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CALGARY — Back-to-back pipeline announcements from TC Energy Corp. are prompting celebrations from both oil and natural gas producers in Canada, who believe that a legal win for the Keystone XL pipeline and changes to the Nova natural gas pipelines will offer relief to the beleaguered industry.
In the same week that Ottawa announced construction would soon begin on the Trans Mountain oil pipeline expansion project, TC Energy said Friday that the Nebraska Supreme Court upheld the Keystone XL pipeline’s route approval by the state’s public utilities commission. The Alberta-to-U.S. Gulf Coast conduit is expected to move 830,000 barrels of oil per day once completed.
Hours earlier on Thursday night, TC Energy, the company previously known as TransCanada, reached an agreement with the Alberta government and domestic natural gas producers to change the way it operates the Nova gas transmission system, the province’s largest gas pipeline network.
The new deal will help stabilize the benchmark AECO natural gas prices and lift the sector that is currently fetching half the price realized in the United States — $1.16 per million British thermal units in the spot market, compared with US$2.28 in the United States.
The two announcements serve as a rare double dose of optimism for Canadian oil and gas companies, which have in recent years seen their share prices plummet to all-time-lows amid pipeline delays and domestic commodity prices regularly trading lower than international prices.
“People are starting to see more hope across the sector,” Explorers and Producers Association of Canada president Tristan Goodman said, adding that it’s been a long time since the local industry has seen two announcements for more pipeline space in under 24 hours. “This is a positive development.”
In Nebraska, the state’s supreme court ruled the appeals launched by landowners, Indigenous tribes and the Sierra Club “are without merit” and determined that the state’s Public Utilities Commission had the proper authority to approve the pipeline along an alternative to the company’s preferred route.
Opposition groups expressed their disappointment with the ruling and vowed to continue the struggle. “The fight to stop this pipeline is far from over,” Nebraska Sierra Club lawyer Ken Winston said in a release.
The Canadian energy space has been so beaten down. … This is not just a small moment.
Whitecap Resources CEO Grant Fagerheim
Still, analysts believe the case resolves the biggest roadblock before the project.
“This was the last major hurdle for construction of Keystone XL,” GMP FirstEnergy analyst Ian Gillies said in a note, adding that he expected the project would be complete in 2021.
“The Supreme Court decision is another important step as we advance towards building this vital energy infrastructure project,” TC Energy president and CEO Russ Girling said in a release, which did not provide an updated cost estimate for the project or a construction start date. Costs were previously estimated at US$8 billion.
TC Energy spokesperson Matthew John would not provide a new timeline to start work on the Keystone XL pipeline, but said in an email, “We will continue to carefully obtain the regulatory and legal approvals necessary before we consider advancing this commercially secure project to construction.”
Even for companies that won’t be shipping their oil on Keystone XL, the construction of the project will provide a “de-pressuring valve” for the rest of the Canadian pipeline network, Whitecap Resources Inc. president and CEO Grant Fagerheim said.
“The Canadian energy space has been so beaten down. I think it’ll be a morale booster,” Fagerheim said. “This is not just a small moment.”
Cenovus Energy Inc. recently increased its committed capacity on Keystone XL from 50,000 bpd to 150,000 bpd. “Any news that improves market access is a step in the right direction, and we remain optimistic KXL will be built,” Cenovus spokesperson Ruth Anne Beck said in an email.
‘It’s very much a ‘show me first’ market,’ in which investors would need to see the new system working before injecting funds into the sector.
Jeremy McCrea, Raymond James analyst
As happy as oil producers are with the Keystone XL court win, most Canadian gas producers were equally pleased with the late Thursday bulletin from TC Energy that it’s changing the way it allocates space on the Nova gas system when certain lines are down for maintenance.
The change would resolve a two-year fight between TC Energy and the majority of natural gas producers in the province. Gas producers had said that TC Energy cuts their access to storage during maintenance periods, which results in wild swings in AECO natural gas prices and has scared off investors concerned about market volatility.
“This changing of the protocol will allow more gas into storage during periods of maintenance over the summer, which will reduce the volatility on AECO by essentially stopping the AECO price from collapsing,” Alberta Associate Minister of Natural Gas Dale Nally said in an interview.
“I think this is great news for the industry,” Nally said, adding that he met with over 80 companies in the gas business, most of whom were eager to see the new protocol implemented.
Raymond James analyst Jeremy McCrea said “it’s very much a ‘show me first’ market,” noting that investors would need to see the new system working before injecting funds into the sector.
The National Energy Board still needs to approve the new protocol, but TC Energy expects the change to take effect at the beginning of September.
The company is requesting an expedited process for implementing the change as “a sufficient number” of gas producers wanted the new protocol, TC Energy’s John said in an email.
Associate Minister Nally said there would be additional measures to boost the domestic gas industry. “This was not a one and done endeavour,” he said.
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