Keystone Struggles for Customers Amid Low Prices, Tough Competition
After spending US$3 billion on land rights, lobbying, and actual pipe, TransCanada Corporation is having trouble finding customers to send crude oil through its intensely controversial Keystone XL pipeline.
“In a world awash in low-price oil, many refiners are said to be unwilling to commit to long-term deals for Canadian crude that no longer looks particularly attractive, and uncertainty about production growth from Canada’s oil sands has given producers pause about signing long-term agreements for space on a pipeline they may not need,” writes News Editor Carl Surran on the Seeking Alpha blog. “Furthermore, several companies are competing to build pipelines from Canada to the U.S., and some analysts doubt there will be enough demand for all of the projects.”
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“TransCanada Chief Executive Russ Girling remains committed to completing Keystone XL and believes it will prove profitable in the long term,” Fox Business reports, citing “two people familiar with his thinking.” But “it may be years before the company recoups its investment in the pipeline.”
Fox contrasts Keystone’s “uncertain outlook” with the “upbeat rhetoric” from Donald Trump when he invited Girling to the Oval Office for the announcement that he was reversing President Barack Obama’s decision to deny the pipeline a permit. “It’s going to be an incredible pipeline, greatest technology known to man,” the former reality TV star said at the time.
“But much has changed in the oil markets since TransCanada first filed an application with the State Department in 2008 for a cross-border permit,” Fox notes. “Back then, the price of oil had surpassed $130 a barrel, producers were rushing to pump as much as possible, and refiners were itching to secure steady supplies. Today, oil is trading around $45 amid a global supply glut caused in part by the emergence of American shale drillers.”
TransCanada still claims to be optimistic about lining up customers to fill at least 90% of the pipeline, but “a lot of water has gone under the bridge over the last seven or eight years since we proposed that project,” Girling told investors in May. [Memo to Russ Girling: Check your metaphors, please!] “So it all sort of complicates the negotiation.” (h/t to Energy Mix Productions Board member Shelley Kath for first pointing us to this story)