Keystone XL Canceled by New US Administration, Moratorium on Federal Permitting

The decision to cancel the nearly 1,200-mile-long project comes less than a year after construction began and is being met with disappointment on both sides of the US-Canadian border. A 60-day halt on new permits for onshore an offshore US federal areas has also been ordered.

Source: TC Energy

TC Energy confirmed on Wednesday that it has halted the construction of its Keystone XL pipeline after newly inaugurated US President Joe Biden canceled the project’s federal permit in one of his first executive actions. Biden announced that he would revoke the pipeline’s approval last May during his presidential campaign.

Calgary-based TC Energy said pending unspecified “intervening actions” the move will eliminate thousands of jobs and result in a major financial loss.

“The decision would overturn an unprecedented, comprehensive regulatory process that lasted more than a decade and repeatedly concluded the pipeline would transport much needed energy in an environmentally responsible way while enhancing North American energy security,” the pipeline operator said in a statement.

The cancellation comes less than a year after Biden’s predecessor, US President Donald Trump, approved the federal permits in March to allow the transborder pipeline to be built. In April, when oil prices collapsed to historic levels, Calgary-based TC Energy began work on the $8-billion pipeline with the help of $1.1 billion in financial assistance from the Alberta government.

The pipeline was planned to stretch nearly 1,200 miles from Alberta to a hub in Nebraska where up to 830,000 B/D of crude would then flow into existing transportation networks that terminate at storage facilities and coastal refineries in Texas and Louisiana.

When the project was announced in 2010 it quickly became the center of political and environmental controversy. This culminated in the rejection of the project’s permit applications by US President Barack Obama in 2015 who said then that the pipeline would undermine his administration’s climate change agenda.

Environmental activists have decried the pipeline for more than a decade because the heavy oil it would carry is considered to have a greater greenhouse-gas impact than other crude types, thanks to its energy-intensive extraction process.

Champions of the pipeline push back against these claims as heavy-oil producers have worked in recent years to lower their carbon intensity.

Just days before the cancellation, TC Energy announced that 100% of the CO2 emissions associated with the Keystone XL pipeline would be offset by the time it began operations in 2023. Additionally, the company said the pipeline would be fully powered by renewable energy sources by 2030.

About half of all US crude oil imports in 2019 came from Canada at an average of close to 3.8 million B/D, according to the US Department of Energy.

Disappointment Flows Across Border

Though the cancellation of the Keystone XL project was widely expected, it is being met with harsh criticism on both sides of the border.

In response to the decision, Alberta Premier Jason Kenney issued a statement highlighting that it has immediately eliminated 2,000 jobs and will lead to higher emissions by forcing Alberta’s crude exporters to rely on rail transport. He also called on Canada’s Prime Minister Justin Trudeau to engage with the Biden administration to discuss the cancellation “in the context of a broader agreement on energy supply and climate action.”

If an agreement cannot be reached, Kenney urged the Canadian government to retaliate “with consequences for this attack on Canada’s largest industry.”

Kenney was instrumental in securing the financing for the pipeline last year, a deal that included an equity investment of $1.1 billion and an agreement to cosign on a $4.2-billion line of credit for TC Energy.

Prime Minister Trudeau issued a statement following the cancellation, noting that he discussed the project with then President-Elect Biden in November. “While we welcome the President's commitment to fight climate change, we are disappointed, but acknowledge the President’s decision to fulfill his election campaign promise on Keystone XL,” Trudeau said.

He continued, “Workers in Alberta, Saskatchewan, and across Canada will always have our support. Canada is the single-largest supplier of energy to the United States, contributing to US energy security and economic competitiveness, and supporting thousands of jobs on both sides of the border.”

US energy trade groups have also voiced their opposition. The American Petroleum Institute called the cancellation “a significant step backwards for both environmental progress and our economic recovery.”

The American Fuel and Petrochemical Manufacturers, a group representing US refiners, said in its response that pipelines represent the industry’s safest transportation method.

“We hope the new administration reconsiders the integral role of Keystone XL in meeting Americans’ needs for affordable, reliable energy in an environmentally sustainable way, and look forward to working together to advance US energy infrastructure projects going forward,” the statement read.

Federal Land Moratorium

The new Biden administration also issued orders on its first day that will stop the federal government from issuing new oil and gas leases in the Arctic National Wildlife Refuge (ANWR) in Alaska. Legal analysts have pointed out that existing US laws allow for drilling activities in ANWR, but that the president will be able to “slow walk” the approval process indefinitely.

Like the decision around the Keystone XL pipeline, the moratorium on drilling activities in ANWR is a rollback of President Trump’s policies that sought to expand exploration on US federal lands. He had approved new leases just a day before for more than 400,000 acres of land in ANWR.

It remains unclear if the decision on developing oil fields in ANWR will have a material impact on the US onshore business. A lease auction on 6 January failed to attract bids from major oil companies and only netted $14.4 million on the sale of 11 tracts to three bidders. A small independent producer and a real estate company each were awarded one lease, and a state-owned development corporation claimed the other nine.

A separate order issued Wednesday by the US Department of Interior, which oversees the leasing of federal lands, is likely a bigger concern to US producers since it essentially halts any new permits from being issued for the next 60 days.

The moratorium will be used to review recent policy decisions made by the previous administration and applies to all federal onshore and offshore areas but does not affect existing leases. These areas include parts of the Permian Basin in New Mexico and most of the offshore areas in the US Gulf of Mexico.

US federal lands supply about 10% of the country’s oil and gas.

In another energy-focused executive order issued during his first hours in office, President Biden has begun the process of re-entering the US into the Paris climate accords. The US withdrew its participation in the multinational agreement meant to curb global carbon emissions on the orders of President Trump in 2019.