Why The GOP’s Pipeline Ploy May Wind Up Killing Keystone

January 23, 2012 12:30 a.m.

House Republicans made a conscious choice to undercut the Keystone XL oil pipeline project, even though members of their own party strongly support it. The politics were too ripe.

But just how badly have they undercut it? It’s not a stretch to say that politicking the issue will cost TransCanada — the firm that was to build the pipeline — huge sums of money, and may just be the project’s death knell.Recall that the Obama administration planned to make a formal decision on the pipeline a year from now. A great deal of reporting and inference suggested that the administration supported the project in principle, but chose to delay the decision for several months for further study, largely to avoid picking an election year fight with environmental advocates. Instead Republicans forced his hand, and, with the review incomplete, he had to formally reject the proposal.

Alright, you might say. If both the U.S. government and Canada support the project, why can’t the White House and TransCanada pick up where they left off in January? It turns out the formal rejection changes the equation quite dramatically.

Reapplying for the project isn’t simple — it’s time consuming and costly, and if the shippers that have partnered with TransCanada decide to take their business elsewhere, the whole thing could go bust.

“Even if this just constitutes a delay it still cuts into their future earnings,” says Andrew Leach, a professor at the Alberta School of Business in Canada.

He cited analyst Steven Paget of First Energy Capital who put the losses at 15 percent of 2015 earnings. According to Paget, the rejection could delay the project by three years — and that’s just one problem.

“TransCanada can certainly reapply for a permit for a modified pipeline, but we foresee several possible problems with this: for instance, shippers may walk away from their contracts with TransCanada,” he wrote, according to The Canadian Press. “If this happens, another pipeline company could lure away these shippers if it could convince them that it could deliver a functioning pipeline sooner than TransCanada has done.”

“It’s possible that these companies will pull out and the pipeline will no longer be viable,” Leach said, while noting he’d be “very surprised if they didn’t reapply and take that process all the way to the finish.”

“If you ask anyone in TransCanada’s office, they were much happier before the payroll tax rider because they had the root agreement,” Leach said.

TransCanada intends to reapply with a slightly new route meant to circumvent an environmentally sensitive region in Nebraska. In a conference call with reporters, Assistant Secretary of State Kerri-Ann Jones suggested that while the State Department can piggyback off of the research that’s already been done on Keystone, the review process must begin anew, including a new Environmental Impact Statement.

“If TransCanada comes in with a new application, it will trigger a new review process, a completely new review process,” she said. “We cannot state that anything would be expedited or – at this time. It would just have to go through all of the requirements that are needed for this kind of application review. So I couldn’t really speak to when such a review could be finished.”

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