TC Energy seeks $15 billion in Keystone XL damages from US government

TC Energy is seeking $15 billion in damages from the US government for the cancellation of the Keystone XL pipeline project, having filed a formal request for arbitration under the North American Free Trade Agreement.

The filing late Nov. 22, which had been expected, shows TC Energy is moving forward in its bid to recoup costs after President Joe Biden yanked the federal permitting for the project on his first day in office in January, fulfilling a campaign promise and bringing to an end a decade-old pipeline proposal that had become the epicenter of the environmentalist fight against fossil fuels and the Canadian oil sands.

TC Energy recorded a roughly $1.8 billion impairment charge for Keystone XL in May and formally terminated the project in June. The roughly $9 billion Keystone XL project was designed to move 830,000 b/d of heavy Canadian crude through Nebraska and, ultimately, to the Texas Gulf Coast through the entire Keystone system.

Keystone XL previously was killed by the Obama administration and promptly revived by former President Donald Trump. But court rulings and regulatory holdups kept TC Energy's pipeline construction from progressing far enough in 2020, and Biden had long vowed to revoke the presidential permit if he won the White House.

The Alberta government was helping to finance the project, and Alberta Premier Jason Kenney had warned that Biden's actions could harm the Canada-US relationship. However, while Prime Minister Justin Trudeau expressed disappointment at the decision, he quickly moved past it to play up a strong relationship with Biden.

"As a public company, TC Energy has a responsibility to our shareholders to seek recovery of the losses incurred due to the permit revocation, which resulted in the termination of the project," TC Energy said in a statement. "We will not comment further and will follow the process as set out."

Pipeline shortages from Canada to the US have long weakened Canadian crude prices, but the recent completion of the competing Line 3 pipeline replacement project from Enbridge is now providing Western Canada with ample heavy crude pipeline capacity into the US. The pending Trans Mountain Pipeline expansion project would move more heavy Canadian barrels when it is completed. The Trans Mountain project is scheduled to come online by the end of 2022.

In an analyst note, ClearView Energy Partners said TC Energy may have an uphill climb in its case if an arbitration panel finds that the pipeline permit revocation is not one of the "rare circumstances" under which "[n]on-discriminatory regulatory actions by a party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment" are otherwise not considered expropriation.

And a pending federal lawsuit against the pipeline decision from Texas and other states is unlikely to succeed in part because TC Energy has formally canceled the project -- and not just suspended it. A dismissal of the case is the most likely scenario, ClearView noted.