Alberta’s $5.3 Billion Backing of Keystone XL Signals Vulnerability of Canadian Oil

The province’s announcement comes after the private sector has shown little appetite for a pipeline project critical to the country’s tar sands industry.

Miles of unused pipe, prepared for the proposed Keystone XL pipeline, sit in a lot on Oct. 14, 2014 outside Gascoyne, North Dakota. Credit: Andrew Burton/Getty Images

Nicholas Kusnetz

APR 6, 2020

Miles of unused pipe, prepared for the proposed Keystone XL pipeline, sit in a lot on Oct. 14, 2014 outside Gascoyne, North Dakota. Credit: Andrew Burton/Getty Images

Alberta’s recent announcement that it was investing more than $1 billion to build the Keystone XL pipeline gave a boost to a project that has faced more than a decade of delays and uncertainty.

But by dedicating government money to a pipeline the private sector has been reluctant to fund, the decision highlights how vulnerable Canada’s oil sands industry has become, even before the coronavirus pandemic crashed global oil demand.

Last week, Alberta announced it would invest $1.1 billion in the pipeline and provide an additional $4.2 billion in loan guarantees to help developer TC Energy start construction immediately. Premier Jason Kenney said his government had been negotiating with the company for months, and that no private sector bidders were ready to finance the project.

“In other words,” he said, “without this investment by Alberta, the pipeline would not be built.”

The project would connect Canada’s oil sands with refineries in the United States, and is critical to the future of Alberta’s oil industry, which has essentially maxed out its capacity to bring oil to foreign markets.

The failure to build new pipelines is the result of political and financial forces inextricably linked to climate change. Environmental and indigenous activists, concerned about the greenhouse gas emissions and local impacts of fossil fuel development, have made completing new pipelines arduous and, as a result, banks have grown wary of funding them or any new oil sands projects that depend on their construction.

While the public investment makes completion of Keystone XL more likely, the pipeline still faces legal and political hurdles in the U.S., which are significant enough that Moody’s Investors Service downgraded TC Energy’s credit rating from stable to negative after the company’s  announcement last week that it would begin construction. . .

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