As Nebraska considers the first attempt to divert the Keystone XL project, TransCanada Corp. is cautioning that any change to the pipeline’s route stands to delay its construction by as much as three years.
It’s the sternest warning yet from TransCanada, which has spent 38 months battling through a lengthy environmental review process on Keystone XL. The $7-billion pipeline would carry crude from the oil sands and northern United States to refineries on the Gulf Coast, and is a major plank in industry plans for expanding Canadian oil output. TransCanada has spent $1.9-billion to secure land and equipment for the project. It has readied itself to begin construction in the new year, in the belief that the State Department will grant its blessing in December.
But Nebraska, where the pipe would cross a delicate ecosystem called the Sand Hills, is contemplating new rules that could dramatically unsettle TransCanada’s plans. On Tuesday, state legislators met briefly to table “Bill 1,” which would give the state authority to change the pipeline’s route.
TransCanada and the speaker of the Nebraska Legislature, a lawyer, have questioned whether such a law can be drafted without falling afoul of U.S. Constitution restrictions on impeding interstate commerce. TransCanada has also questioned whether sufficient political support exists to even pass something like Bill 1.
Nebraska Governor Dave Heineman, however, has called on legislators to look for a way past the tricky legal issues. Additional oil pipeline-siting bills are expected to be introduced this week and the discussion is expected to be rapid. The state speaker’s office said Bill 1 will be sent to a committee Nov. 7; it could return for full legislative debate as soon as Nov. 9.
For TransCanada, which reported an 11-per-cent rise in year-over-year quarterly earnings Tuesday, that raises the critical question of whether such a law would kill Keystone XL.
On Tuesday, chief executive Russ Girling said the consequences would be severe, and suggested a legal battle would ensue. If a route change away from the Sand Hills is ultimately mandated, the company will be forced to file an amended environmental impact review, which stands to take as long to press through the U.S. regulatory system as the original application.
“If the route is arbitrarily moved to another location, we would suspect that we would have to restart (the review),” Mr. Girling said on a conference call Tuesday.
Such a delay could prove difficult to recover from. Refineries that have signed long-term contracts on Keystone XL are expecting the product it carries to fill the void left by contracts for Venezuelan and Mexican crude that will expire in 2012 and 2013. If Keystone XL can’t be built quickly, those refiners may turn instead to supplies that can be brought in by tanker.
“Those shippers will only wait so long,” Mr. Girling said.
He nonetheless pledged to forge ahead.
“We expect to receive a presidential permit by the end of the year,” he said. “If that is the case, we expect to commence construction very shortly thereafter.” Experience with other pipelines, he added, has shown that any lawsuits filed “did not hold up the construction of the project, and I would expect that to be the case here as well.”
TransCanada has long maintained that its current route is the best of numerous alternatives. But many in Nebraska, including Mr. Heineman and the state’s two Senators, want it moved away from the Sand Hills, a delicate grassland region that is a state icon.
The State Department, in its review, said skipping the Sand Hills would add 112 kilometres to the pipe, and raise the price tag by about $473-million (U.S.). The alternate route disturbs five times less rangeland and grassland in South Dakota and Nebraska. It would reduce the pipeline’s mileage over the Ogallala Aquifer, a key groundwater source that underlies much of the central U.S., including the Sand Hills, by 165 kilometres.
But the longer alternative would sully more agricultural land, cross some 46 additional rivers and streams, and pass within 1.6 kilometres – one mile – of “five more villages, five more towns, and nine more cities.”
The State Department concluded that such an alternative was “not technically practical or feasible” and it was “eliminated from further consideration.”
In an interview with Nebraska TV station KETV, President Barack Obama said he would make the decision on whether to approve the pipeline. That seems to suggest that the federal government is not of one mind on the project. Under U.S. guidelines, the State Department can render a decision on the project if there is unanimous consent among various agencies. If not, the decision goes to the White House.
In the interview, Mr. Obama said he would look at "what is best for the American people." He said he would look to the economy, but not exclusively. "Folks in Nebraska, like all across the country, aren’t going to say to themselves, ‘We’ll take a few thousand jobs if it means that our kids are potentially drinking water that would damage their health or rich land that’s so important to agriculture in Nebraska are being adversely affected," he said.