Trump unlikely to approve Keystone XL pipeline quickly

President-elect Trump promised a quick decision on the Keystone XL pipeline during his first conversation with Prime Minister Trudeau, while Congressional leaders went out of their way to lobby Trump on the issue in November.   

A quick decision by the Trump administration, however, may not be the optimal one for Canada.

{mosads}The Trump administration has made its priorities clear — create jobs for Americans, provide domestic and international security and repair the fiscal health of the U.S.

To have Canadian business become a major issue for the Trump administration, it will have to result in substantial U.S. benefits, namely, American jobs. Keystone XL’s promise to invest $8 billion to create 42,100 man-years of work that, according to the State Department, are mostly short-term construction jobs.

The State Department concluded that Keystone XL mainly benefits Canada by lowering oil transport costs. Moreover, Keystone XL competes with other Trump priorities.

The idea that Keystone XL can be expeditiously approved by the Trump administration seems unlikely. Approval would require rescinding Executive Order 11423, which has been in place since the Johnson administration.   

Rescinding EO 11423 would mean that President-elect Trump becomes the decisionmaker without the State Department acting as the coordinator of inputs from other agencies.  

Such a move to expedite approval of a quasi-foreign project that appears to lack significant American benefits will attract hostility from Trump’s political and environmental opponents.  

Keystone XL has a history — it continues to be an issue that employs legions of highly-paid lobbyists eager to deliver visible results. Should President-elect Trump make a rash move, it will focus opponents on his presently ill-defined stance on climate change. 

Quick approval might become the lightning rod issue for opponents to coalesce, potentially with dire consequences for other Trump administration priorities. There is an argument to be made that rapid Keystone XL approval looks, smells, and tastes like “swamp politics“.

If Executive Order 11423 is not rescinded, then the process involves the State Department, an agency with other priorities — China, North Korea, Russia, etc. Approval of Keystone XL will have to compete for attention from a secretary of state that is concerned with national security issues.  

Moreover, the 2012 application is largely outdated. The original application was filed in May 2012 when oil prices peaked above USD $120/bbl.

Now, prices are less than half and show little sign of rising higher. Bankruptcies in the US O&G industry resulted in a reduction in employment in the upstream U.S. oil and gas industry from 200,000 in January 2015 to less than 175,000 today.  

The Trump administration will be concerned with the impact of greater foreign oil supply on employment in the U.S., a non-issue in 2012, but a major one today.   Canadian heavy oil does not directly compete with the lighter grades of U.S. shale oil, but there are other considerations, including the higher GHG emissions from Canadian oil, which was an issue for the Obama administration.

The U.S. Gulf Coast refineries that supply much of the southern and southeastern U.S. seaboard were designed in the 1970’s and 80’s to take on heavy crude. Canada’s market share increased, in part, because international competitors frittered away their natural geographic advantages.

Canadian heavy oil was sought during much of the 2000’s to fill the gap, leading to the Keystone XL plan. Venezuela is now close to collapse as their oil output dwindles. Absent a regime change and sovereign debt default, the U.S. is unlikely to come to the aid of Venezuela. 

Following a Venezuelan regime change, the Trump administration will have to become involved to prevent instability in the Western Hemisphere. American companies will be encouraged to help Venezuela rebuild its oil industry once again, as they did in the 70’s. 

Room will be made for cheaper Venezuelan oil exports in the U.S. Gulf Coast. Compared to Canadian sources, Venezuelan heavy oil has a lower carbon footprint, is easier to produce, and is somewhat easier to upgrade to the products that the U.S. Gulf Coast ships. 

The increased delivery capacity from Canada to the U.S. that Keystone XL would provide cannot meet the low transportation costs of Venezuelan heavy oil. Conceivably, if Venezuela recovers and the demand for oil in the U.S. gradually declines, stranded heavy oil production capacity in Canada could ensue. 

No significant non-U.S. export capacity for heavy oil exists now in Canada. How much incremental pipeline capacity to the U.S. is required from Canada now that the Trans-Mountain and Line 3 for Enbridge projects have been approved? 

The Trump administration decision will be influenced by the renegotiation of NAFTA, as the TransCanada pipeline has a USD $15b arbitration claim pending. Reopening NAFTA will highlight protectionist policies by Canada in finance, telecoms, healthcare, defense and government procurement, aviation, culture, and agricultural products.   

The new administration is likely to have little patience with Canada being one of the most egregious defense free-riders, with procurement policies that virtually preclude fair competition by U.S. firms.

Under these circumstances, the most probable “quick decision” that a Trump administration will reach is to request TransCanada Pipeline Ltd resubmit an updated application. But, don’t count on a quick approval; the stars don’t seem well-aligned.   

Danny Lam is an independent consultant on greenhouse gas-mitigation strategies. He graduated with a master’s degree in civil and environmental engineering from the University of Waterloo in 2014. Maurice Dusseault is a professor of earth sciences at the University of Waterloo.

The views expressed by contributors are their own and not the views of The Hill.