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Nov 2, 2017

TransCanada said to press Alberta to buy Keystone capacity

TransCanada

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TransCanada Corp. is pressing the Alberta government to buy capacity in its Keystone XL pipeline, seeking the same type of support the province had pledged for its canceled project to the Atlantic coast, people familiar with the matter said.

The pipeline company, which has won approval for Keystone XL from U.S. President Donald Trump, is urging Premier Rachel Notley to commit a similar "take or pay" agreement on Keystone that the province gave TransCanada’s defunct Energy East pipeline, according to people familiar with the matter who asked not to be identified discussing private talks. The Calgary-based firm declined to comment.

The request, which comes as TransCanada pushes for more private-sector shipping commitments to Keystone, puts Notley in a bind as she faces a fierce re-election fight in 2019 amid voter anxiety over slumping crude prices. While it’s politically fraught to be seen as not fully supporting a pipeline in Canada’s oil hub, she’s also said to be under pressure from rival Enbridge Inc. to not subsidize its competitor, the people said.

The Alberta government has its own oil to sell because it collects barrels of sandy bitumen in lieu of royalties from some producers under the bitumen royalty-in-kind, or BRIK, program. A take-or-pay agreement commits the province to a minimum shipping requirement. The province sold about 70,000 barrels a day in 2014, according to the most recent data available on the Alberta Petroleum Marketing Commission’s website.

Alberta backed Energy East as essentially an anchor tenant in an effort to get the pipeline off the ground and bring provincial oil to a deep-water port. It pledged to pay to ship 100,000 barrels a day in Energy East, a commitment projected to have a "minimum" government cost of $4.6 billion over 20 years, or a higher figure depending on volumes.



DEEP WATER 

A former Alberta energy minister behind the original Energy East pledge says the idea was to spur a pipeline to the ocean that was deemed critical for the province. He said supporting Keystone, which would send as much as 830,000 daily barrels of crude to the U.S., is another matter.

“The reason we made the commitment was because it was the most important strategic play available to get us to deep water," while also replacing foreign oil in Eastern Canadian refineries with domestic crude, said Ken Hughes, a former Progressive Conservative lawmaker. "It had a wide range of benefits, and none of those benefits come about with Keystone."

NOTHING 'AUTOMATIC' 

Officials in Notley’s New Democratic Party government, including Energy Minister Margaret McCuaig-Boyd, declined to comment on any talks with the company, saying only that the province isn’t liable for any costs related to Energy East’s collapse.

As for the $4.6 billion commitment, "nothing automatically happens with the support" that had been pledged, Cheryl Oates, a spokeswoman for Notley, said in an email. "Those decisions are made on a project-by-project basis, weighing many other economic considerations."

TransCanada has been seeking support from shippers, and government support could help meet its target. The "open season" to solicit commitments for a chunk of Keystone XL’s capacity has concluded, and TransCanada will spend the fourth quarter reviewing commercial backing for the project, spokesman Terry Cunha said. “Commercial support is expected to be achieved" on the pipeline, according to the company’s second-quarter report.

OPEN SEASON

A provincial pledge could be a boon for Keystone XL, a 1,179-mile (1,897-kilometer) route from Alberta’s oil sands into Montana, then South Dakota and finally to a junction in Steele City, Nebraska.

TransCanada’s decision on whether to build the line hinges on the results of the open season for customers to sign up for shipment capacity, which ended Oct. 26, and final regulatory approval in Nebraska.

Meanwhile, space is already getting tight on pipelines carrying crude from Canada to the U.S. as Alberta oil sands production surges. Kinder Morgan Inc. said late Tuesday that its Trans Mountain pipeline to the West Coast will be 24 per cent oversubscribed in November, the most for that month since 2014. Enbridge said last month it would ration space in November on its main heavy oil export lines for the first time since July after offering excess capacity in both September and October. Keystone and Kinder Morgan’s Trans Mountain expansion would alleviate the bottlenecks, though no new capacity is likely to be in place before late 2019 at the earliest.

Keystone won votes of confidence from the chief executive officers of Canadian oil producers Cenovus Energy Inc. and Suncor Energy Inc. in late July. The CEOs both said they support Keystone and that the Canadian energy industry needs more pipeline capacity. Suncor confirmed at the time that it plans to ship its products on Keystone.

--With assistance from Kevin Orland