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Biden prioritizes revoking Keystone XL permit on day one of presidency

Highlights

TC Energy suspends KXL project

Competing Line 3 replacement project is under construction

Legacy Keystone system slated for 50,000 b/d expansion in 2021

Houston — The new Joe Biden administration said Jan. 20 it will issue an executive order revoking the permit for the long-delayed Keystone XL heavy crude oil pipeline as expected.

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The executive order would serve as a potentially fatal blow to the $8 billion Keystone XL project that was designed to move 830,000 b/d of heavy Canadian crude ultimately to Texas through the entire Keystone system.

The Biden announcement, made on the first day of his presidency, said the pipeline project does not "serve the US national interest." The permit revocation is listed among the top priorities for "tackling climate change" and "advancing environmental justice," alongside rejoining the Paris climate accord and placing a temporary moratorium on oil and gas leasing in the Arctic National Wildlife Refuge.

The Keystone XL project, which became the epicenter of the environmental and fossil fuel fight for much of the past decade, was killed by the Obama administration and promptly resuscitated by outgoing President Donald Trump. But court rulings and regulatory holdups kept TC Energy's pipeline project from progressing beyond the point of cancelation, and Biden has long pledged to revoke the presidential permit.

However, it is possible the project could be revived again if Republicans take back the White House in four years, especially since construction is largely completed on the Canadian side of the border.

"While the news of Biden's plan to kill the project comes as a no surprise, it still a major blow to the project which would have provided considerable support to the Canadian oil industry and provided access to an expanded number of markets," according to S&P Global Platts Analytics.

TC Energy said it is "disappointed" in the anticipated decision, especially since the Canadian midstream firm lobbied to curry Biden's favor, including claiming the pipeline would have "net-zero emissions" and would be fully powered through renewable energy by 2030.

"TC Energy will review the decision, assess its implications, and consider its options," TC Energy said in a statement. "However, as a result of the expected revocation of the Presidential Permit, advancement of the project will be suspended. The company will cease capitalizing costs, including interest during construction, effective Jan. 20, 2021, being the date of the decision, and will evaluate the carrying value of its investment in the pipeline."

The Alberta government was helping to finance the project and lawsuits could still follow from both Alberta and TC Energy over Biden's decision, especially because much of the money is already spent. Albert Premier Jason Kenney said that "rescinding the KXL border crossing permit would damage the Canada-US bilateral relationship."

Market impacts

Even if Republicans win the White House in 2024, TC Energy also would need to win back customer support again for the pipeline project, said Matthew Taylor, midstream analyst at Tudor, Pickering, Holt & Co.

"I think we're a long way off from this pipeline being revived," Taylor said. "Our view is this effectively cancels the project. It's dead for at least four years."

Pipeline shortages from Canada to the US have long weakened Canadian crude prices, but the construction of the competing Line 3 pipeline replacement project from Enbridge is well underway and expected to come online in late 2021. Line 3 is expected to alleviate much of the pipeline needs of Canadian producers, Taylor and other analysts said, and the pending Trans Mountain Pipeline expansion project would move more heavy Canadian barrels when and if it's completed, most likely in 2023.

Only an unexpected delay of Line 3 would really disrupt WCS pricing much further, Taylor said.

Enbridge's planned Line 5 replacement project, which is facing litigation and opposition in Michigan, also could benefit because the Biden administration may not want to upset the Canadian government any further, said Sandy Fielden, director of oil research at Morningstar.

Even without the Keystone XL project, TC Energy could continue to hike capacity within the legacy Keystone system. TC Energy already plans to increase capacity from 590,000 b/d to 640,000 b/d in 2021.

Industry reactions

Canada's crude-by-rail exports fell from an all-time high of 411,991 b/d in February to an eight-year low of 38,867 b/d in July. Exports have since rebounded to nearly 93,000 b/d as of October, according to the Canada Energy Regulator, and energy analysts expect rail shipments to hover near 100,000 b/d for most of 2021. The completion of the Line 3 replacement will keep crude-by-rail exports from picking up much when demand grows, analysts said.

Before the pandemic, Canada provided the US with 40% of its oil imports with most of the rest coming from OPEC, including Venezuela.

Industry groups were quick to criticize Biden's decision and, expectedly, environmental groups praised the move.

"The Keystone XL Pipeline has been through more than 10 years of extensive environmental reviews, and today's announcement is a slap in the face to the thousands of union workers who are already a part of this safe and sustainable project." said American Petroleum Institute CEO Mike Sommers in a statement. "This misguided move will hamper America's economic recovery, undermine North American energy security and strain relations with one of America's greatest allies."

Some environmental groups are still pushing Biden to intervene to stop the Line 3 project as well as the shutter the four-year-old Dakota Access Pipeline that's being fought in federal court.

"As we celebrate this long delayed victory of people power over the fossil fuel industry, it is important to be clear that truly moving the climate needle forward will require following through on the logic of climate science and Indigenous land rights that makes KXL unacceptable," said Rainforest Action Network Executive Director Ginger Cassidy.