Forget Keystone XL, TransCanada To Invest More Than $3 Billion Here

The U.S. rejection of the Keystone XL Pipeline may have been a disappointment for TransCanada Corp., the company that wanted to build it, but it wasn’t the only potentially lucrative project in the company’s future.

President Obama announced Nov. 6 that he was rejecting TransCanada’s proposal to build the 1,179-mile pipeline that would have transported 800,000 barrels a day of carbon-laden crude oil from Canada’s oil sands fields to refineries along the Gulf of Mexico. He said it was time to take “serious action to fight climate change.”

At the time, TransCanada CEO Russ Girling reacted with disappointment that it had lost a seven-year struggle for Keystone. “Today, misplaced symbolism was chosen over merit and science,” he said. “Rhetoric won out over reason.” He also said the company hadn’t decided whether to keep fighting to get Washington to change its mind.

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Now, though, Girling seems more buoyant. Four days after Obama’s rejection, his company won the rights to build a new pipeline in Mexico, the sixth such conduit in a country that TransCanada has targeted for growth.

“There’s a lot of other things going on in the company, and we’ve made quiet progress on a number of those fronts,” Girling said Tuesday during TransCanada’s investor day in Toronto. “You can see that the story is much bigger than Keystone XL.”

During the event, the company said that thanks to the Mexico deal and other projects more modest than Keystone XL, it expects to extend its dividend growth plan of 8 to 10 percent each year for the rest of the current decade.

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The new 163-mile pipeline will move gas from Tuxpan, on the coast of the Gulf of Mexico, southwest to the inland industrial city of Tula. Robert Jones, TransCanada’s president of Mexico operations, said the project will give the company “a nice foothold” in Mexico’s gas market.

To win this sixth pipeline project, Jones told Bloomberg on Nov. 13 that TransCanada had to outbid two giants in Mexico’s energy infrastructure: Grupo Carso, owned by business magnate Carlos Slim, and Infraestructure Energetica Nova. Having won the bidding war, TransCanada now has the rights to build and control more than 1,200 miles of pipelines in the country.

Jones said it’s evident that Mexico needs foreign investment to improve its energy infrastructure, and that the deal for the Tuxpan-Tula pipeline was a boon for TransCanada as well, coming as it did just after the U.S. rejection of Keystone XL. He said TransCanada plans to invest more than $3 billion in Mexico over the next two years.

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“We see a number of short- and long-term opportunities,” Jones said. Mexico plans to hold as many as five pipeline auctions before the end of January, he said, and TransCanada will “look at them all.”

The company had spent around $2.4 billion on the failed Keystone XL project, but Paul Miller, TransCanada’s director of liquids pipelines, said about 40 percent of that can be recouped. Half of that amount, for example, was spent on hardware, including pipe, that can be re-purposed.

Still, TransCanada’s COO, Alex Pourbaix, says the company won’t merely shrug off the loss of Keystone XL, having learned an important lesson from the experience: “While Keystone and projects like it remain critical to serving North America’s future energy needs, we will only advance them if we can minimize the risks our shareholders experience in the event they don’t proceed.”

By Andy Tully of Oilprice.com

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