Trump’s Tillerson Pick Gives Keystone XL a Friend in D.C.

(Bloomberg) -- President-elect Donald Trump’s plan to put a supporter of the Keystone XL pipeline into a crucial decision-making position may give the controversial pipeline a leg up.

If approved as Secretary of State, Exxon Mobil Corp. Chairman and Chief Executive Officer Rex Tillerson would be in a position to approve the pipeline’s presidential permit, a requirement for energy projects that cross an international border. President Barack Obama rejected the $8 billion project in 2015, saying it wasn’t in the national interest.

“Keystone XL would do more than deliver oil from Alberta and North Dakota’s Bakken Shale to refiners on the Gulf Coast,” Tillerson said in an April 2015 speech. “It would improve U.S. competitiveness, increase North American energy security, and strengthen the relationship with one of our most important allies and trading partners.”

Trump has expressed support for infrastructure projects, including adding pipelines. He said this weekend that he will issue a decision “fairly quickly” on Keystone, in addition to saying “something will happen” on the controversial Dakota Access pipeline.

Project Writedown

TransCanada Corp. was forced to write down $3 billion after the plan was rejected by the Obama administration. The company filed suit over the denial and began one of the largest trade appeals ever brought against the U.S., seeking to recoup $15 billion of costs and damages.

Tillerson’s potential appointment "has a meaningful impact on how we should think about Trump’s international energy policy going forward," but the revival of Keystone XL may not be in his hands, said Katie Bays, an analyst at Height Securities LLC, an advisory and investment firm based in Washington D.C.

The fastest way to approve the project may be to take the State Department out of the process, Bays said. Trying to reverse the previous decision "clearly creates an opportunity for a legal challenge" -- and Tillerson is likely to support a move that lowers the bar for infrastructure projects more broadly.

Advisers to Trump are exploring a strategy to speed up the approval process that includes rescinding a 1968 executive order that put the State Department in charge of permitting border-crossing oil pipelines, according to people familiar with the transition planning.

"It’s primarily political," Bays said. Resurrecting the project is "a feather in the cap for a Republican Congress and a Republican administration."

‘Firmly Committed’

TransCanada remains "firmly committed" to the project and "will be in a better position to provide comment on our next steps and the path forward after the transition process has been settled," spokesman Mark Cooper said in an e-mailed statement.

"TransCanada does not feel it is its place to speak to the transition process in the U.S.," he said. "We are sensitive to the enormous amount of work that is going into forming the new administration and are respectful of that."

The company’s shares rose as much as 2.6 percent to C$60.49 on Tuesday, the most intraday since Nov. 9.

If the pipeline operator did reapply for the border-crossing permit that Obama rejected, the Trump administration would approve it, but the project may get caught up in the same local fights it did the first time, said Erika Coombs, an analyst at BTU Analytics LLC.

Reapplying through the State Department may also entail updating previous environmental reviews, which would be expensive, Coombs said. "It’s not going to be easier the second time."

Project Risk

In Canada, Kinder Morgan Inc.’s Trans Mountain expansion and Enbridge Inc.’s Line 3 replacement were approved earlier this month. That comes as TransCanada’s Energy East pipeline remains mired in regulatory hearings and opposition from environmentalists.

Calgary-based TransCanada may not want to grapple with two controversial projects simultaneously, Coombs said. In addition, with Kinder Morgan and Enbridge projects gaining approval, TransCanada could have a tougher time securing necessary contract volumes for Keystone.

"The economic incentive isn’t as strong as it once was," she said.

Viewed against the backdrop of Energy Transfer Partners LP’s controversial Dakota Access Pipeline, Keystone is poised to be a public-relations nightmare if TransCanada pursues it, said Height’s Bays.

"Keystone would be an easier project if it had either a lot of political support at the local level or a very strong economic argument," Bays said. "And both of those issues are kind of lukewarm."