TC Energy to pursue alternative means to gain approval for Keystone XL

Houston — TC Energy will pursue alternative means to gain authorization for its Keystone XL crude pipeline project, and is maintaining its 2023 completion date, the company said July 30 in an earnings call.

After the US Supreme Court again put the oft-delayed Keystone XL pipeline project on hold in July, TC Energy will pursue "other permitting means to gain regulatory authorization," including following lengthier state and federal permitting processes, as it continues to fight the matter in court, the company said in its earnings release.

A federal court had vacated Keystone XL's expedited water permit in the spring, arguing the process did not properly account for potential risks to endangered species and the environment. The Supreme Court reinstated the fast-tracked permitting process, but excluded Keystone XL from the ruling.

TC Energy though is maintaining its 2023 Keystone XL completion date, which had factored in some time for legal and regulatory delays, although all of this remains subject to change.

"We're still targeting our 2023 in-service date at this point," said Senior Vice President Bevin Wirzba in the earnings call, nothing that the company hopes to resolve the legal and regulatory hurdles by 2021.

As for the overall Keystone system, TC still plans to add 50,000 b/d in a contracted capacity expansion by next year as part of an optimization effort. Global crude demand remains depressed because of the coronavirus pandemic, but the incremental expansion doesn't require new construction and would instead use drag-reducing agents to improve crude flows. The lower-cost chemical process triggers steadier flows in the pipelines -- and less turbulent motion -- to move incremental barrels.

While the Keystone XL project remains on hold, the White House on July 29 issued an updated presidential permit that allows the Keystone system to increase its capacity from 590,000 b/d up to 760,000 b/d. After the 50,0000 b/d increase, TC Energy would still be permitted to hike volumes by another 120,000 b/d.

"We are very pleased with yesterday's decision by President Trump to sign a new presidential permit for the base Keystone system," Girling said on the call to discuss second-quarter earnings. "The new permit allows us to respond to market demand and allows us to fully utilize the Keystone system to safely deliver additional crude oil from Canada to refining centers in the U.S. Midwest and the Gulf Coast. This new presidential permit will allow us to realize the benefits from the 50,000 bbl/d open season conducted in June 2019, and [we] would anticipate starting to increase the flows in 2021."

Wirzba said the Keystone system could still see additional optimization expansions in the future but that any such efforts would require more contracted crude demand.

FURTHER DELAYS IN MEXICO

TC Energy has decided to further delay "phased in-service" at its Villa de Reyes natural gas pipeline project, currently under construction, due to the closure of government offices in Mexico as the country fights the coronavirus pandemic.

The 261-mile Villa de Reyes pipeline will transport natural gas from Tula, Hidalgo to Central Mexico for power generation.

Phased in-service, which was expected to begin in third quarter 2020 will be delayed, TC Energy said in its earnings release. The company has been postponing this in-service since early 2019 and now expects to complete construction of the project in the first half of 2021, subject to the "timely re-opening of government agencies."

TC Energy's Villa de Reyes line, together with its Tula project, is under an arbitration process initiated in June 2019 by Mexico state utility CFE. TC Energy said management is currently advancing "settlement discussions" with CFE.

"We take a long-term perspective on Mexico," said Bryce Lord, vice president of operations and projects in Mexico, during the earnings call. "We are comfortable with our investments in the country, and we see opportunity to extend connectivity."

TC Energy's overall revenues fell by 8.4% to $2.3 billion in the second quarter, hampered primarily by its 44% dip in liquids pipelines revenues to $228 million.

"Aside from the impact of maintenance activities and normal seasonal factors, to date we have not seen any pronounced changes in the utilization of our assets, with the exception of the Keystone Pipeline System which has experienced a modest reduction in uncontracted volumes," TC Energy said in its earnings release.

The midstream firm's quarterly net income jumped to $970 million from $820 million during the same time last year, but the increase was attributed primarily to extra income from asset sales. Comparable earnings actually decreased by $45.5 million down to $644 million.