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Trump Battles For Key Oil & Gas Projects

Nick Cunningham

President Trump issued an executive order on Friday to push the Keystone XL pipeline forward, hoping to short-circuit litigation on the project and get it off the ground.

The executive order acts as an approval of the pipeline, which supersedes Trump’s original approval of the project that he issued shortly after taking office in 2017. That order has been the subject of legal wrangling, and it was most recently bogged down by a U.S. court decision blocking construction until a new environmental impact statement could be conducted. Trump’s new order is intended to work around that ruling.

TransCanada welcomed the decision, with CEO Ross Girling saying that Trump “has been clear that he wants to create jobs and advance U.S. energy security and the Keystone XL pipeline does both of those things”. The pipeline company said the executive order “clarifies the national importance of Keystone XL and aims to bring more than 10 years of environmental review to closure.”

In contrast, the Sierra Club decried Trump’s move, arguing that he is trying to skirt environmental laws. “We will continue to pursue every available avenue to ensure that this pipeline is never built,” Michael Brune, the Sierra Club’s executive director said in a statement.

While Trump is trying to swiftly clear the way for TransCanada, the latest executive order could also be subjected to legal action. Trump’s attempt to “overturn our system of checks and balances is nothing less than an attack on our Constitution. It must be defeated,” Stephan Volker, a lawyer for environmental groups, told the AP.

It’s not clear what happens next. TransCanada still has not issued a final investment decision on the project, and it still needs more permits for the pipeline, particularly in Nebraska, where it had to be rerouted.

A few years ago, the project’s failure seemed to be almost a moot point, with other high-profile pipeline projects moving higher up in the queue. But the derailment of the Pacific Gateway Pipeline, Energy East Pipeline and the surprising failure (perhaps only temporarily) of the Trans Mountain Expansion has made Keystone XL more important than ever.

Western Canada Select saw price discounts balloon last year, so much so that the government of Alberta had to issue mandatory upstream production cuts. Throughout the Keystone XL battles from several years ago, it was a common line of argument from the industry that environmental opposition to the project was silly because the oil would find a way to market one way or another. But steep discounts for WCS prices, mandatory production cuts, and the recent decisions by some Canadian oil producers to hold off on new upstream investment offers hard evidence that midstream bottlenecks have a material impact on supply.

Meanwhile, Enbridge’s Line 5 replacement and its Line 3 replacement have also hit setbacks recently. The overhaul of both of the aging pipeline systems would add new takeaway capacity, but more delays are adding to the midstream woes.

All of that means that the stakes have never been higher for Keystone XL.

While Trump is trying to jumpstart the high-profile energy project, his efforts at sparking more drilling also recently ran into a legal wall. Last week, a federal judge declared that the Trump administration’s efforts to open up the Arctic and Atlantic Oceans to drilling were illegal, a decision that essentially puts 128 million acres of Arctic and Atlantic acreage off limits.

On his way out the door, former President Obama banned drilling in the Arctic and Atlantic Oceans, prohibitions that Trump is trying to roll back. Trump’s team even hoped to auction off drilling leases later this year. Those plans are now derailed, and could be off the table unless Congress votes to overturn Obama-era protections, a move that has almost no chance given the makeup of the House of Representatives. “President Trump’s lawlessness is catching up with him,” said Erik Grafe, the lead attorney from Earthjustice, according to the Washington Post.

To be sure, the oil industry has not been all that interested in offshore drilling in the Arctic, given low oil prices and the high-profile failures of Royal Dutch Shell from several years ago. The Atlantic too is expensive and risky. But interest can wax and wane depending on market conditions. The latest court ruling will likely shelve Trump’s effort at reviving those drilling plans.

Trump has a decent chance at winning any number of these energy cases if they make their way to the Supreme Court. But many cases won’t go that far, which means Trump’s aggressive plans for oil and gas drilling are unfolding slower than he wants.

By Nick Cunningham of Oilprice.com

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