• 2 days Iraq Begins To Rebuild Largest Refinery
  • 3 days Canadian Producers Struggle To Find Transport Oil Cargo
  • 3 days Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 3 days China's CNPC Considers Taking Over South Pars Gas Field
  • 3 days BP To Invest $200 Million In Solar
  • 3 days Tesla Opens New Showroom In NYC
  • 3 days Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 3 days Venezuela Sells Oil Refinery Stake To Cuba
  • 3 days Tesla Is “Headed For A Brick Wall”
  • 3 days Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 4 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 4 days Goldman Bullish On Oil Markets
  • 4 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 4 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 4 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 4 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 4 days Colombia Boosts Oil & Gas Investment
  • 4 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 5 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 5 days Aramco On The Hunt For IPO Global Coordinators
  • 5 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 5 days India Feels the Pinch As Oil Prices Rise
  • 5 days Aramco Announces $40 Billion Investment Program
  • 5 days Top Insurer Axa To Exit Oil Sands
  • 6 days API Reports Huge Crude Draw
  • 6 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 6 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 6 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 6 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 6 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 6 days Exxon To Start Reporting On Climate Change Effect
  • 6 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 7 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 7 days Forties Pipeline Could Remain Shuttered For Weeks
  • 7 days Desjardins Ends Energy Loan Moratorium
  • 7 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 7 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 7 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 9 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 9 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Alt Text

The One Indicator OPEC Must Watch

Following the successful extension of…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Keystone XL Is Far From Certain

Pipeline

The state of Nebraska just cleared one of the last hurdles for the Keystone XL pipeline, potentially ending a decade-long saga over the 1,700-mile pipeline.

The Nebraska Public Service Commission, a five-member regulatory body, voted 3-2 in favor of the project, which would give TransCanada permission to build the pipeline through the state. Nebraska had been the last thorn in Keystone XL’s side after the Trump administration gave the greenlight earlier this year.

But while the approval is a massive victory for TransCanada – the company’s share price surged nearly 2 percent immediately after the announcement – it is still not 100 percent certain that the pipeline will move forward. TransCanada still needs to make a final investment decision on the project, and the oil market is dramatically different than it was a decade ago when the project was initially drawn up.

In the intervening years since TransCanada originally proposed Keystone XL, U.S. oil production has grown by more than 80 percent, from just over 5 million barrels per day to about 9.6 mb/d today. There has also been a massive buildout of oil pipelines in the U.S., taking crude from the Bakken and the Permian to refineries on the East and Gulf Coasts. The urgent need for Keystone XL is questionable.

For Canada, however, the need for pipelines is more evident than ever. Western Canada Select (WCS), a benchmark for heavy crude from Alberta, routinely trades at a discount to WTI. However, that discount has worsened because of pipeline bottlenecks. Bloomberg Gadfly points out that there is a shortage of pipeline capacity from Canada equivalent to about 330,000 bpd this year, a deficit that will balloon to 700,000 bpd by 2019 as more oil sands projects come online at a time when all major pipeline projects have suffered from serious delays. WCS is now trading at a massive discount even to heavy crude from Mexico – the latter has a much easier time getting to refineries in Texas and Louisiana.

Related: Can Oil Majors Continue To Beat Estimates?

The only options for Canada’s oil producers are the Trans Mountain expansion, which will triple the line’s existing capacity from 300,000 to 890,000 bpd, taking Alberta to Canada’s Pacific Coast and Enbridge’s Line 3 expansion to Wisconsin, which will boost the pipeline’s capacity and is much more likely to move forward. The third and last option for Alberta is Keystone XL.

The problem is that the business case for all three pipelines is questionable. If all three were constructed, there would be a surplus of pipeline capacity in 2021 at about 700,000 bpd, according to Bloomberg Gadfly. There seems to be room in the market for two of the three proposed pipelines, but not all three. That should give TransCanada pause because it is proposing an entirely new pipeline while the Trans Mountain expansion and the Line 3 replacement would merely add on to existing projects.

“We definitely need two of these pipelines by around 2025 and after that it depends on the supply outlook,” Mark Oberstoetter, an analyst with Wood Mackenzie, told Reuters earlier this year. “There’s not an evident need to get three or four pipelines built.”

Adding to the uncertainty is the volume of interest downstream from refiners on the Gulf Coast. In June, the Wall Street Journal reported that TransCanada was struggling to find enough buyers to justify building Keystone XL. The company wants commitments for 90 percent of the pipeline’s’ 830,000 bpd of capacity, but as of mid-year that was proving difficult. TransCanada sounded more optimistic on its third quarter earnings call, telling investors and analysts that it expected the same amount of interest as it had back in 2008 when the project was originally proposed. Related: Keystone XL Pipeline Gains Approval After A 9-Year Battle

Adding one more complication is the fact that Nebraskan regulators approved an alternative route for the pipeline through the state, not TransCanada’s preferred route. The company is now "assessing how the decision would impact the cost and schedule of the project,” Russ Girling, TransCanada’s chief executive officer, said in a rather guarded statement.

Independent credit analysts are not exactly keen on the project. "While today’s Keystone XL pipeline approval is an important milestone, it does not provide certainty that the project will ultimately be built and begin operating," said Gavin MacFarlane, a vice president at Moody’s Investors Service. “Pipeline construction would negatively affect TransCanada’s business risk profile through increased project execution risk, and would likely put pressure on financial metrics."

At the same time, environmental groups and local communities opposed to the project are not about to give up. They have promised to continue litigation to prevent TransCanada from breaking ground. The fact that the Nebraska approved an alternative route, not the hotly contested route proposed by TransCanada, actually opens up the project to further litigation. Environmental groups claim that the alternative route has not been properly studied. Adding to their fury is the spill from the Keystone pipeline just last week, which saw more than 200,000 gallons of oil spill from the pipeline in South Dakota, shuttering a large section of the conduit for days.

In short, despite Monday’s victory in Nebraska, there are still several major hurdles before TransCanada can break ground on Keystone XL.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Bill Simpson on November 20 2017 said:
    They don't get it finished while Trump is in the White House, and they can kiss their pipeline goodbye.
  • Les on November 21 2017 said:
    I thought the leak was 200,00 gallons. Not barrels.
  • Citizen Oil on November 21 2017 said:
    The only thing that can stop this from happening now is Transcanada themselves. The extremist pipeline protestors with their meaningless agenda are just little mosquitos about to get swatted. The courts will go through the motions rolling their eyes as they have nothing to stop this from happening now except delaying it. There should be a law that every day the plaintiffs hold up this process they have to pay Transcanada for their losses. At some point the government has to teach these extremists a lesson .
  • Richard Graham on November 22 2017 said:
    The writer states that the only alternative for Canada's crude is export. Perhaps he should have read the article on Shell's long term plans to abandon crude production for petrochemicals.

    It would be far more profitable for Canada to refine the crude and export the oil. This would substantially reduce crude pollution concerns, and open the whole world to the export of Tar Sands crude, rather than confining it to those few refineries that handle tar sands crude.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News