What's Next for the Keystone Pipeline Under Trump?

Nov 14, 2016

After last week’s presidential election, the company that owns the Keystone XL pipeline said it was interested in finishing out the project. The pipeline was originally planned to carry oil from the tar sands of Canada to the Texas Gulf Coast, but the part linking up the pipe on the U.S. border with Canada was stopped by President Obama.

The reason: it would dump more carbon dioxide into the atmosphere, exacerbating climate change.  So, now that a new administration is taking over, what are the odds that the pipeline will be completed?

Dinara Millington, an oil analyst with the Canadian Energy Research Institute, says the last few years have not been kind to the Canadian tar sands oil business.

“Our institute is forecasting production decline year on year between 2015 and 2016 and the continuing flattening out of production between 2016 and 2017,” Millington said.

The reason: low crude oil prices. It costs a lot of money to start up production in the tar sands and, with prices where they are, it’s not an appealing investment. That can be said for parts of the U.S. as well, even under a new “drill-baby-drill” type administration. Phil Flynn, is an oil analyst with the Price Futures Group.

“You know, it is kind of funny. It's like now a lot of these oil companies are going to have the ability to drill on federal lands and places they’ve wanted to in the past, but they might not have the ability because the prices are too low,” Flynn said. “There’s not as much incentive.”

So what are the chances that, if given the green light from Donald Trump, the Keystone XL pipeline will be completed?

Millington says, in the short term, in the tar sands region, there’s not an immediate need for an incremental increase in pipeline capacity.

But, in the long-term, investing in the pipeline might economic make sense for TransCanada, the company that owns the pipeline. It depends on deals they can cut with oil producers and refineries.

“So the pipeline would get used,” said Ken Medlock, a senior Director at Rice University’s Center for Energy Studies. “It’s just an issue of how rapidly would it get built, how much incentive is there to expand oil sands production, and those are market issues. They are not policy issues.”

But, Millington says, the Canadians are keeping a close eye on the policy side, as well as production.

“There’s been a lot of things that have been said and promised, but at the end of the day we want to be vigilant and watchful, as far as what exactly is going to happen,” Millington said. “So, I guess stay tuned.”