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Editorial comment

On 8 November, a US court ruling suspended construction on the Keystone XL pipeline project. A federal judge in Montana ruled that Donald Trump’s administration did not properly consider the various and cumulative effects of the project’s environmental footprint when it gave approval last year.

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The lawsuit in Montana was brought by the Indigenous Environmental Network, North Coast Rivers Alliance and Northern Plains Resource Council. These groups take issue with the State Department, alleging that TransCanada violated the National Environmental Policy Act (NEPA), which sets and promotes national policy on harmony between man and the environment.

The potential environmental infractions listed in the lawsuit are numerous and include oil spills, bat populations and the impact on Native American lands. The lawsuit also argues that recent oil price changes affect the viability of the project, and that greenhouse gas emissions from pipelines such as Alberta Clipper were understated in previous government analysis, making up a misleading picture of the impact of pipelines.

In approving the project, Trump’s government referred back to a 2014 report (the State Department’s 2014 supplemental environmental impact statement [EIS], published by the Obama administration), which they were was happy to claim justified the project. This new legal challenge demands newer, up-to-date statistics and assessments for the pipeline project. The project is therefore on hold until the government can review and reframe its assessment of the project’s environmental impact in the light of these arguments.

An opinion piece in The Weekly Standard puts it thus: “The plain fact is that the Trump administration doesn’t believe the Obama administration, based on the available evidence, had a good reason to block TransCanada’s permit to build the Keystone XL pipeline. And so it lifted the block. This was a policy decision, not a legal one. The Obama administration had full authority not to grant the permit, and the Trump administration had full authority to lift it.”1

In the meantime, Canadian oilsands producers find themselves in a tight spot. Limited access to insufficient existing pipeline capacity heading south means that bottlenecks stifle the sector. Larger oilsands producers generally get the better deal, being in a position to book up access to pipeline capacity and use their own refineries, but smaller producers are having to accept cash losses on the barrels they produce and may have to consider curtailing production in the short- to medium term. All oilsands producers are suffering due to low oil prices in Alberta, where Western Canadian Select has been trading at lows last seen in 2016 (about US$40 cheaper than US crude benchmarks). While oil prices rise elsewhere in the world and demand for heavy crude increases, all Canadian oilsands producers can do is sit and watch.

TransCanada may decide not to pursue the KXL project any further, given the huge costs of teeing up such a project, only to see it hampered every step along the way.

The lack of pipelines heading south to Gulf Coast refineries likely means: more producers will look to rail transport for crude; some smaller oilsands producers will need to shut down production; growth and investment in oilsands field development will slow; and heavy oil prices will rise further in the face of low supply.

Trump’s administration now needs to prove to the legal system that its approval for the project is more than just policy; that it is backed by scientific and economic findings that are in the national interest.

New or supplemental EIS for KXL could be drafted for review by the Environmental Protection Agency, which is charged with reviewing EIS from federal agencies and commenting on the adequacy of the environmental impacts of the proposed action.

The Washington Post reports that “Since Trump took office, federal courts have found repeatedly that his agencies have short-circuited the regulatory process in areas ranging from water protections to chemical plant safety operations.”2

This time around they must go by the book, to ensure that their power to approve the pipeline project is not legislated away from them.

1 https://www.weeklystandard.com/the-editors/judge-blocks-keystone-xl-pipeline
2 https://www.washingtonpost.com/nation/2018/11/09/keystone-xl-pipeline-blocked-by-federal-judge-major-blow-trump-administration/?utm_term=.9b52c505991b


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