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Keystone XL: Keep on Movin’

By David Dittman on December 15, 2011

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At a time when a decline in weekly jobless claims to the still-atrocious figure of 366,000 is cause for three-day-losing-streak-snapping rally, even 10,000 new jobs from a single project–and a privately finance one at that–matter.

With one decision the Obama administration drag all the “shovel ready” jokes about its ill-fated 2009 stimulus effort. TransCanada Corp (TSX: TRP, NYSE: TRP) is ready to spend about USD7 billion of its own and its customers’ money to put people to work building the pipeline. It should also lead to longer-term growth for the refining industry along the Gulf of Mexico and further establish the foundation for a new era of North American self-reliance as far as energy is concerned.

Unfortunately, the political equation is more calculus than arithmetic, and labor’s interest is of an entirely different vector than that of the ardent environmentalists making the most noise and doing things like ringing the White House. These folks’ hope is pointed toward ending the use of fossil fuels, now and forever.

Fortunately, for people concerned with affordable energy and the relative social cohesion it facilitates, what amounts to a “four corners” strategy–stall out the clock until Nov. 6, 2012, after which he won’t need the get-out-the-vote passion provided by activist-greens–for President Obama won’t result in the ultimate defeat of the Keystone XL addition to TransCanada’s Keystone Pipeline System.

TransCanada is now cooperating with Nebraska officials, at the state and federal level, on re-routing XL’s path through the state and over the key Ogallala Aquifer, which yields about 30 percent of the groundwater used for irrigation in the US and provides drinking water to 82 percent of the people who live within its boundary.

These folks, ostensibly joined with professional environmentalists in the early fall opposition that climaxed with the Obama administration’s announcement of a delay in its consideration of the “presidential permit” required before construction can begin, are not opposed to oil. They just want to protect their water. This accomplished, they’re happy to have the pipeline and the benefits it’ll bring the local economy.

TransCanada continues to take the high road in this continental controversy. Company executives have steadfastly refused to be drawn into the political debate on the US side of the border, pledging to play the game as the existing rules dictate, no matter how or how often they seem to be reinterpreted.

That likely has a lot to do with the fact that TransCanada, ironically, will benefit from a delay now forecast to be a little more than a year because it will be able to generate more cash to devote to the project and therefore take on less debt. And just because it hasn’t broken ground on the major aspects of the project doesn’t mean preparation isn’t being done; quite the opposite, and this head start still confers advantages to TransCanada that potential competitors for moving Canadian oil sands output and/or North Dakota shale oil production won’t ever enjoy.

That’s at least part of the subtext of this week’s announcement that customers have made new binding commitments to Keystone following conclusion of the open bidding period for the Houston Lateral, a 48-mile part of XL that will deliver crude to the Houston refining market. TransCanada also has backing to boost the extension’s capacity to 830,000 barrels per day. The Keystone Pipeline System has now secured long-term firm contracts in excess of 1.1 million barrels per day.

‘This significant demand and additional long-term customer commitments confirm the continued strong shipper support of TransCanada and the need for Keystone XL to move forward,” said TransCanada President and CEO Russ Girling in a statement released by the company.

The Houston Lateral and capacity expansion are part of the application process playing out now with the US federal government. A decision on it and the Keystone XL project has been pushed into the first quarter of 2013, which pushes the in-service date to sometime around the end of 2014.

The US consumes 15 million barrels of oil each day and imports 10 million to 11 million barrels per day. The consensus view is that this level of consumption will continue for 20 to 30 years, at minimum. The Canadian oil sands and North Dakota shale oil are critical components of a secure supply. And Keystone remains, in the words of TransCanada’s CEO, “the logical gatherer of all that crude.” Despite the passion of the idealists, demand for crude oil isn’t going away.

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  1. avatar
    mario verde Reply November 4, 2012 at 3:53 PM EDT

    it sounds interesting.

  2. avatar
    Martin Kovar Reply January 6, 2012 at 3:19 PM EDT

    I don’t care about this pipeline. Why not just build a refinery in Montana? Haven’t we learned our lesson with the Gulf? A leak will happen and eventually pollute the ground water. I will not knowingly invest in a company that is involved, but I probably already own some.

  3. avatar
    don wagner Reply December 17, 2011 at 10:54 AM EDT

    I grew up in Northern Wisconsin. We frequently would run off the road on a very snowy day and end up stuck in the ditch. We would rock the car back and forward until we had enough momentum to finally “spin” out of the ditch. I have that same feeling about Keystone XL. Everything seemed to be in place to build the pipeline; we finally could move some of the glut of oil out of storage to the refineries in Texas, put some 20-30,000 people to work rght now. But oops, we’re in the ditch rockin our Pipeline back and forth for no good reason. Please President Obama sign the bill and let’s get going to get this country back on the dry road to great health!

    Don Wagner

  4. avatar
    Craig Reply December 17, 2011 at 7:50 AM EDT

    The problem with your argument is that the US now exports more oil (and equivalents) than it imports, so secure supply is not a rational for justifying the pipeline. The industry is ramping up exports through such projects as the XL pipeline because there are excess profits to be made in markets like India, China and Japan. The exports hurt truckers much more than the rest of us because they have to pay high profits for diesel to compete with overseas markets. The project would make sense if it was managed to cut down an equivalent of foreign oil. One fair way to deal with this is to have an export fee that makes the economics less attractive, so the oil stays at home and creates a secure and reasonably priced supply as advertised. Otherswise, the XL pipeline and other export infrastructure projects like it are just subsidies to the energy industry paid for by consumers.