TransCanada Not Sure It Will Build Keystone XL

Economic reality may be catching up with TransCanada. Paul Miller, the Canadian company’s liquid pipelines chief, told investors yesterday that the Keystone XL pipeline is not a sure thing:

A TransCanada Corp. executive told investors Friday that it is still assessing interest in Keystone among the oil companies that would pay to use the Canada-to-Texas line, as well as seeking remaining regulatory approvals, and it will likely decide in November or December whether to build.

The disclosure means that one of President Trump’s signature energy policy promises — to approve Keystone and get it built — may fall victim to commercial pressures and not get done [Timothy Cama, “Developer Might Not Build Keystone XL Pipeline,” The Hill, 2017.07.28].

TransCanada’s 2017 Q2 report says the company is seeking “additional binding commitments” from companies who want to ship oil across western South Dakota via Keystone XL:

…we are updating the shipping contracts and anticipate the core contract shipper group will be modified with the introduction of new shippers and reductions in volume commitments by other shippers. We anticipate commercial support for the project to be substantially similar to that which existed when we first applied for Keystone XL [TransCanada, Quarterly Report to Shareholders, 2017.07.28, p. 27].

The report also shows that the strength of its current pipeline holdings helped double TransCanada’s quarterly profits, so it’s not like there’s no money to be made in piping petrochemicals. But the business case for Keystone XL has been unclear for years, especially since the 2014 oil price collapse, which continues to cloud financial prospects for new tar sands oil pipelines:

The tar sands pipeline that would pierce through America’s heartland to provide a more direct path for tar sands oil to get to Gulf Coast refineries faces a growing list of problems that may spell its doom—for the third, and hopefully final, time. First is its timing: Keystone XL is currently “last in line” among the three big tar sands pipeline proposals and while there is little real need for any of them, should one ever get built, the business case for all other lines falls apart given the factors discussed below. Second, the lack of demand for all proposed pipeline space is being exacerbated by oil price realities—when Keystone XL was first proposed in 2008, oil had reach $140/barrel, more than three times the price it fetches today. Which leads, predictably, to TransCanada’s third major obstacle: reports of lagging shipper interest that has meant it hasn’t secured enough interest in the third iteration of Keystone XL to justify building it [Joshua Axelrod, “Tar Sands Expansion Slows, Causes Pipeline Woes,” Natural Resources Defense Council, 2017.07.13].

This investment analyst agrees:

The Keystone XL pipeline was always less financially viable and the Canadian oil industry may have successfully found more cost effective alternatives to get their oil into the world market than by building the Keystone. The Keystone was meant to handle Canadian tar sands development which is not happening at the current price and outlook for crude oil. That simply means that the market will be the final determination of what energy is developed. Right now coal and conventional oil and gas are not as competitive as shale oil/gas development [David Kruse, “CommStock Report: America First Energy Independence—Part 1,” Spencer (Iowa) Daily Reporter, 2017.07.27].

Keystone XL was never going to be a net economic gain for the United States. Now it may not even turn out to be a moneymaker for TransCanada.

Related: TransCanada says it has shipped 1.5 billion barrels of tar sands oil under eastern South Dakota through its Keystone 1 pipeline since opening that spigot in 2010.