TransCanada Ready to Pull Trigger on Keystone Project

SHAWN McCARTHY
August 25, 2011

The Globe and Mail



TransCanada Corp. (TRP-T41.63-0.03-0.07%) is gearing up to begin construction on the $7-billion Keystone XL pipeline, anticipating a favourable report on the project’s environmental impact from the U.S. State Department as early as Friday.

The environmental assessment represents the single biggest regulatory hurdle facing the Calgary-based company, which has been confronted with a high-profile backlash over the pipeline from environmentalists, some U.S. politicians, and residents along the route.

Activists protested in front of the White House this week, and several celebrities were arrested, pleading with U.S. President Barack Obama to reject the pipeline to protect land and water resources in the U.S. and limit greenhouse gas emissions from Canada’s oil sands.

But after producing two preliminary impact statements that gave the project the green light, the State Department is once again expected to find the pipeline would produce “limited adverse” effects. The Washington Post reported Thursday that State Department officials have reached the same conclusion as in the earlier reports.

“Getting the [final environmental impact statement] would be a significant milestone,” TransCanada spokesman Terry Cunha said Thursday, though he added the company knows only that the State Department intends to release the document before the end of August.

“We believe that the Department of State has done a very thorough job during their review of the project and both the draft and supplemental [statements] that were issued had highlighted that the project would have very limited impact on the environment. And we agree with that assessment.”

However, the Environmental Protection Agency (EPA) has raised a number of concerns about the previous studies. The EPA could not delay the project, but it could encourage Mr. Obama to delay or block the permit.

Opponents vow to continue their fight against the project, and plan to stage protests and acts of civil disobedience in Ottawa next month.

Scheduled for completion in mid-2013, the Keystone XL pipeline would initially carry some 500,000 barrels-per-day of oil sands bitumen to refineries in the U.S. Gulf Coast, and provide additional capacity linking the Cushing, Okla., terminus to the much larger Texas refining hub. The potential capacity on the line is 900,000 barrels per day. TransCanada says it already has contracts for 300,000 bpd of volume.

The release of the final environmental impact statement will trigger a 90-day comment period, after which the State Department will determine whether the pipeline project is in the U.S. national interest.

But the environmental hurdle is the key challenge, said Gordon Giffin, a former U.S. ambassador to Ottawa and lawyer with McKenna Long & Aldrich LLP, which has an active Canadian practice.

“In the final analysis, the fundamental test is going to be the so-called national interest test,” said Mr. Giffin, who also serves on the board of oil sand producer Canadian Natural Resources Ltd.

“And I think that the national interest tests just comes down clearly on the side of building the pipeline, and that the legitimate environmental concerns can be adequately addressed.”

Even as the political debate rages, TransCanada is quietly preparing to begin construction early in 2012, by lining up contractors, negotiating rights of way and arranging the supply of pipe and valves.

Proponents are touting the employment benefits in an economy suffering through a prolonged slump, arguing that the project will create 20,000 jobs, is “shovel ready” and needs no government funding.

“We’ve done a lot of work to gear up because we want to be ready as soon as we get the permit to start construction ASAP,” Mr. Cunha said.

In a conference call Thursday, environmentalists held out little hope that the State Department would delay the project any further, but said they hope Mr. Obama can be persuaded to intervene to block the project in order to reduce U.S. dependence on “dirty oil.”

The oil industry and the Canadian government have not helped make the environmental case. Since last summer there have been two big pipeline breaks with major spills into local rivers: Enbridge Inc.’s break in Michigan and ExxonMobil Corp.’s spill into the Yellowstone River in Montana.

And after the EPA urged the State Department to determine what further measures Canada will take to reduce greenhouse gas emissions from the oil sands, Canadian Environment Minister Peter Kent said Ottawa won’t release even draft regulations for new plants until the end of 2012, at the earliest.


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