The prospect of a U.S. decision on the Keystone XL pipeline sliding into the next presidential administration put pressure on TransCanada Corp. shares on Monday, although the company said oil industry customers remain committed to the project despite the latest delay.
Representatives on both sides of the debate over the $5.4-billion (U.S.) pipeline have expressed frustration over the U.S. State Department's decision on Friday to extend the deadline for government agencies to comment on the project, now in its sixth year of review. It pushes an approval decision at least past the U.S. midterm elections in November, and possibly much beyond. Meanwhile, Canadian crude oil keeps finding alternative routes to the U.S. Gulf Coast region that Keystone XL would ultimately serve, reducing the project's urgency.
The southern part, which extends to Texas from the Cushing, Okla., storage hub, began operations this year. Enbridge Inc. is expanding parts of its pipeline system to the United States to accommodate surging volumes of crude from the oil sands, and the industry is raising its capacity to move supplies by rail.
TransCanada faces the new disappointment for the northern Keystone portion – to southern Nebraska from Alberta – despite intense lobbying in Washington by both the federal and Alberta governments, which have tried to convince President Barack Obama that the energy security the project would bring outweighs environmental risks. For now, the proposal remains in limbo.
"The timing remains uncertain, but we still believe the project ultimately will be approved," said RBC Dominion Securities analyst Robert Kwan.
"While the newest delay causes us to question whether the project will be approved under the current administration, we believe that there is a significantly better probability that the project will be approved by the next administration post the 2016 election, whether that be Republican or a Democrat that is more focused on jobs/economy and energy security," Mr. Kwan wrote in a research note.
TransCanada shares sank $1.92 (Canadian) or 3.7 per cent to close at $49.38 on the Toronto Stock Exchange. Earlier this month, they hit a 10-year high, partly on optimism surrounding the pipeline as a decision appeared close.
TransCanada executives have said costs are escalating with the delays, but have yet to quantify them. The project still holds great economic benefit for Canada and the United States and there are no plans to walk away, the company said on Monday. "We announce and advance privately funded projects like Keystone XL by understanding what the best business and market decisions are, not short-term political calculations. We will do the same here," TransCanada spokesman Shawn Howard said. "As we have indicated many times, our customers are 100 per cent behind Keystone XL, and we have a waiting list of companies that would be interested in shipping crude oil through this pipeline if additional room became available."
Mr. Obama has said the project will be decided based largely on its impact on carbon emissions, although the latest extension is in response to a court action in Nebraska that could change the route. Officials said on Friday that they had no option but to extend the deadline because there is no certainty as to what local ecosystems might be affected.
Canaccord Genuity analyst Juan Plessis maintained a $53 target on TransCanada stock, with a "hold" recommendation. Mr. Plessis said the major risks include rising construction costs and the prospect of the Presidential Permit being denied. About half the money the company has already sunk into Keystone XL is on pipe, which could be used in other projects, such as those planned within Alberta. The company could also build a line to the Canada-U.S. border, where crude could be transferred to rail cars for export, Mr. Plessis said.
"So it wouldn't all be a writeoff in that event," he said.