Canada optimistic on Keystone approval after Obama climate plan

Crewmen work a site where a pipe for TransCanada's Keystone XL project is lowered into the ground in Wood County, Wednesday, Oct. 24, 2012, in Winnsboro. (Cody Duty / Houston Chronicle)

Canadian business leaders say there’s growing optimism that President Barack Obama will approve TransCanada Corp. (TRP)’s Keystone XL pipeline because thwarting it would cost U.S. consumers and won’t halt development of Alberta’s oil sands.

“From my perspective it’s 100 percent that he’s going to approve it,” Scott Saxberg, chief executive officer of Calgary-based oil producer Crescent Point Energy Corp. (CPG), said in a phone interview yesterday. “If it doesn’t go through, all it’s going to do is increase the cost to the U.S. and to the consumer.”

Unveiling his climate change plan June 25, Obama said his administration would approve the $5.3 billion cross-border project if it “does not significantly exacerbate the problem of carbon pollution.” The administration has said a decision on Keystone will come in months.

The pipeline, which has been under review for almost five years, would carry 830,000 barrels of diluted bitumen a day from northern Alberta to Gulf Coast refineries. Environmentalists have protested in front of the White House seeking to block the project because of concerns about potential spills and the greenhouse-gas emissions produced by mining oil sands.

Obama didn’t say in the climate speech at Georgetown University whether he favored approval. A draft U.S. State Department analysis, released March 1, said the pipeline would have minimal impact on climate change because the oil sands would be mined and developed with or without Keystone XL.

Obama ‘Vagaries’

“I think Keystone gets approved late in the year as there is enough vagaries in the Obama language, plus the supportive State Department report that makes it not a contributor to greenhouse-gas emissions,” said Jennifer Stevenson, a Calgary-based vice president at Dynamic Funds who helps manage about C$100 billion ($96 billion). “It will still be noisy, but I think it gets done.”

TransCanada gained 0.4 percent to C$44.90 at the close in Toronto yesterday. The price gap between Western Canada Select, the country’s benchmark crude, and West Texas Intermediate narrowed 1.5 percent to $16.75 yesterday.

“President Obama is taking shelter” under conclusions reached in the U.S. State Department’s draft environmental impact assessment, Judith Dwarkin, chief energy economist for ITG Investment Research Inc. in Calgary, said in an e-mail.

Canadian companies and politicians are preparing for alternatives even as they remain optimistic about approval.

Alternative Options

Projects to move oil by rail or through a natural gas pipeline that TransCanada has proposed converting to oil “should help make the case” for Keystone by showing that the conduit won’t have an impact on oil-sands development, Steven Paget, director of institutional research at FirstEnergy Capital Corp. in Calgary, wrote in a note to clients yesterday.

While opponents said the president’s statements show he won’t approve the project, Canadians continued to point to economic reasons to support Keystone XL.

“The economic arguments are very strong in terms of national security, jobs, economic growth and revenue on both sides of the border,” Joe Oliver, Canada’s natural resources minister, told reporters in Vancouver yesterday. “If the facts and the science are taken into consideration, I’m comfortable that it will be approved.”

Keystone XL can meet the standard President Obama set because the oil it delivers will displace other heavy oil imports into the Gulf Coast and the U.S.

‘Additional Test’

“We remain optimistic on Keystone XL’s approval, even when considering this latest additional test, as the pipeline is in the best interests of the United States,” David Bouckhout, a senior commodity strategist in Calgary for Toronto-Dominion Bank, said in an e-mail.

For Canada, oil exports have grown in importance over the past two decades. Energy products, whose largest component is crude, have grown to become Canada’s largest export, and now account for almost one-quarter of all outbound trade.

Canada’s oil trade rose 7 percent to about C$73 billion last year and is set to grow faster than the total economy in the coming years, according to Statistics Canada data.

Keystone XL will also help move crude stranded in the U.S. as production booms from fields in North Dakota and Montana, said James Bowzer, CEO of Calgary-based heavy oil producer Baytex Energy Corp. (BTE)

“It’s not just a Canadian problem,” he said. A shortage of pipelines has forced producers in the Bakken shale to ship a lot of crude by rail, he said.

The pipeline will allow for added output “whether that be further expansions of the Bakken or further expansions and increases in production and output from Canada.”

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