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Keystone XL pipeline fate shifts to Nebraska court

04.21.2014  | 

If the seven-member state Supreme Court upholds a lower court decision, TransCanada, the Calgary-based company that wants to build Keystone, will need to apply to the Nebraska Public Service Commission.



The focus of the Keystone XL debate has shifted from a fierce lobbying war in Washington to Lincoln, Nebraska, where the state Supreme Court has been asked to weigh a legal challenge to the pipeline.

The US State Department, which is responsible for reviewing whether the project is in the nation’s interest, said April 18 that it would delay making a recommendation until legal questions about the way the route was approved through the prairie state are resolved. That could spare President Barack Obama from having to decide on a project that splits supporters of his in the environmental and labor movements before an important congressional election in November.

“Once again, the administration is making a political calculation instead of doing what is right for the country,” Terry O’Sullivan, general president of the Laborers’ International Union of North America, said in an e-mail. “It’s clear the administration needs to grow a set of antlers, or perhaps take a lesson from Popeye and eat some spinach.”

If the seven-member state Supreme Court upholds a lower court decision, TransCanada, the Calgary-based company that wants to build Keystone, will need to apply to the Nebraska Public Service Commission. The commission by law has seven months for its pipeline reviews.

“Effectively, this likely postpones the decision until after the US mid-term elections,” Robert Kwan, an analyst with RBC Capital Markets, a subsidiary of Royal Bank of Canada, said in a research note.

Share Drop

TransCanada fell 3.3 percent to C$49.62 as of 10:30 a.m. in Toronto, the biggest drop in more than two years.

The State Department said the possibility of a new route coming out of that process justified hitting the pause button. The announcement drew a strong reaction from all sides -- including pledges from congressional leaders to force a decision sooner by legislation.

“President Obama is going to try to prevent this project from going forward,” Senator John Hoeven, a North Dakota Republican, said in an April 18 interview. “He’s trying to defeat it by delay.”

Hoeven said a bill he authored to require Keystone approval is about four votes shy of the 60 needed to advance legislation in the Senate. The announcement may put pressure on a half dozen colleagues who support the line but have opposed his bill to give the administration time to reach a decision.

‘Some Complexity’

Senate Democrats are trying to retain a slim majority in the midterm elections and the list of incumbents at risk include several in states where support for Keystone is strong, including Senator Mary Landrieu, a Democrat from Louisiana and chairman of the Energy and Natural Resources Committee. Landrieu is among 11 Democrats who signed a letter earlier this month that urged Obama to approve the pipeline by May 31.

David Domina, an Omaha lawyer representing the landowners who brought the lawsuit against the pipeline, said the case won’t be argued before the Nebraska high court until September or October. After that, a decision wouldn’t come until months later, he said.

“It’s a case that involves some complexity,” Domina said.

Nebraska Attorney General Jon Bruning’s office didn’t respond to a request for comment on how quickly the court could hear the case.

January Decision

Pipeline opponent Jane Kleeb predicted the case will take at least until January to be resolved and, if the landowners win, the commission’s decision wouldn’t come until July 2015 at the earliest because of the seven-month requirement. Meanwhile, she said, a permit for the portion that goes through South Dakota is due to expire in June and a renewal could add more time to the clock.

“Pipeline dies under its own weight,” she said in an e- mail.

Shawn Howard, a spokesman for TransCanada, said the permit doesn’t expire.

John Kilduff, partner at Again Capital, a New York- based hedge fund that focuses on energy, predicted the project would probably win the US blessing -- though that could take awhile.

“The Obama administration is probably looking for a way to not approve it but, given the studies, it is going to get approved,” Kilduff said. “It’s just a matter of timing it right with the elections to ease the wrath of the environmentalists.”

Costs Rise

David McColl, an analyst at Morningstar, said the delay would raise the costs to build the pipeline, though probably not to a level that would kill it.

“The cost could become prohibitive when the toll for the pipeline equals the cost to move by rail," McColl said. “This would require a significant cost increase, likely well north of $10 billion -- we don’t think this is likely to happen.”

Without Keystone XL and other pipelines aimed at allowing Canadian crude to earn world prices, Canada’s economy is losing about C$50 million a day, according to the Canadian Chamber of Commerce. In addition, surging oil production from Alberta’s oil sands region risks becoming a “significant issue” as volumes quickly catch up to transportation capacity in the next three to four years, Alberta’s Finance Minister Doug Horner said in an April 9 interview.

Western Canada Select, the Canadian heavy crude benchmark, on April 17 traded at an $18.25/bbl discount to West Texas Intermediate. The discount has been as much as $42.50 in recent years.

Alternative Pipelines

In the meantime, railways have stepped in to help meet the rising demand from Canadian oil producers to get their fuel to the US Gulf Coast and other coastal regions of North America.

Companies including Cenovus Energy and MEG Energy are among companies with expanding oil shipments by rail as they boost production. Cenovus has shipped crude to California and even Asia, while MEG Energy transports oil to the Gulf Coast.

Both TransCanada and Enbridge are proposing alternative pipelines to Keystone XL. TransCanada is considering a C$12 billion pipeline from Alberta to Canada’s Atlantic Coast called Energy East, while Enbridge is awaiting a decision by Prime Minister Stephen Harper for the company’s controversial C$6.5 billion Northern Gateway line from Alberta to Canada’s Pacific coast.

Landowners’ Case

The Nebraska court is reviewing a case brought by three landowners along the proposed route who challenged a state law that gave Governor Dave Heineman the power to approve the project. A lower court invalidated the law, saying such decisions rest with a special commission established in 1885 to take politics out of the taking of land for railroads.

