Good things in the works for Canada and U.S. despite Keystone XL issue: CABC CEO
Joe Biden’s move to block the US$9 billion Keystone XL project is the clearest sign yet that constructing a major new pipeline in the U.S. has become an impossible task.
The incoming president has pledged to reshape the U.S. energy sector and accelerate the transition from fossil fuels, and the cancellation of the proposed link to Canada’s oil sands will be one of his first big environmental actions.
Even before Biden’s inauguration Wednesday, the oil and gas industry was on its back foot when it came to building major new infrastructure. Despite Donald Trump’s pro-fossil-fuel policies, energy companies such as Williams Cos. and Dominion Energy Inc. have been forced to scrap new projects in the face of stiff opposition.
“I can’t imagine going to my board and saying, ‘we want to build a new greenfield pipeline’,” Williams Chief Executive Officer Alan Armstrong said in an interview. “I do not think there will be any funding of any big cross-country greenfield pipelines, and I say that because of the amount of money that’s been wasted.”
The industry’s retreat is a victory for the environmental movement. Groups that once campaigned under the slogan Keep It In The Ground have increasingly turned their attention to the pipes. Building them in much of the U.S. is a far trickier business than drilling oil and gas wells. That’s due to the numerous federal and state permits that, for the most part, can be more easily litigated. The Trump administration sought to streamline federal permitting, but many projects were dealt a mortal blow in the courts.
“No one is going to announce a new pipeline while Joe Biden is the president,” said Katie Bays, managing director at FiscalNote Markets, which tracks policy issues for investors.
Pipelines are likely to face a more burdensome approval process under the new administration, according to industry watchers including analysts at Morgan Stanley. Armstrong, whose company operates the Transco gas pipeline that runs from the Gulf of Mexico up the East Coast, says costs associated with litigation, together with the risk of delays, mean the construction of interstate projects in the U.S. can no longer be justified.
He speaks from recent experience. Williams abandoned its Constitution natural gas pipeline in 2020 following years of legal battles with New York over a water permit. Its Northeast Supply Enhancement plan, which would have added pipeline segments in New York, Pennsylvania and New Jersey to an existing Williams system, was also effectively killed off last year amid opposition from New York Governor Andrew Cuomo.
In fact, 2020 proved to be an awful year for anyone trying to build a major pipeline. In July, Dominion and its partner Duke Energy Corp. scrapped plans for their US$8 billion Atlantic Coast natural gas project along the U.S. East Coast after legal battles, permitting hiccups and ballooning costs. Less than 24 hours later, a U.S. court court ordered the shutdown of the Dakota Access crude oil pipeline -- though the order was later sidelined.
In Minnesota, on-the-ground protests from environmental and indigenous activists continue to dog Enbridge Inc.’s proposal to replace its Line 3 crude pipeline, which shuttles crude from Alberta to Wisconsin.
Meanwhile, the US$6 billion, 303-mile (488-kilometer) Mountain Valley natural gas project -- which along with Line 3 are the last remaining mega pipeline projects still in development in the U.S. -- is running into regulatory hurdles after years of cost overruns and delays. Shares of Equitrans Midstream Corp., which is constructing the pipeline between West Virginia and southern Virginia, plunged 9.9 per cent Tuesday after a meeting of federal regulators in Washington failed to advance the project.
Mountain Valley “might be the last one for a good long while,” said Christi Tezak, managing director at ClearView Energy Partners.
TC Energy Corp., which was set to build Keystone, on Wednesday lamented Biden’s decision and said it will cost thousands of jobs. The Canadian company could challenge the move, but “suing your way to successful completion of a project is never a good situation to be in,” Southern Methodist University energy law professor James Coleman said.
While the energy industry digests the Keystone news, it faces other harsh truths. COVID-19 decimated demand and prospects for a recovery to pre-pandemic levels remain uncertain. Though Keystone itself is important for Canadian oil producers, it has lost much of its former appeal to refiners on the U.S. Gulf Coast following years of rising shale supplies.
And while oil stumbled, the renewable energy sector has been on a roll. Investors have fled the fossil fuel sector in droves and flocked to companies in solar, wind and other alternative technologies. That trend may determine the kind of big infrastructure projects that get built in years to come.
“Looking farther out, it’s hard to imagine that we’ll never go through a build cycle again,” FiscalNote’s Bays said of the pipeline business. “But it’s more likely that the next build cycle isn’t gas or oil, but is hydrogen or carbon dioxide.”