Keystone zeal cools for producers with more shipping options

Now that the U.S. government has cleared the Keystone XL project of any dire environmental impact, attention is returning to why the pipeline was needed in the first place: to get more Canadian oil to U.S. refineries.

TransCanada Corp.’s Keystone promises to ease a bottleneck that’s limited how much Canadian crude can flow south. The lack of transportation has created a glut that deflated prices for producers in the country. After five years waiting for U.S. approval, though, the need for Keystone isn’t as urgent for companies such as Suncor Energy Inc., Cenovus Energy Inc. and Canadian Natural Resources Ltd.

Producers have become less reliant on Keystone XL as new rail terminals increase their ability to ship oil on trains, said Todd Kepler, an analyst at Cormark Securities Inc. in Calgary. Support has grown for other pipeline proposals, including a separate TransCanada project that would carry crude from Alberta to the nation’s Atlantic Coast.

“I don’t think that a positive Keystone announcement would benefit these players to the same degree now that we thought it would have six to 10 months ago,” Kepler said.

While he estimated in May that U.S. approval of Keystone might boost Canadian Natural shares 20%, he revised that to 5% by December. After Keystone cleared the environmental hurdle on Jan. 31, Canadian Natural rose just 1.2%. The S&P/TSX Energy Index, which includes the largest Canadian oil producers, gained 0.3%. TransCanada gained 1.4%.

Final Approval

Reaction to the U.S. State Department report was muted because final approval rests with President Barack Obama, and the timing and outcome of his decision remain a guessing game. Canadian producers welcomed the positive step, while emphasizing that their options for transporting crude are widening.

Oil-sands producer Suncor views any increase in takeaway capacity as a good thing, including new pipelines like Keystone to access Gulf Coast markets, said Sneh Seetal, a spokeswoman. At the same time, no single pipeline will affect Suncor’s ability to grow, she said.

Final approval of Keystone should be inevitable “if the decision is based on facts and science, like politicians are promising,” Paul Reimer, vice president of Cenovus, wrote in an e-mailed statement after the report was published. Still Cenovus, which has committed to sending 75,000 barrels of oil a day down Keystone, isn’t putting all its “eggs in one basket” and supports other pipelines too, Reimer said.

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