Source: Flicker user Fibonacci Blue.
For months preceding his Jan. 20 inauguration, the media and energy industry have been speculating about the impact of a Trump presidency on the Keystone XL and Dakota Access (DAPL) oil pipelines. We wrote "Can Trump Revive Keystone XL?" and "DAPL-Reroute - What Does That Look Like?" analyzing the status of the projects at the time. Now that President Trump has signed two new presidential memoranda regarding these pipelines, we decided to provide an update on what this could mean for these two projects.
Let's start with the similarities between the two memorandums. Both state that President Trump believes these oil pipelines serve in the national interest, contain a series of "Directives" to expedite decisions on approval and permitting requests, and contain a "General Provisions" section. Of these three commonalities, let's focus on the "General Provisions" clause because it influences the interpretation and degree of weight to be placed on any of the specific directives to be discussed. The section states that these memorandums cannot "impair or otherwise affect: existing authority to any executive department or agency, or head thereof," which seems to signal that these memoranda are more about setting political tone and encouraging agencies to get in line with the administration rather holding significant grounds to take legal action. That said, there is wording in each memorandum that is worth noting.
On the Dakota Access (DAPL) front, the language in the memo provides little evidence to support alternative timing beyond what BTU Analytics' currently assumes, which is a mid-2017 completion date. There is wording to consider rescinding or modifying a memorandum issued by the Assistant Secretary of Civil Works dated December 4, 2016 which stated that the Corps should engage in additional review and analysis before granting the necessary easement necessary for Energy Transfer to build DAPL under Lake Oahe.
Additionally, the presidential memo states that the withdrawal of the "Notice of Intent to Prepare and Environmental Impact Statement…" issued on Jan. 18, 2017, should be considered. In essence, this section of the memorandum is directly trying to undo memoranda of similar nature issued under the Obama administration. While we are market analysts and not lawyers, it seems likely that there are some additional legal battles still ahead, yet Energy Transfer will likely receive the necessary easement to drill under Lake Oahe and complete DAPL.
The highlights of the memo regarding the construction of Keystone XL oil pipeline were about generating an inviting tone for TransCanada (NYSE:TRP) to reapply for a Presidential Permit from the Secretary of State and stating that the Department of State should "take actions necessary and appropriate to facilitate expeditious review." The memo went one step further and added several specific directives (below is only a select sample) to help with this process:
1) "The Secretary of State shall reach a final permitting determination …within 60 days of TransCanada's submission of the permit application.
2) "To the extent permitted by law, the Final Supplemental Environmental Impact Statement issued by the Department of State in January 2014 should be considered to satisfy all applicable requirements of the National Environmental Policy Act of 1969 and any other provisions of law that requires executive department consultation or review, such as on the Endangered Species Act of 1973.
3) "To the maximum extent permitted by law, any Federal Permit of authorization issued before the date of this memorandum for the Keystone XL Pipeline shall remain in effect until completion of the project."
While the legality of these directives could likely be battled in court, the tone is clear-the current administration will take necessary steps to ensure to streamline TransCanada's re-application at the federal level in any way possible.
However, while TransCanada has indicated on their website that they are currently preparing an application for a Presidential Permit, there are other outstanding questions that need to be answered about the viability of actually reviving this oil pipeline project. First, Keystone XL crosses through three different states which all have their own application and approval processes. Nebraska was historically the battleground state and will likely play that role again should the project progress beyond the planning stages.
Second, is there still a market need for this pipeline since oil price collapsed and many oil sands projects were mothballed? Oil pipelines typically get built only after they have received sufficient volume commitments to ensure a minimum rate of return to investors, and due to the large time gap between the 2012 application and today, TransCanada may need to find new anchor shippers to move the pipeline forward. Additionally, Canadian Prime Minister Trudeau has already green-lighted Kinder Morgan's competing TransMountain project while continuing to signal that he wants to slow Oil Sands growth.
Due to these outstanding questions, BTU Analytics will follow developments on Keystone XL closely, but does not currently include Keystone XL in our base models.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.