TransCanada Corp moves forward with Upland pipeline amid ‘extraordinarily difficult’ Keystone process

As U.S. legislation to approve TransCanada Corp.’s Keystone XL pipeline waited Friday for a promised veto from U.S. President Barack Obama, the Calgary-based company said it would move ahead with another cross-border pipeline — this one to transport oil in the opposite direction.

The $600-million, 460-kilometre Upland pipeline, first proposed in July 2014, has received the shipper support it requires to link multiple points in North Dakota to the proposed Energy East pipeline at Moosomin, Sask., TransCanada said Friday.

The $12-billion Energy East pipeline would be an all-Canadian affair — an idea largely borne of frustrations with Washington’s interminable dithering over Keystone — and ship 1.1-million barrels a day from Hardisty, Alta. to refineries in Quebec and Saint John, N.B., as well as to tankers headed for world markets. The proposal is currently working its way through the Canadian regulatory process. Upton would feed 70,000 barrels a day of American oil north, into the Canadian line.

Obviously the market isn’t waiting for the regulators to catch up with their decision… They are moving the oil now

And that’s the irony: U.S. Bakken producers who haven’t been able get a ‘yes’ from their own government on Keystone XL — which would help them get 100,000 barrels a day of their own oil from the Bakken tight-oil formation to tidewater — are now signing up to move their oil in a pipeline through Canada.

In a conference call, TransCanada president and CEO Russ Girling said his company is responding to demand from U.S. producers that are currently forced to move their oil by rail and want a safer and more efficient alternative as soon as possible.

Mr. Girling said he hoped obtaining U.S. State Department regulatory approval for Upland would not take as long as it is taking for Keystone XL.

“This has been an extraordinarily difficult process,” Mr. Girling said, referring to Keystone. “Our historic experience of gaining approval across the border has been 24 months. This particular one has taken six-and-a-half years. I hope that is anomaly in Canada/U.S. trade of energy.

“Obviously the market isn’t waiting for the regulators to catch up with their decision,” he said. “They are moving the oil now.”

The Upland proposal complicates matters for the U.S. President, who is no fan of oil pipelines and has vowed to veto Keystone legislation, which passed final approval in the U.S. Congress this week.

President Obama has said he wants a decision on KXL to be made by the State Department, which has final say because the pipeline crosses the border. It continues to study the pipeline.

If the State Department turns down KXL (which would benefit largely Canadian oilsands production) because it fails the President’s new test on climate change impacts, it will be interesting to see how it handles Upland, which would benefit U.S. production that is also very greenhouse-gas intensive, largely because Bakken oil producers flare — or burn off — natural gas.

If State approves Upland but turns down KXL, it would be an effective acknowledgement by the United States government that its regulatory system has become so bogged down by climate change politics that Canada is an easier place to get a pipeline built..

If its reason for turning down KXL, meanwhile, is to prevent oilsands growth — the primary motive driving most of TransCanada’s opponents —  the reality is that Upland will only make Energy East that much stronger, boosting its customer base and opening new markets for North American oil.

And, of course, if the State Department ends up thwarting both Keystone and Uplands, it inevitably forces more oil transportation by rail, which is more dangerous.

The same political forces that are putting pressure on President Obama to kill Keystone XL are regrouping in Canada to defeat all-Canadian pipeline projects, including Energy East.

But the environmental groups don’t have the same direct line to power in Canada, where key provinces and the major federal political parties are generally supportive of Energy East, as long as their safety concerns are soothed.

TransCanada has smoothed over opposition by making the Energy East project more politically acceptable, including halting work on a proposed marine terminal at Cacouna, Que., which was adjacent to a Beluga whale habitat.

TransCanada executive vice-president Alex Pourbaix said Energy East can move ahead without the marine terminal, but the pipeline has to connect to refineries in Quebec. It’s reviewing its options and will finalize its plans by the end of March.

Meanwhile, the company said the Keystone XL’s approval process in the U.S. has cost TransCanada US$2.8-billion so far — US$2.4-billion in the process itself, US$400-million in capitalized interest.

But TransCanada posted higher-than-expected earnings for the fourth quarter, as it began oil shipments on the already-built southern leg of the Keystone system from Oklahoma to Texas on its Gulf Coast line. Profit rose to $458 million, from $420 million, a year earlier, the company said.

Mr. Girling said that if KXL doesn’t get approved soon, and those billions of dollars end up not being spent, his company will start looking harder for acquisitions. Though, he also gave notice that the search for options like Upton continues.

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