The ECOreport reposts an OP-ED from Alberta, Business Case For Keystone XL Unclear
Originally Published on University of Alberta News
By Lesley Young
After all the controversy about TransCanada’s proposed Keystone XL expansion, it may be market pressures that seal the project’s fate.
Business Case For Keystone XL Unclear
Talk about anticlimactic: After years of controversy impeding the fourth proposed phase of the Keystone pipeline project, the furor over its economic and environmental impact may be all for naught.
Even if president-elect Donald Trump delivers on his promise to approve construction of Keystone XL, which would link Alberta’s oilsands to refineries in the Gulf Coast, there are several reasons pipeline owner TransCanada may want to revisit the business case before moving forward, said Joel Gehman, a professor of strategic management and organization at the University of Alberta.
“The petro-landscape has changed dramatically since Keystone XL was first proposed in 2008. U.S. demand for oil has fallen and U.S. domestic supply has risen significantly,” he said. Moreover, the U.S. Energy Information Administration projects the U.S. could become a net exporter of oil as early as 2020.
Add to that a cooling in Canadian pipeline demand—as of July 2016 there was an estimated 400,000 barrels of oil per day in unused pipeline capacity—and TransCanada’s shareholders may be better off if the company allocates its resources elsewhere, said Gehman.
Committed To Completing Phase 4
And yet, TransCanada remains committed to completing phase four of the Keystone pipeline system. Tim McMillan, president and CEO of the Canadian Association of Petroleum Producers, said the business case for moving forward is still strong.
“From our perspective, oil production is increasing. Our projected annual output puts us at a million and a half barrels a day by 2030. This pipeline transports about half that. One thing I will say is that we do need more than one pipeline,” he added, referring to Kinder Morgan’s Trans Mountain pipeline expansion, among others. The federal government will decide whether or not to approve that pipeline in December.
However, questions about production and demand in the competitive climate aren’t the only potential impediments to the pipeline’s future.
Keystone XL Does Not Fit In Canadian Plans
“Keystone XL does not appear to fit with the province’s strategic priorities,” said Gehman.
Premier Notley’s recent statements support the government of Alberta’s strategic plan, specifically its top two goals: economic diversity “to reduce the province’s dependence on raw bitumen exports and create more jobs with more upgrading and processing in Alberta rather than in other countries,” and climate change leadership.
There is also the question of where Keystone fits among national priorities, added Gehman. He questioned how the prime minister will strike a balance between ensuring Canada’s economic development while meeting its COP21 (United Nations Framework Convention on Climate Change) climate change commitments.
Is There An Economic Benefit?
As for the economic benefits of the pipeline, the two experts disagree.
McMillan said the estimated $8-billion construction cost would create jobs in the short term, have a positive impact on Canada’s GDP and set up Canada for long-term success.
“Although (it’s) a large infrastructure project, prior analyses suggest Keystone XL will not provide a noticeable economic impact to the average citizen,” said Gehman.
Photo Credit: TransCanada’s Keystone pipeline by shannonpatrick17 via Flickr (CC BY SA, 2.0 License)