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Biden revokes permit for Keystone XL pipeline

22 January 2021 Kevin Adler

In one of his first-day executive orders on 20 January, President Joe Biden revoked a federal permit for part of the route of the Keystone XL pipeline as part of a broad set of actions to reverse the pro-fossil fuel legacy of his predecessor.

Revoking the permit was incorporated into Biden's broader climate initiative on Day One to order federal agencies "to capture the full costs of greenhouse gas emissions as accurately as possible" and "immediately review and … take action to address the promulgation of federal regulations and other actions during the last four years that conflict with these important national objectives."

The 1,200-mile pipeline has been proposed to deliver up to 830,000 barrels per day (b/d) of Canadian-produced crude through US Plains states and the Midwest to refineries in Texas (see map).

Source: TC Energy

The southern part of the route from Cushing, Oklahoma, to Port Arthur on the Texas Gulf Coast has been completed, but a federal permit is necessary to establish the international crossing point for the pipeline from Canada into Montana. Biden revoked that permit, the latest twist in a decade of permitting and review activities involving US agencies and presidential administrations.

Canada Prime Minster Justin Trudeau said he was "disappointed" by the decision, having previously raised it in a phone call with then President-elect Biden.

Developer TC Energy released a statement on 20 January saying it was "disappointed" as well, and was "suspending all activity on the project" while reviewing its options. "The decision would overturn an unprecedented, comprehensive regulatory process that lasted more than a decade and repeatedly concluded the pipeline would transport much needed energy in an environmentally responsible way while enhancing North American energy security," TC Energy said.

On 21 January, TC Energy announced layoffs of nearly 1,000 workers it said were engaged in construction-related activity on the project.

Biden's decision was hailed by environmental allies as a signal of intent to rein in greenhouse gas (GHG) emissions. "Biden's announcement that his administration will reject the Keystone XL tar sands pipeline signals a decisive new era of climate leadership for the United States," the Natural Resources Defense Council said in a statement.

Congressional Republicans criticized the decision. In Montana, where the pipeline would traverse about 295 miles, Senator John Tester, a Democrat, said the cancellation would have "devastating repercussions" for job growth in the state.

Said Representative Sam Graves (Republican-Missouri), ranking member of the House Committee on Transportation and Infrastructure: "Revoking the permit for this critical infrastructure project would be a massive mistake. Pipelines provide the safest, most efficient, most environmentally friendly means of transporting energy."

The American Petroleum Institute (API) in a statement also referenced the safety of pipelines for moving crude and liquid fuels and cited the economic benefits of the project. "Revoking the Keystone XL pipeline is a significant step backwards both for environmental progress and our economic recovery… and the economy cannot recover at full speed unless we deliver reliable energy from where it is to where it is needed," API said.

Tortured permitting history

The US$8-billion pipeline's permitting has had a tortured history since a formal application was filed in the US in 2008. President Barack Obama rejected the final permit for the pipeline in 2012, then vetoed a Senate bill supporting the project in January 2015, rejecting the permit again in November 2015.

President Donald Trump revived the project in his first month in office, as he invited TC Energy (then known as TransCanada) in January 2017 to resubmit its application and directed the US Department of Commerce to issue a decision within 60 days. In March 2019 and July 2020, Trump issued a Presidential Permit and instructions to speed up construction. Biden has revoked this permit and its update, contending that the Keystone XL project "disserves the US national interest."

Over the last few years, the redesigned pipeline project brought in as new partners the province of Alberta and First Nation tribes. With permits in hand and an infusion of funding from Alberta, TC Energy has been engaged in completing the northern section of the pipeline. As recently as last month, TC Energy announced it had awarded new construction contracts worth $1.6 billion.

As part of its completion plans, TC Energy on 17 January announced a series of investments that it said would make Keystone XL fully powered by renewable energy and thus significantly reduce the pipeline's GHG emissions. "The company will achieve net-zero emissions across the project operations when it is placed into service in 2023 and has committed the operations will be fully powered by renewable energy sources no later than 2030," TC Energy said.

