Keystone XL: What Future for Canadian Oil?


The Keystone XL that was under construction by TC Energy in the United States has just been halted by a presidential decree from Joe Biden. It had been authorized in 2017 by Donald Trump sweeping away Barack Obama’s previous refusal.

The political and economic consequences of stopping the project have yet to be assessed. For Canada, this means the loss of approximately $65 billion in annual revenue. For his province of Alberta, this is an economic and social disaster. Indeed, almost all of its economy is based on the oil windfall from its tar sands. Without a pipeline, it’s an assurance of lost efficiency and profitability and a return to the more expensive railroad.

Focus on the cancellation of the Keystone XL and its consequences for Canada, a stakeholder in the project.

Keystone XL: a project as ambitious as it is controversial

The Keystone XL, after many twists and turns, should not be built after all. For 12 years now, the $9.1 billion project carried by TC Energy has been in and out of the company’s drawers. It included several extensions to the existing Keystone project that would allow Canada to export an additional 830,000 barrels of crude per day.

A 1,900 km section was to connect the Canadian province of Alberta, rich in tar sands, with Nebraska in the United States. From there, the oil would flow to refineries in the Gulf of Mexico through existing pipelines. Jason Kenney, the Premier of Alberta, estimated the annual benefits of the project at 65 billion euros per year for Canada.

A negative impact on the ecology feared

However, the project has been the subject of debate since the first negotiations. Its negative impact on the environment being pointed out. Construction of workers’ camps, pollution linked to the dust from the construction sites, criticism is also made of the pipeline route. The latter passes through protected natural sites and Amerindian territories.

Fears of leaks are confirmed with the spill of 800,000 liters of oil in 2017 on the first Keystone project already in operation. The eventual abandonment of 48,000 tons of pipes in the ground was a concern for both farmers and land-use planning departments.

Democratic collusion against the Keystone XL

TC Energy files an application for its Keystone XL project in 2008. The U.S. State Department issued an environmental impact report three years later, concluding that there was no significant impact on the environment. But the project needs the authorization of the President of the United States to be launched.

Sensitive to the arguments of environmentalists, Barack Obama decided to refuse the Keystone XL project. TC Energy then filed a lawsuit against the United States, asking for $15 billion in compensation. It accuses the American refusal of being disguised protectionism contrary to the provisions of the free trade treaty TAFTA.

Donald Trump authorizes the project in 2017

Donald Trump was elected, and he reversed his predecessor’s refusal and authorized construction of the pipeline in 2017. He argues that the project will lower the price of Canadian oil and free the U.S. from its dependence on the Arabian Peninsula states. It also assures that the construction of Keystone XL will create 28,000 jobs in the country.

For once, the Canadian government welcomes the decision of the American President. The first investments flow in and work begins on both sides of the border.

First day in office: Joe Biden withdraws authorization

But then, Joe Biden won the American elections and became the 46th President of the United States of America. He wants to distinguish himself from his predecessor on an issue dear to his constituents: the environment. Thus, he is returning to the Paris Agreement and withdrawing the authorization for the Keystone XL project on his first day in office.

A solution that would satisfy no one

Justin Trudeau, Canadian Prime Minister said:

“We applaud the President’s commitment to addressing climate change, but we are disappointed by his decision on the Keystone XL project.” “Our country is the number one supplier of energy to the United States, and as such, we contribute to America’s energy security and economic competitiveness and support thousands of jobs on both sides of the border.”

The Canadian Prime Minister was therefore disappointed, even though he was known to support the newly elected Democrat’s candidacy for the White House.

A “political move

U.S. Attorney Austin Knudsen accuses the president of making a “political move” against the national interest. That, in addition, this abandonment would not reduce pollution, but rather would destroy jobs. Finally, also among the Democrats, Senator Joe Manchin, head of the Senate Energy Committee, is defending the Keystone XL.

“This is not the way to treat your friend and ally.

The Province of Alberta has invested $1 billion plus a loan guarantee of over $4.5 billion in the project. She is now considering selling pipes and materials to recoup some of the funds. Thousands of residents fear the loss of their jobs and an unprecedented economic crisis in the province.

Jason Kenney, Premier of Alberta said:

“This is not how you treat your friend and ally.”

It calls on the US state of Ottawa to take economic and trade sanctions against the federal state if Joe Biden does not back down. Nevertheless, a majority of the population would have given up hope of a completed pipeline.

What does the future hold for Alberta’s oil?

Would Biden’s decision be a fatal blow to an industry already weakened by the pandemic? Instead, the Alberta Energy Regulator has reported record oil sands production for late 2020.

The sector, which has benefited in recent years from the drop in Mexican production, still has some cards to play. It knows that the Americans will remain dependent on its oil for many years to come, even with an ambitious energy transition policy.

But certainly the Keystone XL shutdown will slow down its development. In the absence of a new pipeline, additional exports will be by rail. However, this mode of transportation is much more risky and expensive than using pipelines.

Obligation to evolve the global business model

According to Rachel Notley, former Premier of Alberta:

“We need to recognize where the world is going, and we need to move with it.”

In this sense, peak production of all types of oil should be reached within 10 to 15 years. The abandonment of the Keystone XL may be a sign that Alberta needs to start evolving its economic model.

In the province, companies in the petroleum sector are becoming increasingly sensitive to environmental issues, as they are everywhere. Enhance Energy, for example, has linked its oil business to the resale of carbon credits it acquires by capturing its own emissions. It even knows, like the others, that it will have to reorient itself towards renewable energies, one day or another.

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