After several years of delays and conjecture, and with oil prices plunging to new lows, it is abundantly clear the Keystone XL pipeline is not going to happen. And that TransCanada (
TSX:TRP,
Forum) has nothing left to lose.
So it is that the company is set to launch a trade challenge over the rejection of its project under the North American Free Trade Agreement (NAFTA), seeking $15 billion in damages.
TransCanada has called the pipeline rejection ‘
arbitrary and unjustified,’ stating the government had concluded five times that the pipeline would not have a significant impact on greenhouse gas production.
“Stated simply, the delay and the ultimate decision to deny the permit were politically-driven, directly contrary to the findings of the administration's own studies, and not based on the merits of Keystone's application,'' TransCanada says in its notice of intent.
The decision to deny the pipeline, according to TransCanada’s legal filing, was “unauthorized by statute, encroaches upon the power of the Congress to regulate domestic and foreign commerce, has been foreclosed by affirmative Congressional action, and unlawfully exceeds the powers granted to the president.''
Though the US government has yet to lose a case lodged by a company seeking damages, a Canadian Press report suggests there’s every chance the pipeline layer could win out.
Central to that thinking is a case brought by US company Bilcon against Canada over what it called an unfair environmental review case when it was denied permission to build a quarry in Nova Scotia.
Nicolas Lamp, an assistant professor with Queen's University's faculty of law, says TransCanada has a “good shot” in its challenge.
“If the arbitration tribunal were to follow that precedent of the Bilcon case, I think it's quite likely that they will find against the U.S.”
REACTION:
TransCanada stock fell 3.74% on the day, down $1.67 to $42.94. The company has fallen off from $48.17 on December 17 of last year, and $58 back in March.
OUR TAKE:
Have at it, TransCanada. Moving fuel through railway cars and trucks is not exactly environmentally friendly, nor any less likely to involve spills, than is running it through a pipe. To deny Keystone XL on environmental grounds is spurious and political, especially after the company has spent so much on the thing.
Placing environmental levies on the thing? Fine. Forcing it to be properly inspected, regulated and insured? Great. But an outright ban? You have to make the case for that a lot better than has been done.
TransCanada played it patient for several years, refusing to threaten or agitate as a steady stream of politicos punted the issue about, hoping the thing would just go away. Now that a decision has been made, and TRP has been left with no alternatives, NAFTA is just the sort of Hail Mary you’d expect, with a significant upside if they can get a win.
But it’ll take some time, and while that timeline rolls out, oil is a terrible business to be in. Look for entry levels in the months ahead if you like to gamble on trade negotiations.
-CP