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Energy and Resources TransCanada’s Keystone pipeline to be exempted from ‘Buy American’ provisions

A depot used to store pipes for Transcanada Corp's planned Keystone XL oil pipeline is seen in Gascoyne, North Dakota, January 25, 2017.

Terray Sylvester/Reuters

U.S. President Donald Trump will not force TransCanada Corp. to build the Keystone XL oil pipeline solely with American steel, the White House said on Friday.

Avoiding a "Buy American" provision championed by Mr. Trump removes a major impediment to TransCanada proceeding with the $8-billion (U.S.) project that was rejected by the Obama administration in 2015 amid widespread opposition by environmentalists. TransCanada had already bought most of the pipe.

With an executive order in January, Mr. Trump set the wheels in motion for the Calgary-based company to resurrect the project. On the same day, he instructed his Commerce Department to devise a plan to ensure pipeline companies use U.S. steel in new, expanded or retrofitted pipelines "to the maximum extent possible."

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"It's specific to new pipelines or those that are being repaired," White House spokeswoman Sarah Sanders told reporters on Air Force One on Friday. "Since this one is already currently under construction, the steel is already literally sitting there, it's hard to go back. Everything moving forward would fall under that executive order."

The southern leg, which runs to Nederland, Tex., from Cushing, Okla., was split off from the initial Keystone XL blueprint and constructed as the Gulf Coast project. It began shipping oil in 2014. The remainder, which would carry 830,000 barrels a day to Steele City, Neb., from Hardisty, Alta., has been in limbo since then.

The project had been considered dead by many in Canada's oil industry, but now appears to have few major political and regulatory hurdles, though landowners in Nebraska have vowed to keep fighting the project and environmentalists remain vehemently opposed.

TransCanada resubmitted its application in late January, and this week suspended a $15-billion challenge to Mr. Obama's rejection under the North American free-trade agreement.

The different timings of Mr. Trump's Keystone XL revival and Buy American memoranda mean the project could be approved before the steel policy comes into force, said Kortni Hadley, a lawyer in the corporate section of Carter Ledyard & Milburn LLP, a New York firm that deals in U.S.-Canada issues. The State Department must make a decision on the pipeline within 60 days of the application, while the Commerce Department has 180 days to formulate the pipeline steel policy.

"So there's not actually a Buy American rule in place at this point in which Keystone would be subject to," Ms. Hadley said.

TransCanada would not comment directly on the Buy American issue, or whether it has been told that it is exempt. However, spokesman Terry Cunha pointed out that half the pipe the company purchased in 2012 for Keystone XL was manufactured in the United States, and that 75 per cent originated in North America.

For its part, the Prime Minister's Office said it welcomes any clarity on what had been a major question mark with Keystone XL, which Ottawa supports.

"If confirmed by the United States, we welcome the recognition that the integrated Canadian and U.S. steel industries are mutually beneficial for both countries. We will continue to work with the United States as they examine the steel industry," Andrée-Lyne Hallé, press secretary for Prime Minister Justin Trudeau, said in an e-mail.

With files from Globe and Mail reporter Kelly Cryderman and Reuters

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