Is Resurrecting Keystone XL More Than Just a Pipe Dream?

November 27, 2024 TruthUSA

News Analysis

Both Alberta Premier Danielle Smith and U.S. President-elect Donald Trump want to revive the long-dead cross-border Keystone XL pipeline project, but is that feasible?

A major challenge in resuscitating the project will be ginning up enough political will and corporate determination to wade through the legal and regulatory requirements to begin construction, not to mention tackling the growing anti-fossil fuel advocacy across the continent.

On Nov. 12, California water solutions company Cadiz announced the purchase of 180 miles of 36-inch steel pipe from the terminated Keystone XL project. The pipe will be transported from where it is stored in North Dakota and repurposed to pump groundwater from deep under the Mojave Desert into major water networks in the Southwestern United States.

The timing of the purchase announcement, just a week after the U.S. election, indicates that the pipe was going to be sold off regardless of whether or not pro-energy Republicans came to power with a mandate to reduce regulatory burden on fossil fuel projects.

Trump has promised to reinstate the project on his first day in the White House. The last time he attempted to revive Keystone XL was in 2017, when he issued a permit reversing the Obama administration’s rejection of the project in 2015. The project was first proposed in 2008 by TC Energy, then called TransCanada.

The Trump administration saw Keystone XL as an opportunity to boost economic growth. The pipeline would have run 1,947 kilometres from Hardisty, Alta., to Steele City, Neb., and have the capacity to carry 830,000 barrels of crude oil per day from Western Canada’s oilfields to American Gulf Coast refineries.

The goal was to get the pipeline built quickly. What followed was years of wading through legal quagmire, finally cut short by the Biden administration’s decision to axe the project in 2021.

In November 2018, Montana judge Brian Morris issued an order blocking construction of the Keystone XL permit pending further study of environmental impacts. In February 2019, the same judge denied a request to green-light the construction of worker camps for the project.

In response, the Trump administration revoked its first permit and issued a second one in March 2019. Things were looking up for proponents of the project until Morris revoked a key water-crossing permit, suspending construction efforts. The U.S. Supreme Court upheld that decision in July 2020, and the final nail was driven into the coffin when the newly elected Biden administration killed the project in January 2021.

Risks

Issuing a pipeline permit is easy—navigating the labyrinthian legal process that follows is the hard part. If the Trump administration issues yet another Keystone XL permit next year, the legal battle could be initiated once more with another round of lawsuits from environmental groups.

With lengthy delays comes the additional possibility that the project may be cancelled before construction begins, if Trump’s last term is followed by a Democratic administration that is less supportive of large fossil fuel projects.

Since Keystone XL is a project on both Canadian and American soil, reviving it would require political will on both sides of the border. Premier Smith’s government would probably not have to contend with the same legal hurdles as the Trump administration. It would, however, have to make the potentially difficult decision of whether to back the project with taxpayer funds as former Alberta Premier Jason Kenney’s government did.

In a March 2020 announcement that was largely overshadowed by the pandemic, the Kenney government declared that it would provide a $1.5 billion equity investment in the Keystone XL project, explaining that the pipeline was “expected to be completed and in service in 2023”.

Kenney described the move as “a wise and prudent investment” that would eventually yield a net return of over $30 billion. After the pipeline was cancelled the following year, the Alberta government reported that the investment had resulted in a loss of $1.3 billion.

A similar situation has been playing out with the federal government’s decision to buy the Trans Mountain pipeline expansion project from Kinder Morgan Canada for $4.5 billion in 2018. The purchase has come under fire for overruns, with the estimated cost of building the pipeline rising significantly from $12.6 billion in 2020 to $30.9 billion in 2023.

The controversy continues now that the project is up and running. According to a Nov. 8 report by the Parliamentary Budget Officer, the pipeline might be worth between $29.6 billion and $33.4 billion, while the cost of building it came in at $34.2 billion. Selling the project, which the government has long promised to do, may therefore mean a financial loss.

‘De-risking the Project’

The precedent set by the Kenney government’s investment in Keystone XL and subsequent loss, as well as the cost overruns and delays after Ottawa’s purchase of the Trans Mountain pipeline, puts Smith in a difficult situation in regard to embarking on a similarly high-risk investment.

Smith said on Nov. 25 that her government is looking to get more Alberta oil and gas to the United States in ways that would carry less risk than investing directly in a cross-border project.

“Maybe de-risking the project involves having an American partner, an American pipeline company, partner with our companies here,” she told reporters during an event at the Leduc No. 1 oil discovery site south of Edmonton.

“We just don’t think the best way of doing it is putting government dollars into it, but we think there are other things we can do to change the risk profile.”

Two major factors would need to come together to get the Keystone XL project started up again: renewed corporate enthusiasm and sufficient political will on the part of the United States and Alberta governments to tolerate the risk of another failed attempt.

Even if these factors come together, the project would need to successfully run the legal gauntlet of environmental challenges and then complete construction before a potential future fossil fuel-skeptical Democratic administration comes to power.

Despite the many challenges, the reinvigorated enthusiasm around Keystone XL could signal a period of renewed cooperation between Alberta and the United States stemming from a shared worldview on the energy industry.

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