By Kevin Orland
Keystone XL, which for years has faced court challenges and environmental opposition in the U.S., will get a $1.1 billion investment and a $4.2 billion loan guarantee from Alberta to help TC Energy Corp. build the line to the U.S. Gulf of Mexico. The Calgary-based pipeline giant said it will invest the remaining $2.7 billion.
Once touted by Canada as a key step to turn the country into an energy superpower, the project counted celebrities like Mark Ruffalo and Daryl Hannah among foes who pressured the Obama administration to block it.
Approval from President Donald Trump years later came at a time when investing in the project was far from certain as the Canadian oil industry was cutting costs, competing output from U.S. shale fields abounded and hurdles at state levels emerged.
The move to start construction now, when the crude market has crashed and the project still faces roadblocks in the U.S., shows how critical the fight for the oil industry’s survival has become in Alberta, home to the world’s third-largest crude reserves. The province’s benchmark crude is trading at a record low of $4.09 a barrel.
A shortage of pipeline capacity in the landlocked Canadian province has weighed on local crude prices and restrained producers’ ability to increase output long before the recent oil market collapse. The Covid-19 pandemic and a battle for market share between Saudi Arabia and Russia have further darkened the outlook.
“This investment in Keystone XL is a bold move to re-take control of our province’s economic destiny,” Alberta Premier Jason Kenney said in a statement. Kenney said Alberta would plan to sell its shares to TC at a profit after the project is completed and estimated that Keystone XL would help provide C$30 billion in tax and royalty revenues for the province over the next 20 years.
TC Energy, previously known as TransCanada, rose 6.3% to C$61.94 at 12:22 p.m. in Toronto. The shares had dropped 16% this year through Monday amid a broader meltdown in global equity markets.
Moody’s Investors Service changed the credit outlook for TC to negative from stable on Tuesday, citing the added risks of building Keystone XL. The credit rating firm said the project’s construction could be disrupted by “demonstrations and civil unrest” as well as ongoing legal and regulatory challenges. Political risks could lead the project’s outright cancellation, the firm said.
“The negative outlook reflects the very high level of execution risk related to the environmental, social and governance factors associated with the Keystone XL pipeline project,” Gavin McFarlane, a Moody’s vice president and senior credit officer, said in a note.
Moody’s rates TC’s debt Baa2, the second-lowest investment grade.
When Keystone XL enters service in 2023, the 1,200-mile (1,900-kilometer) conduit will help carry 830,000 barrels of crude a day — more than last month’s daily production from OPEC member Venezuela.
Among obstacles still facing TC Energy before Keystone XL can be completed, environmental organizations and indigenous groups are challenging the project in U.S. District Court in Montana.
The U.S. presidential election in November also could pose a threat to the project, with much of the Democratic party opposed to the pipeline. Former U.S. President Barack Obama rejected a key permit for Keystone XL in 2015, bringing the pipeline to a halt, but President Donald Trump revived the project by reversing that decision early in his term.
The project has gathered momentum in recent months. The U.S. Interior Department in January authorized construction across a swath of federal land in Montana, and TC Energy had announced plans to move ahead with pre-construction work on the line this year.
Keystone XL already has 20-year agreements to transport 575,000 barrels of crude per day, and contracts for 115,000 barrels of capacity on the existing Keystone line will shift to the new facilities under renewed 20-year contracts once Keystone XL enters service, TC Energy said Tuesday.
“Strong commercial and financial support positions us to prudently build and fund the project,” TC Energy Chief Executive Officer Russ Girling said in a statement.