As U.S. president-elect Joe Biden takes the oath of office at noon on Wednesday, it will be under a dark sky. The Capitol is fortified. The pandemic is at its worst. And his administration faces multiple emergencies, and a long list of difficult decisions.
But the new president also has a few easy political wins at hand on his first afternoon of work. Among them is an executive order to terminate Keystone XL.
Climate is a central pillar of Mr. Biden’s agenda. On Day 1, he will bring the United States back on to the Paris Agreement. More broadly, he aims to spend US$2-trillion on a clean energy transformation, though getting there will mean a hard slog through Congress, where Democrats hold the narrowest of majorities.
But blocking Keystone XL? He can do that with a stroke of his pen. And he will.
Spiking the pipeline for a second time – Barack Obama did so in 2015, before Donald Trump revived it – will not dampen the U.S.’s appetite for oil. Americans will not drive less tomorrow than they did yesterday. The U.S. is still building miles upon miles of pipelines within its borders. But Keystone XL is not like any other oil pipeline. For many of Mr. Biden’s supporters, it is a symbol and a lightning rod, because of its connection to the “tar sands.” Saying no to Keystone XL is an easy way to mollify the left wing of his party, many of whom are suspicious of his conciliatory nature and his preference for the middle of the road.
And the U.S. won’t bear much of a cost for Mr. Biden’s political gesture. That will fall almost entirely on Canada.
Killing Keystone XL is bad news for Canada – and bad news one could see coming a long way off.
A year ago, despite Mr. Trump’s support, the U.S. portion of Keystone XL was still roadblocked. To keep the project alive, Alberta offered developer TC Energy $1.5-billion cash and $6-billion in loan guarantees – the majority of construction costs. Work was under way once more. “A solid bet,” declared Alberta Premier Jason Kenney. But this page argued Albertans’ money was “very much at risk.”
Less than two months later, Mr. Biden said that if elected, he would stop the pipeline.
Alberta governments of all stripes have spent questionable billions to buoy the oil industry. The Progressive Conservatives backed the ill-fated Sturgeon Refinery. The NDP subsidized oil-by-rail. But Mr. Kenney gambled on a pipeline in another country, whose fate was out of his hands.
The good news is Canada has significant new pipeline capacity opening soon, namely the Trans Mountain expansion to the Pacific and Enbridge’s Line 3 to the U.S. Midwest. They provide breathing room for years to come. In fact, the Canada Energy Regulator last December presented a forecast where Canadian oil exports could peak in 2035, meaning Trans Mountain and Line 3 would be enough to carry all future new exports.
Keystone XL offered efficient access to the U.S. Gulf Coast, where about a quarter of Canada’s oil is sold. But Trans Mountain should also help Canadian producers get a higher price for their barrels, and Canada’s position as the U.S.’s No. 1 source of imported oil does not appear to be in jeopardy.
Mr. Kenney argued on Monday the U.S. will become more reliant on the Organization of Petroleum Exporting Countries. But so far, even without Keystone XL, the opposite is happening.
Canada’s oil exports to the U.S. eclipsed OPEC’s six years ago. In the first 10 months of 2020, Canada exported 3.8 million barrels a day to the U.S., more than four times that of OPEC. Line 3, under construction in Minnesota, will open up another 370,000 b/d for Canadian exports.
Nevertheless, the demise of Keystone XL will sting Canada. Albertans stand to lose $1.5-billion on Mr. Kenney’s aggressive wager, and in the long run, it is possible Canadian oil producers may again face price discounts – and hence fewer dollars flowing back to Canada – if there ends up being a lack of pipeline capacity, and there is again a need to find more expensive shipping solutions, such as rail.
Though Alberta and Ottawa must do all they can to persuade the Biden administration to reverse course, Keystone XL is almost certainly a lost cause. Killing it delivers significant short-term political benefits to the new president, and Canada does not appear to have the means to change that political calculus.
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