TC Energy said it would achieve net-zero emissions by purchasing renewable energy to operate the pipeline, and would purchase renewable energy credits or carbon offsets for the balance of emissions. The company said its renewable energy purchases would spur $1.7 billion of new green energy investments along the pipeline route.

Emissions and other environmental concerns

But some tribal nations and environmental groups have long argued the project should be canceled because of its environmental impact, both along the route and through direct and indirect GHG emissions. They have filed a number of lawsuits, succeeding most notably at the US District Court for Montana in April 2020, which stayed a water-crossing permit by the US Army Corps of Engineers known as a Nationwide Permit 12 (NWP12). The US Court of Appeals for the Ninth Circuit upheld the stay of the NWP12, which led the Corps on 13 January to revise the permit for this and other oil and natural gas pipelines.

NRDC, Sierra Club, and other climate groups have highlighted both the direct GHG emissions of the project and the indirect emissions from upstream production, downstream refining, and fuel usage that would be incentivized by the project.

In response, TC Energy has pointed to both its renewable power commitment and the ability of Canadian oil sands producers to reduce their methane and carbon dioxide emissions as well. Canadian oil sands producers have reduced their emissions intensity (carbon emissions per barrel of oil and gas) by 21% since 2015, and trade groups are projecting additional reductions of 27% by 2030.

"Canada and the United States are among the most environmentally responsible countries in the world, with some of the strictest standards for fossil fuel production," said Richard Prior, president of Keystone XL, owned by TC Energy.

But those reductions are inadequate, say environmental groups who continue to argue the pipeline would be inconsistent with US and Canadian climate change objectives.

Impact in Canada

As significant as Keystone XL is for TC Energy, it's perhaps equally important to Western Canadian oil producers and Alberta, where crude that would be shipped on Keystone XL is produced. Price volatility for Western Canadian Sedimentary Basin crude has cost producers more than $10 billion over the last decade, according to some industry estimates, as access to outlets for production have been limited.

Alberta Premier Jason Kenney signed agreements in March 2020 for a $1.1 billion equity stake in Keystone XL and to guarantee $4.2 billion in construction loans. "All we ask at this point is that President-elect Biden show Canada the respect to actually sit down and hear our case about how we can be partners in prosperity, partners in combating climate change, partners in energy security," Kenney said on 18 January during a press conference. "Surely, the relationship between Canada and the United States is worth at least having that discussion."

Canada has a net-zero emissions target for 2050, announced in December 2020, and Canadian environmental groups have argued Keystone XL and another proposed oil sands pipeline, the Trans Mountain Extension, run counter to those goals. Oil companies and some government agencies have said the economic activity generated by the oil and pipeline projects will fund clean energy programs, and that the oil production itself can be achieved with greatly reduced emissions.

Taking this line of argument, Trudeau said at a press conference on 19 January: "We've had a clear and consistent position supporting this project for years. Our government is making sure that Canada's views are heard and considered by the incoming administration at the highest levels."

TC Energy's stock price has been unaffected by Biden's announcement. Shares closed on 20 January at $44.25/share, down $0.18/share on the day, and were $44.66/share at the start of trading on 22 January. Shares have risen about 10% since 1 January, despite the apparent halt to the project (see graph below).

Nonetheless, the canceled permit led to the construction layoffs and will result in financial adjustments by TC Energy. "The company will cease capitalizing costs, including interest during construction, effective January 20, 2021, being the date of the decision, and will evaluate the carrying value of its investment in the pipeline, net of project recoveries. Absent intervening actions, these steps could result in a substantive, predominantly non-cash after-tax charge to earnings in first quarter 2021," TC Energy announced on 20 January. "TC Energy will also modify its previously announced financing plans as it would no longer expect to issue hybrid securities or common shares under its dividend reinvestment plan to partially fund the project."

Source: TC Energy

Posted 22 January 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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