Alberta crude oil market access crisis deepens: Montana judge stops Keystone XL construction

Keystone XL
Source: The Spokesman-Review.

Photo source: The Spokesman-Review

“The Court’s decision to withdraw the permit and stop construction on the Keystone XL pipeline in Indigenous Environmental Network, et al. v. U.S. Department of State is a major blow to the ultimate completion of the Keystone XL pipeline.” – Prof. Victor Flatt, University of Houston.

President Donald Trump’s approval of the Keystone XL pipeline was overturned Thursday by a Montana judge because the Administration didn’t take a “hard look” on a number of issues to ensure the controversial pipeline complied with federal legislation. The decision is bad news for the Alberta oil industry, already cutting back production because pipelines to the United States are full and start of construction on the Trans Mountain Expansion to the West Coast has been delayed.

The project by Calgary-based TransCanada is intended to ship oil sands bitumen from Hardisty, Alberta to Steele City, Nebraska. Former President Barack Obama rejected the 830,000 b/d, 1,897 kms long Keystone XL in 2015, saying that Alberta’s “dirty oil” should be kept in the ground.

Keystone XL
US District Court Judge Brian Morris

Prof. Victor Flatt of the University of Houston says US District Court Judge Brian Morris considered the Environmental Impact Statement deficient because it did not consider an analysis of future oil prices and the impact on the need for the project, the cumulative impact of Keystone with the Alberta Clipper pipeline, the need to finish analysis of cultural impacts along the route, and the need for updated oil spill information.

“The court also concludes that the Trump Administration failed to provide adequate reasons for a reversal of the prior decision in 2015 denying the cross-border permit for the pipeline,” he said by email in response to Energi News questions.

Keystone XL will have to wait until the US supplements its analysis or gets this case overturned by higher courts. The government may choose to do both.

“The first appeal would be to the US Ninth Circuit, which is very friendly to environmental litigants. The second appeal would be to the Supreme Court—the government would likely win if the Supreme Court took the case, but it takes very few cases,” Prof. James Coleman of the Dedman School of Law at the Southern Methodist University told Energi News.

“We have no idea how long these steps would take. If the government rushes a supplemental response, the court may say that it’s not enough. That said, the things that the court is asking for here might be doable in reasonable time.”

Flatt argues that most of the issues that are germane to the court’s ruling cannot be simply corrected by more information.

“In particular the new reality of oil prices undercuts the very need for the project and also whether or not the greenhouse gas emissions would otherwise occur through other transit methods,” he said.

“If the Department of State adequately considers the new reality of oil pricing and demand, it would be hard pressed to find that the construction of the pipeline wasn’t arbitrary and capricious.”

Coleman says there is a certain irony to having eight years of review of a project and then saying it needs to be redone because it took so long.

“This is why developers shy away from projects – including renewable projects – that require federal environmental review,” he said. “Note also that domestic US pipelines don’t need this environmental review. Unfortunately, for Canada, only its export projects are held up.”

Keystone XL
Prof. Victor Flatt, University of Houston.

Both energy law experts says the court did not take into account the Alberta Climate Leadership Plan, which introduced carbon pricing for the oil sands and committed to reducing oil and gas methane emissions 45 per cent by 2025.

The Obama administration rejection was based in part on U.S. needing to retain climate leadership and therefore not approving things that could enhance more GHG.  That is related to the climate plan that has come forward since then.

“It is possible that the Trump administration could acknowledge that the impacts would now be different because of the Alberta plan.  That might bolster its change in policy somewhat, but it is unclear whether they would do that or not.”

“The court said State Department didn’t have to consider effects in Canada more than it had done, citing NEB [National Energy Board] review,” said Coleman.

Canadian industry representatives were quick to condemn Judge Morris’ decision. The Canadian Association of Petroleum Producers says it is disappointed to see Keystone XL construction stopped.

“With Canadian oil production increasing, it is essential that we have pipelines in place to move our product. Keystone XL will increase transportation capacity by more than 800,000 barrels per day and allow us to get Canadian oil to market efficiently,” CAPP CEO Tim McMillan said in a statement.

“A lack of competitiveness and market access continue to be among the most significant challenges facing our industry, resulting in discounted oil prices and a loss of billions of dollars to the Canadian economy.”

The set back for Keystone XL underscores why Canada must build more energy infrastructure to tidewater in order to access new markets, says Chris Bloomer, CEO of the Canadian Energy Pipelines Association.

“It’s yet another wakeup call to Canada that we need to get our act together and get infrastrcture built to get our resources to other markets,” he said in an interview. “This decision should serve as another reminder of how vulnerable we are. We need to figure out a Made-in-Canada solution.”

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