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Ottawa and Alberta are not giving up on the Keystone XL pipeline, and say they will work to persuade U.S. president-elect Joe Biden of the benefits of allowing the project to proceed.

But that message may be too little too late, because news reports said on Sunday that Mr. Biden plans to terminate the project’s construction permit as one of his first acts once sworn into office this week.

“All we ask at this point is that president-elect Biden show Canada the respect to actually sit down and hear our case about how we can be partners in prosperity, partners in combatting climate change, partners in energy security,” Alberta Premier Jason Kenney told media on Monday.

“Surely the relationship between Canada and the United States is worth at least having that discussion.”

He said Prime Minister Justin Trudeau must make it clear to the new administration that the project is vital to Canada’s economic interests and the relationship between the two countries. Federal Natural Resources Minister Seamus O’Regan said in a statement on Monday that’s exactly what the Canadian government plans to do.

“Our government’s support for the Keystone XL project is long-standing and well known. And we continue to make the case for it to our American colleagues,” Mr. O’Regan said. “Canadian oil is produced under strong environmental and climate policy frameworks, and this project will not only strengthen the vital Canada-U.S. energy relationship, but create thousands of good jobs for workers on both sides of the border.”

Last March, cash-strapped Alberta agreed to contribute US$1.1-billion for an ownership stake in Keystone XL that it planned to sell back to proponent TC Energy Corp. after commercial operations began. The province also agreed to guarantee US$4.2-billion of debt related to the pipeline.

The death of the project would leave Alberta on the hook for about $1-billion. But Mr. Kenney said there would be a solid case under free-trade agreements in North America to seek damages should a presidential veto effectively kill the project.

Canadian regulators approved the 830,000-barrel-a-day Keystone XL project in 2010, but U.S. president Barack Obama blocked it in 2015. TC Energy filed a US$15-billion lawsuit seeking compensation under Chapter 11 of the North American free-trade agreement (NAFTA). The company suspended the lawsuit after President Donald Trump signed the construction permit in 2017.

While the NAFTA has been replaced by the United States-Mexico-Canada Agreement (USMCA), the former agreement’s Chapter 11 provisions allowing investors to sue the U.S., Canadian or Mexican governments for compensation remain in force for three years after the July 1, 2020, termination of NAFTA.

That means TC Energy could sue the U.S. government for rescinding the permit as long as it files before July 1, 2023.

However, law experts said such a legal action would be difficult and could damage TC Energy’s relations with the incoming Biden administration.

The Canadian government could use Section 31.2 of the USMCA to challenge a rescinding of the permit, which would require the creation of a panel to hear the dispute. But Lawrence Herman, a Toronto-based international trade lawyer, warned doing so “would blow apart any semblance of good relations with the U.S. government,” including on climate change. He believes this option is a “total non-starter.”

Kristen van de Biezenbos, an associate professor at the University of Calgary who specializes in energy law, said the problem for TC Energy “is that it could take years to get through litigation.” And, at the end, the company could still have to reapply for the permit.

Mr. Biden made it clear last year that he planned to cancel the presidential permit for the pipeline should he win the election.

When Mr. Biden won the presidency with support from Democrats who want strong action on climate change, Mr. Trudeau broached Keystone in a November phone call. Alberta later signed contracts worth $1.1-million with lobbyists to try to influence the incoming administration on energy trade issues, including the pipeline.

After Mr. Biden’s victory, the U.S. political action arms of TC Energy and Enbridge Inc. – which are both pushing pipelines into the U.S. – spent thousands of dollars to back Republican candidates in an effort to prevent Democrats from winning the Georgia runoff elections and taking control of the Senate to back Mr. Biden’s environmental agenda.

The two donated a combined US$12,500 to Republican David Perdue’s campaign. TC Energy, through TransCanada USA Services Inc., gave another US$2,500 to that of Republican Kelly Loeffler, according to the online records of the U.S. Federal Election Commission.

TC Energy hasn’t yet commented on the future of Keystone, but on Sunday – after news reports about Mr. Biden’s plans – the company announced it would achieve net-zero emissions across Keystone’s project operations when it comes into service in 2023. It added the pipeline would be fully powered by renewable energy sources no later than 2030.

That and “dramatically improved environmental performance” are some of the reasons Mr. Kenney implored Ottawa to sit down with Mr. Biden and make a strong case for Keystone.

However, RBC Capital Markets said in a research note it doubts the announcement of net-zero emissions will save the pipeline.

The most likely scenario is TC Energy walking away from the project, it said, adding that would have the best outcome for company stocks and is likely the preferred option for investors. Still, it said stock values could benefit from potential recoveries via actions against the U.S. government.

Along with the renewables aspect of the project, TC Energy sought Indigenous partnerships in its quest to get Keystone XL built. That led to an agreement with Natural Law Energy for the Indigenous company to take a $1-billion equity stake. Headquartered in Alberta, Natural Law Energy describes itself as an economic alliance for nations in Treaty 4, Treaty 6 and Treaty 7 territories.

On Monday, chief executive officer Travis Meguinis said he still hopes the pipeline will proceed, as it would have significant economic benefits for Indigenous people in Canada and the United States.

“This agreement was going to help address the housing situation in First Nations and also other essential needs – better health care, better education facilities,” Mr. Meguinis said. “We are still trying our best to stay positive and move ahead in a good way.”

Another major irritant in Canada-U.S. energy relations is the ordered shutdown in May, 2021, of an Enbridge Inc. pipeline that supplies a significant amount of Ontario’s and Quebec’s crude oil. Last November, Michigan Governor Gretchen Whitmer ordered a 1953 permit rescinded that had allowed the Line 5 pipeline to cross a waterway in her state, citing the risk of an oil spill.

Enbridge has challenged the move in federal court.

The Line 5 pipeline carries Western Canadian crude through the Great Lakes states to Sarnia, Ont. Without it, Ontario would be about 45 per cent short of the crude oil it requires, according to Enbridge. Line 5′s supply is used, among other things, to produce gasoline and diesel for Ontario and 100 per cent of the jet fuel used at Pearson International Airport.

Mr. Kenney said cancelling Keystone would create a worrying precedent and embolden those who are trying to shut down Line 5 and Enbridge’s Line 3 replacement in Minnesota.

With files from Wendy Stueck in Vancouver

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