Page 5 - NorthAmOil Week 13

NorthAmOil COMMENTARY NorthAmOil
Oil sands outlet
TC Energy anticipates that Keystone XL will enter service in 2023, so the oil sands are still some way away from seeing its benefits. Enbridge’s Line 3 replacement and the Cana- dian government’s Trans Mountain expansion will come on before this, in 2020-21 and 2022 respectively, barring further delays. Combined, the three pipelines will significantly ease the takeaway capacity constraints that have plagued the oil sands, putting downward pressure on Western Canadian heavy crude prices.
The move comes at a time of crisis for Can- ada’s oil industry, as the oil price war and the coronavirus (COVID-19) pandemic cause crude prices to fall to levels not seen in years. West Texas Intermediate (WTI) sank to an 18-year low of below $20 per barrel on March 30, recov- ering only slightly in the subsequent days. West- ern Canadian Select (WCS) already trades at a discount to WTI, with that differential widen- ing because of takeaway capacity constraints in recent years. This week, the price of WCS sank below $5 per barrel.
Against this backdrop, the Alberta govern- ment’s support for Keystone XL is being seen as a gesture with symbolic power, indicating the province’s longer-term confidence in an embat- tled industry.
Alberta Premier Jason Kenney, who leads the provincial United Conservative Party (UCP), has said that he is “certain” Keystone XL would not be built without his government’s invest- ment. TC Energy had not made any public threats to abandon the pipeline, but the Alberta government’s move has come as more and more energy companies scale back capital spending for this year owing to the current price envi- ronment. It is thus perhaps not surprising that
Alberta has taken matters into its own hands.
What next?
Construction on the 830,000 barrel per day (bpd) pipeline is anticipated to begin immedi- ately in Alberta, at the Canada-US border, and in Montana, South Dakota and Nebraska.
TC Energy says it will cost $8bn to build Key- stone XL. However, some estimates put the total cost of the project, including what the company has already spent on it, as high as $14.4bn.
As well as investing $1.1bn to take an equity stake in the project, the Alberta government will fully guarantee a CAD6bn ($4.2bn) project-level credit facility. TC Energy will cover the remain- ing $2.7bn investment required.
TC Energy expects to buy the Alberta gov- ernment’s stake in Keystone XL once the pipeline enters service.
As TC Energy starts construction work, the company – and the Alberta government – will likely be hoping that the pipeline will be far enough advanced by November that it cannot be derailed by the outcome of the US election.
Both Democratic frontrunner Joe Biden and rival Bernie Sanders would take a tougher stance than Trump on environmental issues, including oil and gas projects. However, Trump’s ratings have recently improved, strengthening his position as the election approaches and the coronavirus (COVID-19) dominates headlines. The crisis is still playing out, though, and given the rapid pace of policy changes and unprece- dented measures being implemented, a lot can still happen between now and November. And whatever happens, TC Energy wants to make progress on Keystone XL as rapidly as possible after 12 years of waiting to start construction on the pipeline.™
TC Energy expects to buy the Alberta government’s stake in Keystone XL once the pipeline enters service.
Week 13 02•April•2020 w w w . N E W S B A S E . c o m
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