Does bad news for Keystone mean bad news for Canada?

By Laura Bohnert

On November 6, 2015, US President Barack Obama, after six years of review, announced his administration’s rejection of the fourth phase of the Keystone XL pipeline project.

Phase IV, known as the Keystone XL Pipeline, essentially proposed a duplication of Phase I of the Keystone Project; however, this phase would have provided a shorter route and a larger diameter pipe linking the Western Canadian Sedimentary Basin and oil from Hardisty, Alberta, to Steele City, Nebraska. En route, the pipeline was proposed to run through Baker, Montana, where American-produced light crude oil could be added.

While the Keystone XL Project posed a lot of controversy from the start, it was also the most valuable of all of Canada’s pipeline proposals. It was argued that the project would not only allow the US to increase its energy security, but that it would also dramatically reduce US dependence on foreign oil. The project also promised a high return for the Canadian economy—an economy which is currently struggling due to its dependence on the oil industry. The pipeline would have improved Canada’s ability to efficiently transport crude oil derived from the oil sands to the market, and it would have increased Canada’s expansion capacity.

In fact, had the pipeline gone through in 2012, as planned, it has been estimated that an extra $20 billion of cash flow could have been brought into Canada per year, and up to 20 per cent of that could have been captured by the Canadian government through royalties and taxes. That’s a pretty big chunk of cash for an economy that could use all the help it can get right now and, while the delay itself represents a significant economic loss, the project’s recent rejection is even more devastating for the Canadian oil sector and its overly-dependent economy.

While Obama’s rejection looks to be the kiss of death to that last-straw project Canada’s government has been grasping at, the current kybosh on the Keystone XL may not be as detrimental as it might appear. As Tim Pickering, President and Chief Investment Officer at Auspice Capital Advisors, states, Keystone XL’s rejection will have to become a “catalyst for action.”

“Canada is far too complacent and reliant on Big Brother,” Pickering quips. “Obama’s decision will force Canada to stand up for itself.”

Of course, there’s a good chance that Canada may simply wait to see who takes over from Obama’s presidency and reapply for the permit then. On the other hand, the US rejection of the Keystone XL Project may actually be opportunistic for Canada. As Pickering suggests, Obama’s decision may make Canada appear more interesting to foreign investors. With this door closed, the Canadian government has increased freedom to build relationships with other nations which means that Canada may now be able to expand and diversify its energy sector thus alleviating its dependence on cripplingly time-consuming US decisions that carry devastating consequences for Canada’s economy.