TransCanada CEO Calls U.S. Keystone Report ‘Important Milestone’

Feb 01, 2014 12:01 am ET

Feb. 1 (Bloomberg) -- TransCanada Corp. said a U.S. State Department report that found its proposed Keystone XL project would have limited environmental impact is an “important milestone” in the company’s efforts to build a new pipeline linking Alberta’s oil sands to the U.S. Gulf Coast.

“The case for Keystone XL, in our view, both pre and post this report, is as strong as ever,” TransCanada Chief Executive Officer Russ Girling said yesterday on a conference call with reporters. The report “is another important milestone in completing the regulatory review in what is a critical piece of North American energy infrastructure.”

The State Department report found the pipeline wouldn’t greatly increase carbon-dioxide emissions because the oil sands would still be developed without Keystone XL. That’s good news for the Canadian energy industry, which is looking for new ways to ship its crude out of Alberta. A final decision may be reached within 120 days and could come sooner, Girling said.

“This is the fifth federal study on the environmental impact of the Keystone XL pipeline,” Joe Oliver, Canada’s minister of natural resources, said yesterday in a statement. The “report confirms once again this result, including no appreciable impact on greenhouse gases.”

The study also reaffirmed the pipeline will provide jobs and other economic benefits to the U.S. and supports TransCanada’s argument that Keystone XL is in the U.S. national interest, Girling said.

‘Certainly Positive’

TransCanada, based in Calgary, rose 1.2 percent to C$48.42 at the close yesterday in Toronto.

“It’s certainly positive because it removes one additional hurdle,” Lanny Pendill, an analyst at Edward Jones & Co. in St. Louis, said in a phone interview. “We are still fully exposed to the final yes or no.”

The report’s findings will guide President Barack Obama’s decision on the $5.4 billion Canada-U.S. pipeline, which supporters say will create thousands of jobs. The project has angered environmentalists who say it will exacerbate greenhouse- gas emissions by speeding oil-sands development. Obama said in June he won’t approve Keystone XL if it “significantly” contributes to climate change.

Obama has fewer reasons to reject the pipeline after the environmental report, Chris Cox, an analyst at Raymond James Financial Inc. in Calgary, said by phone. The results were largely expected because it would have been difficult for the State Department to change its assessment, he said.

Mid Terms

“I would certainly hope the decision comes before the mid- term elections,” Cox said. “It’s getting increasingly more difficult for President Obama to delay this decision beyond the mid-term elections.”

Environmental groups including the Pembina Institute in Alberta read the report’s findings differently, arguing the project isn’t in the U.S. national interest.

“The assessment now acknowledges that under some circumstances, constraints on new pipeline capacity could have ‘a substantial impact on oil sands production levels,’” Clare Demerse, federal policy director at the Pembina Institute, said in a statement yesterday. “In other words, building the Keystone XL pipeline could help spur increased oil sands production and the carbon pollution that goes with it.”

Transportation Bottleneck

TransCanada first applied to build Keystone XL in September 2008. Producers are counting on the project to help ease a transportation bottleneck and raise the price of Canada’s heavy crude, which averaged $24.50 a barrel lower than the main U.S. benchmark last year.

Obama rejected the pipeline in January 2012, citing risks with its path through ecologically sensitive lands in Nebraska. TransCanada re-routed the line and split the project in two to build the southern leg first.

Yesterday’s report provides the basis for approval of the pipeline on its environmental, economic and energy security merits, according to the Canadian Association of Petroleum Producers.

“With this extensive environmental review now complete, we encourage the U.S. government to move expeditiously to a favorable decision on Keystone XL,” Dave Collyer, president of the industry group, said in a statement.

TransCanada needs to begin construction in the summer to meet its target for startup in 2016, Girling said. Delays are pushing the cost higher than the $5.4 billion the company has estimated and it won’t update the final price until it gets a decision from the U.S. president, he said. TransCanada has already spent more than $2 billion on the regulatory review and equipment, including pipe, Girling said.

--With assistance from Jim Snyder, Mark Drajem and Jonathan Allen in Washington. Editors: Steven Frank, Will Wade