Record volumes of Canadian crude are expected to flow to American refineries in the years following Joe Biden’s decision to nix a long-awaited and controversial cross-border pipeline project. The all-but-certain death of Keystone XL is another blow to the battered oil patch, but experts predict the expansion of other lines will be enough to support strong U.S. demand for Canada’s heavy crude.
Biden revoked TC Energy’s (TRP.TO)(TRP) construction permit hours after taking office last week, ending a four-year reprieve for the project granted by his predecessor Donald Trump in 2017. Biden’s move makes good on a campaign trail promise to kill the project, and recalls a similar decision by President Barack Obama, who issued an executive order in 2015 to halt the pipeline’s construction.
Jackie Forrest, executive director of the ARC Energy Research Institute, said what appears to be the final pass of the 12-year-old Keystone XL political football is less important to the Canadian energy sector than strong underlying trends for U.S. demand and other pipeline expansions currently in the works.
“The U.S. Gulf Coast is very short of heavy crude. There has been a big fall off of Venezuelan and Mexican supply. They’re paying even more for heavy oil than they were ten years ago relative to light oil,” she said in an interview.
On the Canadian supply side, she said annual oil sands production growth is trending lower as more pipeline capacity is expected to come online. Several expansionary projects are underway, including Enbridge’s (ENB.TO)(ENB) Line 3, and of the government-owned Trans Mountain pipeline. The projects, which face their own opposition challenges, are slated for completion in late of 2021 and late 2022, respectively.
“Both of those seem like they’re going to occur. If they do, then there’s probably ample takeaway capacity for some time out of Western Canada. We also have 400,000 barrels per day (bpd) of partly-used crude-by-rail capacity right now,” said Forrest. “The thing that KXL would have offered is that direct connection to the Gulf Coast.”