With or Without You - How Will Keystone XL's Latest Setback Impact Canadian Crude Oil Producers?

Sure, there was at least some hope among Keystone XL’s supporters that President Biden might back away from his promise to kill the much-maligned crude oil pipeline project. After all, KXL developer TC Energy had done all it could to make the 1,210-mile project more palatable to the incoming administration by making Canadian First Nation groups partners in the project, reaching a favorable labor agreement with the four U.S. unions that would build the pipeline, and, most recently, committing to invest in renewable energy to power KXL’s pumps and other equipment. But it wasn’t enough, and now, with Biden’s decision to revoke the project’s Presidential Permit, it appears that the Alberta-to-Nebraska pipeline is all but dead, and that Western Canada will need to get by without its 830 Mb/d of southbound capacity. The looming question now is, what does that mean for Alberta’s producers — particularly those that have signed up for more than 500 Mb/d of space on KXL? Today, we discuss what’s ahead.

As we blogged about earlier this month in Oil From the North Country, crude oil production in the Western Canadian Sedimentary Basin (WCSB) — including the all-important Alberta oil sands — has roughly doubled since 2010, from about 2 MMb/d at the beginning of the last decade to ~4 MMb/d today. TC Energy, then known as TransCanada, fully (and correctly) anticipated the coming boom in WCSB production when it and then-partner ConocoPhillips announced in 2008 that they would build Keystone XL (dashed green line in Figure 1) to supplement their planned 590-Mb/d Keystone Pipeline (dark-green line), which in 2010-11 started transporting crude from Hardisty, AB, to Steele City, NE, and from there to hubs in Patoka, IL, and Cushing, OK. (TransCanada bought out ConocoPhillips’s Keystone and Keystone XL stakes in 2009.) The plan was for KXL to provide 830 Mb/d of additional capacity from Hardisty to Steele City starting a year or two after the original Keystone Pipeline came online, and thereby supporting increasing flows of Western Canadian crude oil and diluted bitumen (dilbit) from the oil sands to U.S. refineries.

KXL, of course, became a cause célèbre — and the subject of countless RBN blogs. The shortest possible version of the saga is that President Obama rejected a required Presidential Permit for the project’s U.S.-Canada border crossing in November 2015; President Trump approved the project in January 2017 and again in March 2019; and TransCanada — renamed TC Energy in May 2019 — redoubled its efforts to secure, among other things, needed approvals from U.S. and state regulators as well as long-term capacity commitments from shippers. Almost 12 years after plans for the KXL project were first unveiled, TC Energy at long last announced a final investment decision (FID) in March 2020, when Alberta’s provincial government stepped forward with commitments to provide US$1.1 billion in equity to cover most of the planned construction costs through the rest of 2020. Alberta also agreed to guarantee US$4.2 billion in project debt.

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