the 610-mile TransMountain Pipeline from Edmonton to Burnaby allows access to refineries and a developed port that Canadian producers envisioned with the original XL proposal in 2008.

Even with TransMountain’s enhanced capacity, the Canadian Association of Petroleum Producers argues that it only contributes around 10 percent to the oil volumes transported out of Alberta, highlighting that, until LNG Canada launches, “99 percent of our natural gas exports will still head to the United States.”

LNG Canada Development, Inc., a consortium of five companies led by Shell, plans to open its $18 billion LNG storage and export terminal in Kitimat, British Columbia, by mid-2025.

Flynn affirmed that demand for Canadian crude is anticipated to remain robust, particularly “from Gulf Coast refiners seeking heavier crude oil.”

This is why Canadian producers “still value access to the Gulf,” as it will likely continue to be the favored destination for transportation, especially through pipelines, according to Flynn.

“That is where all the refineries are, and where the ships are already prepared to export globally,” he continued.

Consequently, Flynn suggested that “regardless of the outcome of this pipeline debate, there will be additional pipelines built from Alberta, along a similar route,” although he remarked, “Just, it won’t be labeled as ‘Keystone.’”

The Paradox

The EIA’s September update highlighted that “refiners on the U.S. West Coast have been primary purchasers of the new export volumes” from Burnaby, which totaled 498,000 bpd in July 2024—a record high and a 115 percent increase from July 2023.

“This situation presents a significant irony,” noted Professor Michael Noel from the Texas Tech University Department of Economics.

“The oil was destined to move. The oil was required. It was always going to reach us,” he elaborated. “And now, while the oil is here, we have simply found a costlier means to transport it.”

Noel explained to The Epoch Times that the Keystone XL route mainly traversed “smooth, flat terrain” in Montana, the Dakotas, and Nebraska, making it “much easier, cheaper, and safer to transport oil.”

Meanwhile, instead of that route, oil is now being moved across the Rocky Mountains to the Pacific Ocean via the geographically challenging TransMountain Pipeline, which is significantly more expensive to construct and maintain.

“You know that gravity plays a role, right? Thus, transporting oil from Alberta to Vancouver is considerably more costly compared to Nebraska,” Noel stated.

In Burnaby, near Vancouver, the Alberta tar sands oil is transferred to barges for transportation primarily to California or Gulf Coast refineries.

According to the EIA report in September, U.S. West Coast refineries alone accounted for just over half of all maritime crude exports originating from western Canada.

“Thus, the oil was always going to arrive; the oil is here now, but you have simply increased the costs associated with its transportation,” Noel concluded.