CALGARY – Canadian oil companies are recommitting to TransCanada Corp.’s Keystone XL pipeline, though some producers are concerned about threats of “tweaks” to the North American Free Trade Agreement and a border adjustment tax by the U.S. government.
TransCanada has been canvassing support for its long-delayed but recently revived pipeline between Alberta and the U.S. Gulf Coast at a time when many domestic oil producers are concerned U.S. President Donald Trump could impose new trade taxes on exports to the States.
Trump did soothe Canadian nerves by stating he is only looking for ‘tweaks’ to the Canadian portion of the NAFTA agreement, but it’s unclear whether the minor changes could turn into major implications for Canadian businesses.
In the meantime, other pipeline proposals such as the Alberta-to-New-Brunswick Energy East pipeline and Kinder Morgan Canada’s Trans Mountain expansion project, are looking increasingly attractive as they connect Alberta to new overseas markets and also serve as a hedge against the oilpatch’s utter dependence on the U.S. and its political risk.
Trent Stangl, Crescent Point Energy Corp. senior vice-president, investor relations and communications, said forecasts show Asian and Indian markets to be key growth drivers for oil products over the next 20 years, and the company “is excited to have multiple opportunities to get to different markets.”
He said export pipelines to the East and West Coasts “gives us more diversity and helps protect us against regulatory and fiscal issues.”
Some producers have reaffirmed their support for Keystone XL project, which was rejected by former president Barack Obama but recently revived by Trump and now needs shippers to re-sign transportation agreements.
“We are, and we remain, a committed shipper on both pipelines,” Suncor Energy Inc. spokesperson Sneh Seetal said of Keystone XL and Energy East pipeline, adding that Suncor’s chief executive Steve Williams downplayed concerns over a border adjustment tax last week.
Privately, however, other energy executives have expressed concerns to the Financial Post about a border adjustment tax and about committing to more U.S.-bound oil shipments on Keystone XL given the uncertainty.
“The last several years, starting with the inability to get Keystone XL across the finish line, and now with border taxes and things like that, it really highlights the need to have a diverse market,” one Alberta executive said, asking not to be named.
Neither producer, nor transporter, nor consumer likes uncertainty, ARC Energy Research Institute executive director Peter Tertzakian said. “The propensity to commit to long-term, big-ticket projects goes down dramatically anytime there’s regulatory or policy uncertainty.”
Trump’s invitation to TransCanada to re-apply for a presidential permit for the pipeline comes at a difficult time for the company, given the president has sought “tweaks” to NAFTA without offering much details.
When asked whether a possible border adjustment tax has made it difficult to secure commitments on the U.S.-bound pipeline, TransCanada spokesperson Terry Cunha would only say, “discussions with our customers on Keystone XL continue.”
Martin Pelletier, TriVest Wealth Management co-founder and industry analyst says shippers are right to be wary. “Why would anybody sign on anything right now, provide any kind of commitment, before we get clarification? That’s like putting the cart before the horse.”
“Why would anybody sign on anything right now”
Similarly, Calgary-based Canadian Energy Research Institute vice-president, research Dinara Millington said an import tax could change the economics of sending oil barrels to the U.S. “The shippers will need to evaluate what their project economics are and whether it makes any sense to them in terms of their netback.”
Millington recently published a study that showed domestic oil companies will need both Energy East and the Trans Mountain expansion pipeline, given oil production forecasts over the next 20 years. At the time of the study, Keystone XL had been shelved, she said, but added that shippers could eventually fill all three pipelines.
“There will still likely be considerable support for the Keystone XL option,” Gary Leach, the Calgary-based president of Explorers and Producers Association of Canada said in an interview. The project would likely be prioritized within TransCanada’s portfolio of projects because the company has already completed the southern leg of the pipeline, he said.
“More options are always better, but somebody’s got to pay for it and the pipeline company needs some assurance they’ve got volume commitments,” Leach said.