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Trump’s conditions for Keystone pipeline pose challenges

Miles of unused pipe intended for the stalled Keystone XL pipeline are stacked in a field near Ripley, Okla., in February, 2012. Fulfilling a campaign promise, U.S. President Trump has approved the completion of the delayed pipeline with some caveats intended to favour his country’s work force and manufacturing industry.

Sue Ogrocki/THE ASSOCIATED PRESS

U.S. President Donald Trump's order to revive the Keystone XL pipeline was celebrated in Alberta on Tuesday as good news for a slowly healing provincial economy. But important hurdles remain before TransCanada Corp. can actually lay the pipe across two provinces and three states.

In keeping with campaign promises, Mr. Trump set conditions that will have to be met before TransCanada can obtain a presidential permit to proceed with the cross-border project. Reflecting his penchant for deal-making, the President said he wants better terms from the company to ensure the U.S. national interest is fully met.

TransCanada must also receive a permit in Nebraska to approve its route, a process that could take up to a year. As it works through that process, it faces bitter opposition from environmentalists, landowners and native Americans who are determined to block the project though they face an uphill battle.

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But with Republicans in control in the White House and Congress, as well as in the state houses and legislatures of key states, the company faces its best prospects of getting a green light since it first submitted its application to the State Department more than eight years ago.

Meeting Mr. Trump's demand for a better deal will be a straightforward exercise in negotiation, albeit one that proposes potential challenges. Depending on the outcome of negotiations, both TransCanada and its shippers moving crude on the line could face significantly higher costs. As a candidate, Mr. Trump suggested the United States should get 25 per cent of the profit from the pipeline, but that language was not repeated on Tuesday.

More problematic – both for TransCanada and potentially for Canadian industry more broadly – was the President's directive Tuesday that pipelines built in the United States should only use American-fabricated pipe.

Mr Trump's conditions are "meant to form the starting basis of a negotiation," Divya Reddy, an analyst with Eurasia Group, a political-risk firm, said Tuesday.

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"Ultimately, I don't think the demands of 25-per-cent revenue sharing and using only U.S. steel are realistic. But he will want the company to recognize U.S. job creation under his leadership. Construction jobs are key to this."

If the new administration enforces its "Buy American" policy with regard to pipelines, it could hit the Regina operations of Russian-owned steelmaker Evraz North America.

In a release in 2012, TransCanada said its Keystone XL project would source 24 per cent of its large-diameter pipe from Evraz Regina; 26 per cent from offshore sources and 50 per cent from a company in Arkansas. TransCanada has already purchased much of the pipe it needs for the project, though it would not comment Tuesday on how much it has bought or from whom.

Its previous effort to obtain a permit in Nebraska featured political battles and a court challenge that invalidated the governor's original blessing for the Keystone XL project.

The state remains the missing link in terms of approvals. TransCanada has the requisite permits from Canada's National Energy Board and the states of Montana and South Dakota. In 2014, it completed the southern portion of the project from Nebraska to the U.S. Gulf Coast, a leg that didn't need the presidential permit.

Its submission to the public service commission is supported by Nebraska's Republican governor, Pete Ricketts. But a coalition of environmentalists, land owners and native Americans is revving up its opposition and vowing to block construction.

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In South Dakota, U.S. tribes are gearing up for a fight similar to the one that has occurred at Standing Rock in North Dakota over the proposed Dakota Access pipeline, said Kandi Mossett, a spokeswoman for the Indigenous Environmental Network.

In addition to direct protest action, tribal councils are considering court challenges to defend their treaty rights and access to clean water, she said in an interview Tuesday.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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