Until last week, the State Department said the court case wouldn’t affect its ongoing review to determine whether Keystone was in the nation’s interest to build.

A senior State Department official, who spoke on a conference call with reporters on the condition of anonymity, said the delay was prudent given the route could change if it is rejected in Nebraska. The governor and a majority of the state legislature support the project, however.

“Agencies need additional time based on the uncertainty created by the ongoing litigation in the Nebraska Supreme Court which could ultimately affect the pipeline route,” the State Department said in a statement.

Politically Difficult

Critics said the delay allows Obama, who has said he will make the final call after the State Department review is complete, to punt a politically difficult decision.

“It’s shameful that as we begin spring construction season, that hundreds of my constituents will be denied an opportunity to go to work on a project that will help secure America’s energy future solely because the president wants to placate his political base in an election year,” Representative Lee Terry, a Nebraska Republican, said in a statement after the State Department announcement.

The pipeline’s path in Nebraska, one of three states the unbuilt northern leg of Keystone would cross, was thrown into doubt in February when a state judge invalidated legislation that let the Republican governor approve the path.

The judge said that only the state Public Service Commission -- an agency created to take politics out of decisions involving the taking of land for private projects -- had that power.

Critics of Keystone, a $5.4 billion project that was first proposed by TransCanada in 2008, argue its a risk to the climate because it would encourage production of Alberta’s oil sands, which releases more greenhouse gases than the production of more conventional types of crude.

National Interest

The State Department, which has jurisdiction because the project crosses an international border, was completing its review to decide if Keystone was in the national interest. It was weighing the project’s environmental, economic and diplomatic impacts. Eight federal agencies had until about May 1 to weigh in -- a deadline that is now indefinitely pushed back.

On Jan. 31, the department released an lengthy environmental review that found Keystone probably wouldn’t significantly contribute to climate change because the oil sands in Alberta would be developed with or without the pipeline.

Environmentalists contend Keystone is a linchpin to oil sands development.

“This decision is irresponsible, unnecessary and unacceptable,” Landrieu said in a statement that called the move “nothing short of an indefinite delay.”

Have your say
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Alex Hordyski

I find it unbelievable that a law passed over a hundred years ago, to address an entirely different scenario, and which was enacted by the state government cannot be changed by the same state government because of some judge.

Richard W. Goodwin

Please refer to “No More Keystone Excuses” Op-Ed, Wall Street Journal; Feb 1-2,2014
Based on State Department’s alternative scenario: Keystone pipeline is not built and oil reaches refineries via rail and tanker.- resulting in net increase of Green House Gas [GHG] emissions of 27.8% - 39% if by rail and, if transport to Gulf of Mexico GHG emission would rise by 41.2%. State also identified 42,100 (direct, indirect and induced) jobs that construction of Keystone pipeline would create.
To further support DOS’ analysis, California has reached record levels of receiving rail shipments of oil. CA received 709,014 bbl of crude from Canada by rail in December, a 4.9% increase from November and up from zero a year ago. Also oil barging [from Midwest down the Mississippi River] has increased 13 times.
If approved the XL Keystone pipeline would not to affect the growth of North Dakota oil production, according to Justin Kringstad, director of the North Dakota Pipeline Authority, who explained that Canadian tar sands oil and North Dakota's crude are not in competition as they are both intended to reach different refineries with different production requirements.

Canadian oil is heavy sour crude of lower value and is more difficult for refineries to process, while North Dakota's light sweet crude is simpler to refine. The state produces almost one million barrels of oil per day, according to the Associated Press.
Keystone XL Job Specifics
The $7 billion oil pipeline is the largest infrastructure project on the books in the U.S. right now. It would create 20,000 jobs: 13,000 in construction, 7,000 in manufacturing.
-- Construction of the 1,600 mile pipeline is broken down into 17 U.S. pipeline spreads or segments, with 500 workers per spread - that's 8,500 jobs
-- Keystone XL also needs 30 pump stations worth tens of millions of dollars. Each station requires 100 workers - that's 3,000 jobs. Add another 600 jobs that would be needed for the six construction camps and tank construction at Cushing, Oklahoma
-- A project of such magnitude needs construction, management and inspection oversight - that would create 1,000 jobs, bringing the overall Keystone XL total to 13,000 direct, on-site jobs.

This delay is political i.e. until after mid-term elections and if unresolved afterwards would become a presidential election issue.
Placing politics ahead of valid analysis is not sound policy.
Richard W;. Goodwin West Palm Beach FL

Chuck Nolan

Until we have solved various technical problems, there is and will not be in the near future enough energy to allow us to stop burning carbon or to make plastics from sustainable sources. Until we do, we need to supply oil and natural gas to replace coal and for plastics to make lighter weight and therefore more efficient products. Improved recycling of plastics would be a major goal to sell the public on.

allan kern

One wonders how the pipeline becomes a matter of "national interest", when the driving force behnd the project is private sector and foreign earnings, for Canadian tarsands, pipeline owners, gulf coast refiners, and exporters of both crude and refined products. This project would not be on anybody's radar if it didn't promise big earnings for these players. National interest, and national security, are not drivers. The private enterprises behind the project should not have the right of eminent domain over Nebraska land owners, which amounts to the power of private enterprise over both people and over government agencies to enlist governmental powers as their own. If TransCanada and their supporters want to build a pipeline across Nebraska, they can negotiate a fair price for the land, without a rushed law, signed by the governor, giving it to them. That's how we (used to) do it on this side of the boarder.

M H Brown

Transporting this amount of oil by rail is a much greater risk to the environment than the pipeline.

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