TC Energy enlists Alberta to help finish US$8-billion Keystone XL project

TC Energy enlists Alberta to help finish US$8-billion Keystone XL project

CALGARY — A final investment decision clearing the way for construction of the long-delayed Keystone XL Pipeline was greeted with relief on Tuesday by an Alberta oilpatch where production has grown faster than pipeline capacity.

The decision by Calgary-based TC Energy Corp. to go ahead with the US$8-billion project was widely anticipated after it cleared major U.S. regulatory hurdles earlier this year and began site preparation work in Montana, South Dakota and Nebraska.

In a surprise development, however, the Alberta government has agreed to invest about US$1.1 billion (C$1.5 billion) as equity in the project, thus substantially covering planned construction costs through the end of 2020.

The remaining US$6.9 billion is expected to be funded through a combination of a US$4.2-billion project level credit facility to be fully guaranteed by the Alberta government and a US$2.7-billion investment by TC Energy.

At a joint news conference in Calgary on Tuesday, Premier Jason Kenney and TC Energy CEO Russ Girling described the relationship as a partnership.

“This is not a time for timid leadership,” declared Kenney.

“The government of Alberta is launching a partnership with TC Energy in a bold project to re-take control of our province’s economic destiny and put it firmly back in the hands of the women and men who own our natural resources, the people of Alberta.”

Added Girling: “It is imperative that we keep one eye on the future and the responsibility that our company has to build the critical energy infrastructure that society will need for decades yet to come.”

Alberta will be able to sell its shares for a profit after the pipeline is built and it will generate a net return of more than $30 billion through royalties and higher prices for Alberta oil in the next 20 years, Kenney said.

Alberta’s involvement was praised by Suncor Energy Inc. and Canadian Natural Resources Ltd., two of Canada’s largest oilsands producers.

“Access to new markets and expanded connectivity to existing markets is critical, especially the U.S. Gulf Coast through KXL, which will significantly expand access to the largest heavy oil refining capacity in the world,” said Suncor CEO Mark Little in an emailed statement.

Oilsands producer Cenovus Energy Inc. has a contract to move 150,000 barrels per day on Keystone XL and views its construction as “crucial” to the success of the Canadian oil industry, said spokesman Brett Harris.

The decision disappointed U.S. environmental groups that have fought against the pipeline in regulatory hearings and the courts for years.

Catherine Collentine, associate director of the Sierra Club’s Beyond Dirty Fuels campaign, vowed to continue the fight.

“By barrelling forward with construction during a global pandemic, TC Energy is putting already vulnerable communities at even greater risk,” she said.

Canadian opponents were also critical, with Environmental Defence calling the Alberta investment a “reckless use of public money” and the Pembina Institute suggesting public dollars would be better spent to reduce oilpatch greenhouse gas emissions and support workers idled by the COVID-19 pandemic.

Oil production in Alberta is expected to decline this year as producers cut billions of dollars in spending in view of a global price war between Saudi Arabia and Russia. On Tuesday, Imperial Oil Ltd. said it would slash $500 million from capital spending and another $500 million in operating expenses.

But output was also curtailed last year by an Alberta government decree to offset steep local price discounts due to a glut of trapped oil that had overwhelmed storage capacity.

The 1,947-kilometre Keystone XL pipeline will be able to carry 830,000 barrels per day of crude oil from Hardisty, Alta., to Steele City, Neb., where it is to connect with TC Energy’s existing facilities.

The company formerly known as TransCanada said the project is expected to enter service in 2023 with new 20-year contracts for 575,000 barrels of oil per day. Contracts for 115,000 bpd on the existing Keystone line will then shift to the new facilities under renewed 20-year contracts for a total of 690,000 bpd or 83 per cent of capacity.

Once the project is complete and in service, TC Energy said it expects to acquire the Alberta government’s equity investment under agreed terms and conditions and refinance the US$4.2-billion credit facility in debt capital markets.

Richard Masson, executive fellow at the University of Calgary’s School of Public Policy, said the Alberta investment was likely needed to mitigate a looming political risk from the U.S. presidential election in November.

“What happens if the Democrats win and pull the (presidential) permit?” he said, noting former Democratic Party president Barack Obama rejected the pipeline in 2015, a move that was reversed by Republican Donald Trump.

“TC Energy is essentially saying, ‘We don’t want to take that risk.’ … Alberta is essentially saying, ‘OK, we’ll take that risk, we’ll put in $1.5 billion Canadian, and if it ends up that no one pulls the presidential permit, then we’re all going to work on getting the rest built over 2021 and ‘22.’”

In response to a question at the news conference, Kenney acknowledged the risk associated with the U.S. election but said the pipeline’s ability to put Americans to work will influence the government’s decisions, even if a Democratic Party president is elected.

Market access is expected to remain tight in Alberta until 2023 when Keystone XL, Enbridge’s Line 3 replacement and the Trans Mountain pipeline expansion should be operating, Masson said, but more pipeline capacity will be needed if oilsands production grows as forecast thereafter by an estimated 100,000 bpd per year.

CEO Chris Bloomer with the Canadian Energy Pipeline Association said building the Keystone XL project provides a “critical boost” for the economies of Alberta and Canada but he called on Ottawa to do more to demonstrate support of the energy sector.

Meanwhile, federal Natural Resources Minister Seamus O’Regan also applauded the Keystone XL news.

“The project increases our market access — safely, responsibly, and sustainably — and fits within Canada’s climate plan,” he said in a statement.

This report by The Canadian Press was first published March 31, 2020.

Companies in this story: (TSX:TRP, TSX:SU, TSX:IMO, TSX:CVE, TSX:CNQ)

Dan Healing, The Canadian Press

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