Source: S&P Global Platts, October 29, 2020
Weaker crude profits offset by natural gas gains
KXL touted with union jobs and indigenous community support
Villa de Reyes gas project to be completed in 1H 2021
Houston — TC Energy continued to tout the need for its controversial and long-delayed Keystone XL crude oil pipeline during its Oct. 29 earnings call as long-shot efforts remain ongoing to win support from a potential Biden administration in the White House.
The decade-long fight to expand the heavy oil corridor from the Alberta oil sands to the US Gulf Coast refining complex is yet again facing regulatory and legal hurdles in the US, and Democratic nominee Joe Biden has pledged to kill the project if he beats President Donald Trump in his reelection bid on Nov. 3.
But TC Energy has continued a public relations push to build the pipeline with more union jobs and with more ownership investments from Canadian indigenous groups, in part hoping to win over a potential Biden White House, according to energy analysts.
TC Energy CEO Russ Girling, who is retiring at the end of the year, reiterated the need for Keystone XL and made the case for the long-term fundamentals.
The simple argument is that USGC refiners will still need heavy oil grades for decades to come and that the only options outside of Canada mean relying on Venezuela, which is seeing a collapse of its economy and oil sector, and the Middle East.
“The US Gulf Coast refining complex is the best and most sophisticated in the world,” Girling said during the earnings call. “The options for heavy oil are quite limited.”
“Keystone XL continues to be a very important project for both Canada and the US,” he said.
The $8 billion pipeline project would move up to 830,000 b/d of heavy Canadian crude ultimately to Texas through the entire Keystone system. The 1,200-mile XL pipeline from Alberta to Nebraska would connect to the existing Keystone system.
After being brought back to life under Trump, TC Energy hoped to build as much of the Keystone XL Pipeline as it could in 2020 before the elections, but court rulings have again put it on hold. And Biden could permanently yank the necessary presidential permit if he takes office next year.
TC Energy made the surprising announcement to quickly proceed with the project in late March and in spite of the coronavirus pandemic after it secured $1.1 billion in taxpayer support from the conservative Alberta government — as well as $4.2 billion in potential government loans. Construction already is completed on the Canadian side of the border, as well as preliminary work in Montana near the border.
As energy analyst Ethan Bellamy of East Daley Capital said, “If Biden gets elected, KXL is dead. If Trump gets elected, it’s on life support.”
Other oil sands pipeline projects — the Enbridge Line 3 replacement and the Trans Mountain expansion — are moving forward more quickly and could offset the demand for Keystone XL, Bellamy said.
Just before the earnings call on Oct. 28, TC Energy made the announcement that — if construction moves forward — it was awarding $1.6 billion worth of contracts to six American union contractors for more than 7,000 union jobs to build for 800 miles of pipeline construction in three states in 2021, including giving priority to qualified local and indigenous-owned businesses.
Girling also emphasized that TC Energy in the fourth quarter plans to finalize the sale of a stake in Keystone XL to the Natural Law Energy firm that’s owned by a treaty alliance of indigenous communities.
In September, Alberta Premier Albert Kenney said he’s not convinced Keystone XL is dead on arrival under Biden.
“Rather than make it an abstract campaign announcement,” Kenney said, he believes the demand for the Canadian oil and the smart economics could potentially win Biden over.
In the meantime, TC Energy had delayed its planned completion date to 2023, but is pledging to stick with that timeline because it factors in legal delays.
Even without Keystone XL, TC Energy can report growing profits around a company that’s only faced minimal impacts from the coronavirus pandemic thanks to built-in contracts and stronger natural gas profits.
“Despite the challenges brought about by COVID-19, TC Energy’s assets have been largely unimpacted,” the company stated.
TC Energy’s crude oil pipelines business saw its profits fall 30% in the third quarter versus the prior year, but TC’s natural gas pipelines businesses in Canada, the US and in Mexico all reported rising revenues and profits.
That’s largely why TC Energy’s quarterly net income rose 22% from last year.
TC Energy announced it will spend $200 million on the Wisconsin Access Project to increase natural gas capacity along its ANR Pipeline system.
And, heading in Mexico, the Villa de Reyes natural gas pipeline project was delayed by the pandemic, but is still expected to be completed in the first half of 2021, Girling said.
The 886 MMcf/d project is part of a larger system to move associated gas from the still-booming Permian Basin in West Texas to the industrial center of Guadalajara, Mexico. The majority of Mexico’s electricity comes from natural gas and demand is on the rise.