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Keystone XL stalemate likely to persist despite latest Trump pipeline order

Highlights

Order shortens review, weakens State Department role

Keystone XL remains locked in Montana court fight

Full pipes force Canadian producers to rely on rail

Washington — US President Donald Trump's latest executive order to speed pipelines takes aim at the Keystone XL stalemate, but it is unlikely to get the project out of court and onto construction anytime soon.

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Trump on Wednesday signed two executive orders designed to accelerate energy infrastructure, including one that shortens the review of cross-border permits like the one need by TransCanada to build the 830,000 b/d Keystone XL heavy oil pipeline from Alberta to Nebraska.

S&P Global Platts Analytics expects Enbridge's 370,000 b/d Line 3 expansion to begin moving crude into the US Midwest by the fourth quarter of 2020 and Keystone XL and/or the 590,000 b/d Trans Mountain expansion to British Columbia to be completed by late 2022. Until then, producers will be more dependent on rail to move crude to US markets.

A lack of pipeline takeaway capacity caused Canadian crudes to trade at steep price discounts last year.

S&P Global Platts assessed Western Canadian Select crude at Hardisty at a $9/b discount to WTI at Cushing Wednesday. It traded at a record discount of $51.50/b on October 11, before the Alberta government imposed production curtailments in January.

Gulf Coast demand for heavy crude has climbed as a result of US sanctions blocking imports of Venezuelan grades, but pipeline and rail constraints will likely keep Canadian producers from meeting any more than about one-fifth of the Venezuelan supply disruption.

Trump's latest executive order weakens the role of the State Department in reviewing cross-border permits and says "any decision to issue, deny, or amend a permit under this section shall be made solely by the President."

Cross-border permitting has become "unnecessarily complicated" over the past several decades by regulations and federal agencies' policies, the order says, "thereby hindering the economic development of the United States and undermining the efforts of the United States to foster goodwill and mutually productive economic exchanges with its neighboring countries."

Christi Tezak, managing director of ClearView Energy Partners, said the order could lead to a quicker decision by the courts than litigating the particulars of a new State Department review under the National Environmental Policy Act.

"That said, we expect the EO to require conformity with existing laws, which does not appear to obviate review that might be needed to meet existing laws, such as the Minerals Leasing Act or the Federal Land Policy and Management Act, to name two," she said.

The State Department's review of Keystone XL during the Obama administration dragged on for years and ultimately led to the White House denying TransCanada's application in 2012 when Congress imposed a 60-day deadline that the administration said it could not meet. A second application was rejected in 2015.

Days after his inauguration in January 2017, Trump signed an executive order inviting TransCanada to apply again for a cross-border permit and promising to expedite the review. The company filed an application days later, and the State Department approved it in March 2017.

TransCanada was hoping to start construction in the first quarter of 2019 until a US district judge in Montana halted most preparatory work and ordered the State Department to conduct another environmental review.

In an attempt to break the Montana court stalemate, Trump last week canceled his 2017 permit and issued a new permit that is not contingent on State Department review.

Parties in the Montana lawsuits quickly appealed to stop the new permit. They argued that the president does not have sole authority to issue a new permit without meeting a string of requirements set by Congress.

The appeal adds that the latest permit fails to meet requirements of executive orders signed by former presidents Lyndon Johnson and George W. Bush, but that argument may no longer work as Trump revoked both orders by his predecessors Monday.

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com