When is a win not a win?
When it promises to open up fertile new areas of potential litigation. That’s the view of Keystone XL’s opponents after Nebraska regulators approved the project’s construction there, but mandated that it follow an alternative route to TransCanada Corp.’s preferred path.
Because the new route wasn’t vetted at the same level as the original, foes believe it will let them challenge the project in ways they couldn’t before, further delaying construction that’s been on the drawing boards since 2008.
It is “an incredible victory,” said Brian Jorde, an attorney for landowners who have opposed the project for seven years, in a telephone interview. The regulators approved a route the company said was inferior, according to Jorde. “They won nothing,” he said.
The Nebraska Public Service Commission approved TransCanada’s project on a three-to-two vote, removing one of the last hurdles to the Calgary-based company’s construction of the $8 billion, 1,179-mile (1,897-kilometer) conduit. The adjusted route, though, created new complications.
The biggest may be that the last-minute change deprived landowners along the alternative route of due process to argue their case before the state commission, said Katie Bays, an analyst at Height Securities LLC in Washington.
“By making this a due process issue, you can involve a federal court,” Bay said in a telephone interview, adding, “I think that’s the goal. If you can make it a federal issue, you have possibly a chance of a more favorable panel.”
Parties have 30 days to file an appeal in Nebraska, said Bold Alliance, an environmental advocacy group opposing the project, in a statement. They may also petition the PSC for a rehearing within 10 days of the decision.
The State Department is reviewing the extent of the Nebraska route changes with an eye toward potential impacts to its March 24 presidential permit authorizing the construction of pipeline facilities at the U.S.-Canadian border in Montana. In an emailed statement, the State Department called the Nebraska Public Service Commission’s decision “another step in this process” of authorizing Keystone XL.
Substantive changes could trigger new environmental analysis, required under federal law. The State Department previously prolonged the federal government’s examination of the project, after a February 2014 ruling by a district court threw the route through Nebraska into doubt.
Tom Steyer, the billionaire environmentalist and Democratic mega donor, said the Nebraska approval “is going to turn out to be an incredibly stupid decision.” He called Keystone XL “a dangerous pipeline in terms of leaks.”
With Nebraska’s go-ahead in hand, TransCanada still must formally decide whether to proceed with construction on the line, which would send crude from Hardisty, Alberta, through Montana and South Dakota to Nebraska, where it will connect to pipelines leading to U.S. Gulf Coast refineries.
The company’s open season for gauging producers’ interest closed late last month, and TransCanada executives have indicated that they’ve secured enough shipping commitments to make the project commercially worthwhile.
Still, TransCanada’s Russ Girling was less than effusive in support of the decision. The company is now “assessing how the decision would impact the cost and schedule of the project,” Girling, the company’s chief executive officer, said in a statement.
The uncertainty expressed by Girling was quickly reflected in analyst notes. While a new route is unlikely to add significant costs, it’s unclear what delays the change in route may spur, Barclays Capital analysts led by Paul Cheng said in a research report.
“Given uncertainty as to what this implies in terms of project cost and timeline, as well as the high probability of additional legal delays, we think that, while the ruling is clearly a necessary step in the right direction, there will still be a lack of certainty surrounding the project for some time,” the note said.
Gavin MacFarlane, a vice president at Moody’s Investors Service, was more straightforward: The decision, he wrote in a note, “does not provide certainty that the project will ultimately be built and begin operating.”
Prior to Monday’s vote, Commissioner Crystal Rhoades hinted at the challenges ahead in announcing she would oppose the project. The alternative route needed more study on both the state and federal level, she said, and it failed to give landowners along that different path the ability to address the commission. As an example, she said Nebraska’s Department of Environmental Quality didn’t analyze the alternative route at all in its 2013 report.
“It is clear” TransCanada “never intended it to be considered,” Rhoades said.
The commissioners who supported the route change said it would impact fewer threatened and endangered species, fewer wells, less irrigated cropland, and that it included one less river crossing.
Additionally, they wrote, “it is in the public interest for the pipelines to be in closer proximity to each other, so as to maximize monitoring resources and increase the efficiency of response times” with “issues that may arise with either pipeline.”
The decision came just days after a major spill on TransCanada’s existing Keystone line in South Dakota on Thursday sparked new attacks by environmentalists who pointed to the event as something Nebraska could expect if the project was approved.
In its post-hearing brief, TransCanada told the panel its “preferred route was the product of literally years of study, analysis and refinement by Keystone, federal agencies and Nebraska agencies,” and that no alternate route, even one paralleling the Keystone mainline as the approved path does, was truly comparable.
One economic argument for the pipeline has been growing in just the last two years.
Producers in the Alberta oil sands region and elsewhere in Western Canada are facing pipeline bottlenecks, forcing increased volumes onto rail cars. Since rail is a more expensive form of transport, heavy Canadian crude prices will need to trade at a bigger discount to West Texas Intermediate futures.
That discount widened to more than $15 a barrel Monday from less than $10 in August. Keystone XL construction, along with Kinder Morgan Inc.’s Trans Mountain expansion and Enbridge Inc.’s Line 3 expansion, could narrow the gap to less than $10 by early next decade, Tim Pickering, chief investment officer at Auspice Capital Advisors Ltd., said in a telephone interview.
The pipeline may also be more commercially viable given declining heavy oil production in Mexico and ongoing instability in Venezuela, said Zachary Rogers, a refining and oil markets research analyst at Wood Mackenzie, said in a statement. Canadian producers are an alternate source of heavy crude for U.S. Gulf Coast refiners.
Brett Harris, a spokesman for Calgary-based Cenovus Energy Inc., a committed oil-sands shipper on the proposed pipeline, said the approval “is in the best interest of the industry, best interest of Canada and the best interest of the U.S. as well. We are pleased to see that decision.”
Dennis McConaghy, former executive vice president of corporate development at TransCanada, said he believes the company has secured the volume needed to make the project economically viable. He expect senior management to announce they will go ahead with the project by year’s end with construction by the later half of 2019, he said. Completion of the line would come a couple years later.
But McConaghy added, “there is no question there is going to be all kinds of legal obstruction that will be resorted to by opponents.”
Nebraska’s decision overrode the objections of environmental groups, Native American tribes and landowners along the pipeline’s prospective route. The project had the support of the state’s governor, Republican Pete Ricketts, its chamber of commerce, trade unions and the petroleum industry.
“The PSC followed a transparent and fair process as they made their decision,” Ricketts said in a statement. “While TransCanada’s preferred route was not selected, I understand that the company is reviewing the PSC’s decision, and hope that they bring this job-creating project to Nebraska.”