TRP TC Energy Corporation

By Vipal Monga and Collin Eaton 

TORONTO -- President Biden's revocation of a permit for TC Energy Corp.'s Keystone XL pipeline is raising pressure on Canada's energy industry to seek new markets for oil and gas, its top export.

Mr. Biden revoked the Keystone XL permit on Wednesday, hours after taking office, effectively shutting down a 12-year, cross-border project that would have carried 830,000 barrels a day from Alberta to Nebraska and eventually to refiners on the Gulf Coast. His executive order, which fulfilled a campaign promise, cited concerns about climate change.

Canada, the world's fourth-largest oil producer, is left with fewer options to get its dense, sticky crude from landlocked oil sands to U.S. refiners. Canada and industry executives are also working to counter claims that tapping oil sands is more damaging to the climate than some other types of oil. They say Canadian producers have lowered carbon emissions by using less coal-fired power and more renewable energy to run their operations, among other steps.

Chris Bloomer, president of the Canadian Energy Pipeline Association, a trade group, said Mr. Biden's decision didn't take into account the work the Canadian industry has done to reduce emissions. "Obviously, it's very disappointing," he said.

Canadian Prime Minister Justin Trudeau said Wednesday that he was disappointed with Mr. Biden's decision, but he also offered support for the U.S. president's commitment to fight climate change. Mr. Trudeau has set plans to reduce carbon emissions over the next three decades, including a proposal for an increased carbon tax.

Mr. Biden's decision to block Keystone XL won't immediately hurt Canada's oil industry because production and demand have fallen during the Covid-19 pandemic. In recent years, producers have increased the amount of crude transported to the U.S. by rail, traders said, reducing the need for Keystone XL.

But the likely demise of the project has underscored how reliant Canada remains on the U.S. to export its crude. Canada's proven oil reserves are third in the world behind Venezuela and Saudi Arabia, according to the Canadian government, but much of what it pumps is sent to refiners in the U.S., which buys 98% of Canada's oil exports.

Canada's energy industry is pushing for more access to growing markets in China and India, pinning hopes on the completion of a pipeline next year that would extend from Alberta to the Pacific coast. Keystone XL's failure makes the Trans Mountain pipeline even more important, said Matt Murphy, an analyst with Tudor, Pickering, Holt & Co.

Enbridge Inc., meanwhile, is working to replace a pipeline in northern Minnesota by later this year. The revamped Line 3 will add 370,000 barrels a day of export capacity from Canada to Superior, Wisconsin, according to research firm Rystad Energy.

Because Canadian producers have such limited and costly options for getting their oil to buyers, it trades at a discount to global benchmarks. The Western Canadian Select grade of dense crude that is extracted from oil sands was trading at $39.30 on Thursday, $13.70 below the West Texas Intermediate benchmark, according to S&P Global Platts.

Trump administration sanctions on Venezuela and Iran and production cuts by the Organization of the Petroleum Exporting Countries have also raised the price of heavy crude from overseas and increased the attractiveness of Canada's cheaper crude in the U.S.

Refineries in the U.S. aren't clamoring for the Keystone XL pipeline because its additional capacity would have eased the logistical bottleneck that makes Canadian crude one of the most profitable varieties for U.S. refiners, traders and analysts said.

U.S. refiners have consumed more Canadian crude in recent months. According to the Energy Information Administration, Canadian exports of crude oil totaled nearly 4 million barrels for the week ending Jan. 8, up 2% from a week earlier and comprising 56% of all imports into the U.S.

--Paul Vieira in Ottawa contributed to this article.

Write to Vipal Monga at vipal.monga@wsj.com and Collin Eaton at collin.eaton@wsj.com

(END) Dow Jones Newswires

January 22, 2021 13:36 ET (18:36 GMT)

TC Energy (TSX:TRP)
Historical Stock Chart
From Mar 2024 to Apr 2024

TC Energy (TSX:TRP)
Historical Stock Chart
From Apr 2023 to Apr 2024