Montana judge upholds canceling Keystone XL permit as TC Energy pledges to appeal

HOUSTON — A federal judge in Montana upheld his ruling canceling an environmental permit for the controversial Keystone XL crude pipeline as the Canadian pipeline builder TC Energy pledged to file an appeal.

The federal ruling comes after TC Energy began construction in April in Montana near the Canadian border, but the loss of the permit prevents heavy construction that eventually would entail dredging under waterways, including construction initially planned for this summer.

US District Judge Brian Morris ruled the US Army Corps of Engineers' expedited permitting process did not properly account for potential risks to endangered species and the environment. The narrowed ruling prevents other pipeline projects through the same review process, but allows for the construction of other infrastructure projects such as electricity transmission.

The $9 billion Keystone XL project, which has been in the works for more than a decade, would move up to 830,000 b/d of heavy Canadian crude ultimately to Texas through the entire Keystone system. The 1,200-mile XL pipeline from Alberta to Nebraska would connect to the existing Keystone system. A 2023 completion timeline already was factoring in anticipated delays of up to a year, energy analysts said, and TC Energy acknowledged legal and other delays could last a year or so.

"We remain committed to our project and will promptly file an appeal with the US Court of Appeals for the Ninth Circuit. We look forward to a resolution that allows us to advance our construction in 2020 without any further delay," TC Energy spokesman Terry Cunha said in a statement Tuesday.

"No other pipeline project in the history of the industry has been studied more than Keystone XL and every study has squarely concluded it can be built safely and in an environmentally sound manner," Cunha added.

LONG TIME COMING

Earlier this year, TC Energy made the surprising announcement to quickly proceed with the 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 were valued near all-time lows because of the collapse in global demand as a result of the coronavirus pandemic.

The decade-old project became a focus for 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. President Barack Obama ultimately rejected plans to build the pipeline, but it was quickly revived under the Trump White House in 2017.

While the ruling is disappointing for TC Energy, it is not surprising that the company remains committed, said Matthew Taylor, an energy analyst with Tudor, Pickering, Holt & Co. in Canada, especially with the financial backing from Alberta.

And the 2023 timing offers three summer construction windows as well as time to deal with the ongoing legal and regulatory hurdles, he said.

Bucking the trend of almost every other company in the energy sector, TC Energy actually increased its 2020 capital budget at the beginning of May because of the addition of Keystone XL construction, going up to $7.1 billion from about $5.7 billion, but that includes the new injection of Canadian taxpayer funds.

In reality, CEO Russ Girling said in an earnings call that TC Energy still expects "some slowdown" of its 2020 construction activities and capital spending from the coronavirus pandemic as the year progresses.