The rejection of TransCanada Corp.'s Keystone XL pipeline project puts new pressure on Canada's energy industry to figure out how to ship growing oil sands production from the landlocked west to global markets.
U.S. President Barack Obama's categorical "no" to the 830,000-barrel-a-day project will not immediately shut down new oil sands projects but could have a cooling effect on growth in the industry, already stung by more than a year of sharply lower oil prices.
Hal Kvisle – the man who conceived the Keystone XL pipeline when he was TransCanada's chief executive officer – called Friday "a sad day."
"This is very difficult for the Canadian oil and gas industry," Mr. Kvisle, who headed TransCanada from 2001 to 2010, said in an interview.
"And access to market is the single biggest problem we face. In many ways, it is even bigger than $45 oil. Forty-five-dollar oil will come and go as global supply and demand sorts itself out. But if Western Canada can't get access to markets, and we persist with things like dangerous rail transportation, it is just bad."
Even before the White House made its announcement Friday, there had been fallout because of limited transport capacity for future oil sands production. Last month, Royal Dutch Shell PLC halted construction on its massive steam-driven project, Carmon Creek, blaming both the collapse in oil prices and the lack of pipeline capacity.
At a time when the energy sector is rife with job losses, current TransCanada CEO Russ Girling said the Keystone XL project would have put 2,200 Canadians to work almost overnight. Following the rejection of the project, TransCanada said it would review its options, which include filing a new application for a presidential permit for a cross-border pipeline.
Alberta Premier Rachel Notley said the Keystone XL decision emphasizes why Canada needs to push hard for domestic pipelines – particularly those likely to succeed. She spoke directly to TransCanada's Energy East pipeline project, which would bring crude oil from Alberta and Saskatchewan to refineries in Eastern Canada, and Kinder Morgan Canada's Trans Mountain pipeline expansion from just east of Edmonton to Burnaby, B.C.
She pressed the need for getting oil to tidewater with Prime Minister Justin Trudeau Friday morning.
"We need to really focus and have some very careful discussions about how we can work collaboratively to ensure that we get energy infrastructure and pipelines to tidewater. Bottom line," she said.
Gaétan Caron, the former head of Canada's National Energy Board and an executive fellow at the University of Calgary's School of Public Policy, characterized the U.S. decision Friday as "a low point in North American energy security."
Mr. Caron said Keystone XL is one of four key pipeline projects to get Canadian oil to refineries and global markets where the crude fetches a higher price than it does in land-locked North America. The other key projects, he said, are Energy East, the Trans Mountain expansion and Enbridge Inc.'s Northern Gateway project to the B.C. Pacific Coast.
"If you stopped all four, then what you're left with is the upgrade of existing systems and – heaven forbid – a significant increase again in the movement of oil by rail. Nobody yet has found a way to stop the movement of oil by rail," Mr. Caron said.
While oil prices were high, rail was an increasingly used as a fallback method for shipping crude. However, oil prices below $50 (U.S.) a barrel has made rail a less economical means of transportation.
At Cenovus Energy Inc., spokesman Reg Curren said: "We haven't put all of our eggs in one basket when it comes to transporting our oil. We're building a portfolio of market options for our production."
The oil sands producer will get its product to market by using shipping capacity on the existing Trans Mountain system and Enbridge's Flanagan South pipeline in the U.S., as well as its 70,000-barrel-a-day crude oil transloading terminal at Bruderheim, northeast of Edmonton. Still, Cenovus is counting on more pipeline capacity coming on line.
"We have made commitments to both Energy East and Trans Mountain," Mr. Curren said.
Although downtown Calgary has for months expected a rejection of the project, Friday's news from the White House was still a major blow.
"Clearly, we're disappointed in today's decision," said Steve Williams, CEO of Suncor Energy Inc., one of Canada's largest oil companies.
"Keystone XL is important infrastructure not only for producers in the U.S. Bakken and Canada as it would provide expanded connectivity to the Gulf Coast, but also for U.S. refiners as it would provide security of supply from a long-time energy provider and trading partner."