In about-face, TransCanada asks US to put off Keystone decision

With the future looking grim for the Keystone XL pipeline, TransCanada has requested a delay that could keep the project alive until economic and political conditions improve.

Facing a possible rejection and plummeting oil prices, the Canadian company that has been seeking to build the Keystone XL oil pipeline for years has asked the United States State Department to delay a decision on approving the project.

The State Department, which must approve cross-border projects, has been reviewing the company's application, though the ultimate decision will come from President Obama. He has said he will decide before the end of his term. 

In a letter to Secretary of State John Kerry Monday, TransCanada asked the department to delay its decision until Nebraska has completed its own review of the pipeline's route through the state, which could take seven to 12 months.

As recently as late September, the company indicated it was committed to the pipeline, writing in a blog post that "our focus remains on securing a permit to build Keystone XL."

But thanks to recent seismic changes in the pipeline’s political and economic environment, some analysts think the company may not want to build the project at the moment even if it had permission. In that context, a public rejection by the US government would be even more damaging, potentially jeopardizing a similar project in the near future when the political or economic environment might be more favorable.

"In terms of the interests of proponents, those investing in project, they don’t need it now," says Edward Parson, co-director of the Emmett Institute on Climate Change and the Environment at the University of California, Los Angeles, School of Law. "A negative decision now would subtly harm or prejudice their position."

Two major factors have shifted against the project. 

The first has been the price of oil, which has been cut nearly in half since mid-2014.

Low oil prices mean low demand and few incentives for companies to invest in infrastructure to get oil to market – especially from expensive oil sands extraction. 

The nearly 1,200-mile pipeline would move as many as 830,000 barrels of heavy crude oil from Alberta’s tar sands oil fields to Gulf Coast refineries. But oil sands developers "were always riding a crest of scarcity and high costs in oil, because they're a high-cost source," says Professor Parson. 

No major oil sands developer has publicly backed away from a commitment to Keystone, but several large oil sands projects have been cancelled or suspended recently. Royal Dutch Shell abandoned an 80,000 barrel-a-day project last week, citing "an uncertain business environment," The Wall Street Journal reported. Three Canadian oil companies shelved oil sands projects earlier this year, and last year three European companies indefinitely postponed a pair of projects, citing cost issues.

More recently, the political environment around Keystone has also changed substantially.

In May, a shock election result saw the progressive New Democratic Party take control of the provincial government in Alberta, ousting the oil-friendly Conservative Party that had governed the province for more than 40 years. And a few weeks ago, Canada's ruling Conservative Party lost in a national election and was replaced by the left-leaning Liberal Party, led by Justin Trudeau. 

While Prime Minister Trudeau said he supports the pipeline, Parson says he is far less wedded to the project than the previous prime minister was. A new provincial government also means the industry-friendly regulatory environment is likely to change.

"Low royalties, weak enforcement of environmental regulations on every level…. They lost all those good conditions," Parson says.

TransCanada began the licensing process for the $8 billion project in 2008, but it has been repeatedly delayed by court cases and technical delays. The Wall Street Journal reported Monday that the State Department was expected to reject the permit "as soon as this week." 

A State Department spokesperson told The New York Times that the letter was being reviewed but that "in the meantime, consideration under the executive order continues."