The approval was not for TransCanada’s preferred route, but many market watchers see the ruling as a win for the Calgary-based company.
TransCanada (NYSE:TRP) received approval from Nebraska regulators to build its $8-billion Keystone XL pipeline on Monday (November 20).
The approval was not for TransCanada’s preferred route, but for a more costly alternative that would add 5 miles of pipeline, along with an additional pumping station and transmission lines. The regulators said the alternative path will make use of an existing utility corridor established by the company’s original Keystone pipeline, and will therefore minimize disruption.
“As a result of today’s decision, we will conduct a careful review of the Public Service Commission’s ruling while assessing how the decision would impact the cost and schedule of the project,” said Russ Girling, TransCanada’s president and CEO, in a statement.
The Calgary-based company has been fighting to get the Keystone XL pipeline approved for the past decade, and has received harsh criticism from environmental groups and landowners. Despite those circumstances, some analysts see Monday’s ruling as a win for TransCanada.
“Nebraska’s decision today greatly diminishes the political risk for the project, likely clearing the way for increased volumes of Western Canadian heavy crude to reach the Gulf Coast,” Zachary Rogers, an analyst at Wood Mackenzie, said in a note. “The pipeline’s commercial viability is strengthened as declining heavy oil production in Mexico and ongoing Venezuelan risk has recently tightened the heavy-crude market in the Gulf Coast.”
Alberta Premier Rachel Notley and Federal Natural Resources Minister Jim Carr also welcomed the news. Meanwhile, other market participants questioned the impact that pipeline construction could have.
“While today’s Keystone XL pipeline approval is an important milestone, it does not provide certainty that the project will ultimately be built and begin operating,” commented Gavin MacFarlane, vice president at Moody’s Investors Service. “Pipeline construction would negatively affect TransCanada’s business risk profile through increased project execution risk, and would likely put pressure on financial metrics.”
There are also doubts about demand for the pipeline after a surge in US drilling activity. “Considering the growth of oil output in the U.S. … the economics of importing the heavy crude from Canada are not fully justified,” noted Chirag Rathi, director at business consultancy Frost and Sullivan in Texas.
Nebraska’s decision comes days after the existing Keystone pipeline sprung a major leak of 5,000 barrels of oil in South Dakota. The pipeline, which can carry about 600,000 barrels of crude a day from Alberta’s oil sands to the US Midwest, is expected to remain shut while the company responds.
Pipeline opponents, who warned previously that the spill highlighted the risks posed by the proposed XL expansion, are not happy with the regulators’ decision. “There’s no safe route for Keystone XL, and we will continue fighting with every tool, in every venue and with every partner, to make sure it’s never built,” said Anthony Swift of the Natural Resources Defense Council.
On Monday, TransCanada’s share price closed up 1.24 percent in New York at US$49.62. The company’s share price is up almost 10 percent since January.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.