TransCanada is Suing the US Over Keystone XL: Should it Win?

Last Wednesday, TransCanada (TSX:TRP) announced that it would sue the US  government over the rejection of the Keystone XL pipeline, seeking to recover over US$15 billion in costs and damages. 
President Barack Obama rejected the pipeline last year, seven years after it was first proposed, stating that it would not make a meaningful long-term contribution to the US economy. Indeed, with oil prices falling roughly 70 percent since June 2014, it’s been more and more difficult to make the case for new oil projects and infrastructure.
But TransCanada says that the denial was “arbitrary and unjustified.” The company noted that Keystone XL was not expected to have any significant impact on global greenhouse gas emissions, and it claims that it had every reason to expect its application would be granted, as it had met the same criteria applied to other similar cross-border projects.

“In its decision, the U.S. State Department acknowledged the denial was not based on the merits of the project,” the company stated in a release. “Rather, it was a symbolic gesture based on speculation about the perceptions of the international community regarding the Administration’s leadership on climate change and the President’s assertion of unprecedented, independent powers.”
TransCanada has filed a notice of intent to intiate a claim under Chapter 11 of the North American Free Trade Agreement (NAFTA) in response to the denial. It has also filed a lawsuit in US Federal Court asserting that the President exceeded his power under the US Constitution.
Issues of democracy
Not surprisingly, opinions are divided over TransCanada’s move to file a complaint over the Keystone XL rejection. According to Salon, consumer advocates described the lawsuit as an “attack on our domestic, democratic government.”
“What it boils down to is a foreign corporation deciding that the U.S. taxpayers ought to give them $15 billion because they don’t like the outcome of our government decision that this pipeline was bad for our country and bad for the environment,” Lori Wallach, director of Public Citizen’s Global Trade Watch, was quoted as saying.
Jason Kowalski, policy director of environmental group 350.org, told Reuters, “[t]he suit is a reminder that we shouldn’t be signing new trade agreements like the Trans Pacific Partnership that allow corporations to sue governments that try and keep fossil fuels in the ground.”
Meanwhile, a letter to the editor of the Wisconsin Rapids Tribune was entitled simply, “Keystone XL lawsuit is ridiculous.”

Arbitrary decisions

At the same time, others argued that the issue at hand is not one of right or wrong, but of whether or not both parties played by the rules. Forbes contributor Tim Worstall spells it out rather succinctly in his piece, “Transcanada Should Sue The US Under NAFTA For The Keystone XL Refusal – And Win Too:”

Note that absolutely none of this at all has anything to do with whether Keystone XL was or is a good idea or a bad one. Nor is it about the US Government’s power to get pipelines built or to stop them being built. It’s about whether someone has spent large amounts of money to do something which would reasonably be allowed and then found that they, they specifically, have been discriminated against in being able to do that thing.

Certainly, natural resource investors will no doubt be familiar with similar, arbitrary rulings. For example, there’s the story of British Columbia based mining company Pacific Booker Minerals (TSXV:BKM,AMEX:PBM), which saw the proposal for its Morrison mine rejected in 2012. The company won the right to have its proposal reconsidered in 2013, but the Ministry shot down the proposal again in July 2015, stating that the project still needed to undergo further assessment.
In any case, there’s certainly a case to be made for either side. Investors will no doubt be keeping an eye out for developments.
TransCanada shares are down 18.85 percent, or $10.43, over the past year. The company is currently sitting at $44.91, and has traded within a 52-week range of $40.58 and $59.50.
 
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Pacific Booker Minerals is a client of the Investing News Network. This article is not paid for content.