Keystone XL construction begins in US as court hearing looms next week

Construction on the controversial Keystone XL oil sands pipeline began in northern Montana over the weekend, but a federal court hearing looms next week in an ongoing legal effort to block the work.

Energy analysts contend Calgary-based TC Energy wants to get as much construction work as possible done before pipeline-friendly President Donald Trump comes up for reelection in November.

The 1,200-mile pipeline from Alberta to Nebraska would connect to the existing Keystone system to ship Canadian crude to the US Gulf Coast refining network in Texas and Louisiana that processes heavy crude.

TC Energy made the surprising March 31 announcement to quickly proceed with the $8 billion project after it secured $1.1 billion in taxpayer support from the conservative Alberta government -- as well as $4.2 billion in potential government loans -- even though Canadian crude grades are currently valued near all-time lows because of the collapse in global demand as a result of the coronavirus pandemic.

The decade-old project became the epicenter of environmental protests and the so-called "keep-it-in-the-ground," anti-fossil fuel movement during the Obama administration. And that opposition is not going away. Obama ultimately rejected the pipeline, but it was quickly revived under Trump in 2017.

TC Energy is moving forward with the construction work under an exemption while Montana remains under a "stay at home" order due to the pandemic, including many potential protesters.

"In addition to the work taking place right now, a majority of construction work is scheduled to occur this summer," said TC Energy spokesman Terry Cunha.

LEGAL HURDLES

An April 16 court hearing to block construction from moving forward while litigation remains pending is scheduled in Montana before US District Judge Brian Morris. The judge temporarily blocked construction in 2018, but in 2019 Morris denied another effort to block work because, at the time, there was no construction immediately pending.

"We expect construction to proceed as planned for now, but will be watching for the court's decision in the coming weeks," Matthew Taylor, an energy analyst with Tudor, Pickering, Holt & Co., said in a note.

The new construction near the US-Canada border crossing in Montana mostly involves preliminary site clearing, facilities construction and pipe-laying activities, Taylor added. Heavy construction is not expected to pick up until June in Nebraska and not until August in Montana and South Dakota, he said.

TC Energy's Cunha added that the company filed its preliminary construction plans with Montana back in January and that company will await an eventual ruling from Judge Morris.

TC Energy does not aim to put the pipeline system into service until 2023, adding roughly a year to the timeline to account for construction issues with the ongoing coronavirus pandemic as well as any remaining legal and regulatory hurdles.

TC Energy, formerly called TransCanada, said the project is underpinned by 575,000 b/d in new, 20-year transportation contracts, along with agreements to shift 115,000 b/d from the existing Keystone line under renewed 20-year deals.