TransCanada Says Keystone XL Costs Increase to $8 Billion

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TransCanada Corp. said delays in receiving U.S. approval for its Keystone XL project have increased costs by 48 percent to $8 billion, raising the price customers will have to pay to ship oil on the proposed pipeline.

TransCanada has been waiting since 2008 for a U.S. decision on the line that would carry crude from Alberta’s oil sands across the border to Gulf Coast refineries. The Calgary-based company has spent about $2.4 billion on the project as of Sept. 30, it said in a statement today. It had previously estimated the 1,179-mile (1,897-kilometer) project would cost $5.4 billion.

TransCanada is seeking to boost its crude transportation business to bring expanding supplies from oil-sands projects to refiners and export terminals. Output from Western Canada is forecast to more than double to 4.8 million barrels a day by 2030 from 1.9 million last year, according to the Canadian Association of Petroleum Producers. In addition to Keystone XL, TransCanada has proposed the C$12 billion ($10.5 billion) Energy East line that would bring crude to Canada’s Atlantic Coast.

Even with the price increase, Keystone XL will still be the cheapest transportation option to move Canadian oil to the Gulf Coast, Paul Miller, TransCanada president of liquids pipelines, said on a conference call today. That includes using the proposed Energy East line and then loading it onto tankers for the trip south, he said.

Shippers will cover 75 percent of the added cost to build Keystone XL, Chief Executive Officer Russ Girling said on the call. If the price continues to climb above $8 billion, TransCanada will cover half of the additional charges. Girling estimated in September that Keystone XL’s costs may rise to as much as $10 billion.

Environmental Opposition

Environmental groups oppose Keystone XL and other outlets for oil-sands crude, saying the production process creates more carbon-dioxide emissions than regular oil and the pipelines pose the threat of spills. President Barack Obama initially rejected Keystone XL in 2012 over risks tied to its path in Nebraska.

TransCanada subsequently split up the project, building the southern portion first and refiled for approval for the northern leg, which would cross the border and thus requires U.S. approval, with an alternate route in Nebraska.

The U.S. State Department has delayed its ruling on the pipeline as a Nebraska court decides whether a state regulator should review the line’s path through the state. A ruling may come soon, Secretary of State John Kerry said last week.

Quarterly Results

To be less expensive than other pipeline alternatives, TransCanada would probably need to charge less than $9 a barrel, said Patrick Kenny, an analyst at National Bank Financial in Calgary. Before boosting costs, TransCanada had been planning to charge $7 to $8 a barrel to use the pipeline, Girling said in a May interview.

TransCanada outlined the higher costs for Keystone XL as it released third-quarter financial results today, reporting adjusted per-share profit that beat by 1 Canadian cent the average of 10 analysts’ estimates compiled by Bloomberg. Net income dropped to C$457 million, or 64 cents a share, from C$481 million, or 68 cents, a year earlier, in part because of lower Alberta electricity prices.

TransCanada gained 0.3 percent to C$55.20 at the close in Toronto. The shares have risen 14 percent this year.

Canada needs Keystone XL, Energy East and other projects to handle crude from the oil sands, Denis Durand, chief economist at Jarislowsky Fraser Ltd., said at a Bloomberg Focus Day event in Montreal today. “Oil is sticky but we are stuck with it.”

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