For the oil sands industry, Plan B for Keystone XL looks a lot like Plan A.
After being handed a major setback by the U.S. move to sideline the $7-billion project until at least 2013, TransCanada Corp. appears to have put the project back on the rails with an agreement with key Nebraskan legislators to reroute the line.
Assuming the deal is passed by the full legislature, TransCanada will work with the state’s Department of Environmental Quality to identify a new route to avoid the environmentally sensitive Sand Hills area.
“It’s our sincere hope that with this agreement, we’ve put everybody in a place where they can support the new pipeline route,” Alex Pourbaix, TransCanada’s president for energy and oil pipelines, said in an interview from Lincoln, Neb.
He said the U.S. State Department has agreed to work with the Nebraska Department of Environmental Quality on a supplemental environmental impact statement that would essentially cover a small section of rerouted pipeline, totalling about 50 kilometres.
Mr. Pourbaix said he is confident the new route can be reviewed within nine months, setting the stage once again for the Obama administration to conclude a national interest determination that considers environmental, economic and national security issues. That timing, however, could leave President Barack Obama facing a heated political battle over the pipeline in the run-up to next November election.
The TransCanada executive said the cost of delay should be “relatively modest,” assuming the parties can agree on a new route. The company has already spent $1.4-billion on securing right-of-ways and stockpiling material needed to complete the pipeline project.
The Calgary company has long resisted call to change the routing to avoid the Ogallala aquifer, a sprawling water table that sits beneath the Sand Hills and elsewhere along the route. Mr. Pourbaix said the company was opposed to a major restructuring of the route, arguing it would set the project back another two to three years and possibly kill it altogether.
Greg Stringham, a vice president at the Canadian Association of Petroleum Producers, said the company should be able to proceed fairly quickly after the 2012 election, which would keep it on track to begin operation by 2015.
“Once you get a political decision in the U.S. on the presidency, whoever is in power can have everything ready to go right away,” Mr. Stringham said.
However, proponents can expect a highly organized environmental lobby to keep up the pressure on Mr. Obama, and to seek a pre-election commitment that he won't approve the pipeline.
Still, industry insiders say TransCanada’s approach needed to be overhauled, and concessions had to be made, if the company is to commence construction in 2013.
“I agree with your Prime Minister; I think it is a no-brainer and that it will go ahead,” Mr. Hofmeister said in an interview, referring to earlier comments by Prime Minister Stephen Harper.
“And I think the re-routing away from the Sand Hills of Nebraska will be the price of going ahead. I've been through the Sands Hills and they are special, and the thought of industrializing them was just too much to bear,” he said.
In Washington, Alberta premier Alison Redford defended Keystone XL as a “strong project,” and said she would use a two-day trip in the U.S. to ensure that leaders know Alberta is about more than oil and pipelines. “It's important for us to tell our story,” she said at a press conference in the U.S. capital, where she was scheduled to meet a number of law makers, including House Speaker John Boehner.
Alberta’s commitment to the environment might have been lost in the Keystone debate, she said. “We will be telling a much different story.”
Pipeline proponents believe the Obama administration considered only the political implications of making a decision on Keystone XL last week, rather than giving weight to the potential for new jobs, the benefit of energy security, and the environmental promises the industry made.
Eric Newell, a past chief executive at Syncrude Canada, current director at Nexen Inc., and head of Alberta’s Climate Change and Emissions Management Corp., said the Keystone XL delay is about more than just the Sand Hills. It highlights the energy industry’s inability to convince politicians that oil sands crude is not as harmful as green groups argue.
“I think the argument on the dirty oil is a spurious one. Somehow we have to drive a nail into that coffin,” he said. This has proven tricky considering who makes the argument.
“When you’re the industry talking, you can see people’s eyes glaze over,” he said. “It seems like it is a bit self-serving so we tend to get discredited.”
Peter Tertzakian, an economist and managing director at ARC Financial Corp., warns that without a quick decision on Keystone XL, investors may sour on the oil sands.
“A prolonged ‘maybe’ is the worst possible outcome . Just give us a ‘Yes’ or a ‘No.’ A prolonged ‘Maybe’ at a time when the energy industry is changing rapidly is just not acceptable,” he said. “What incentive is there for companies and investors to invest billions of dollars for the long term when the best you can expect is a ‘Maybe’ after seven years. It's ridiculous.”