Engineering News

Keystone XL Pipeline: The Job Killer Or Is It Dead?

Russ Girling, president and CEO of TransCanada (TRP-NYSE), spoke to some journalists following his company’s annual shareholders’ meeting at the end of April. In his comments as reported in the Canadian press, Mr. Girling said that TransCanada would “ramp down” its efforts to begin constructing the Keystone XL pipeline following the decision by the Obama administration’s State Department to extend indefinitely the inter-agency review of the project due to concern about the time necessary to deal with 2.5 million public comments and concern about the pipeline’s route through Nebraska following a county judge’s ruling that the Nebraska governor’s approval of the pipeline project was unconstitutional. Mr. Girling pointed out that TransCanada had been preparing to start construction this summer when the April 20th delay was announced.

According to Mr. Girling, the route of the pipeline is lawful until a court rules otherwise. Therefore, in his view, the State Department should have concluded the inter-agency review process as it stated it was going to do the week before it suddenly reversed its position. As a result, he believes there is a “low probability” a decision will be rendered in time to save the summer construction season. TransCanada is “retooling” its arrangements and looking to cut costs, including preparing to let employees and contractors go. So far, the pipeline project has been subject to over 2,000 days of government review compared to more conventional pipeline projects where reviews have lasted 500 days. Mr. Girling told the reporters that there are hundreds of TransCanada and contractor employees dedicated to the project whose jobs are now at risk. For the 9,000 construction workers who would have been hired beginning with this summer’s construction season and next, there will be no work. Mr. Girling was quoted as saying, “There will be some disappointed folks who aren’t going to work this summer and some other disappointed folks that are on the payroll in various forms or fashions that we are not going to need.”

So far, TransCanada has invested $2.3 billion in the project, against a total estimated cost of $5.4 billion. The total cost estimate will be revised if and when the pipeline project goes forward. The company is considering bringing a challenge to the U.S. government’s right to deny or delay indefinitely under provisions of the North American Free Trade Act (NAFTA). The NAFTA treaty guarantees unfettered access for Canadian oil to enter and cross the United States in return for the U.S. having unfettered supplies of Canadian oil. While a company can make a claim under NAFTA, Canada’s Natural Resource Minister Greg Rickford ruled out a challenge led by the Canadian government. Given the selective enforcement of laws by the Obama administration, we suspect any victory by TransCanada in its possible NAFTA claim would be muted by the U.S. government ignoring the ruling.

There is little doubt that TransCanada is signaling possibly throwing in the towel on Keystone XL. If it happens, it will be a huge victory for the environmental movement, although the movement will quickly lose it prime fundraising prop. Dropping the application will likely accelerate TransCanada’s move to build its Energy East oil pipeline project - the 4,600 kilometer (2,858 mile) pipeline anticipated to move 1.1 million barrels a day of oil from Alberta’s oil sands and Saskatchewan to the Irving refinery and shipping terminal in Saint John, New Brunswick. If Keystone is killed, it means the environmental movement will need to turn its anti-fossil fuel fight to another project. Executives in the energy business need to be thinking about what that target might be and girding for the next battle.

Source: Parks Patton Hoepfl and Brown

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