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Claiming that a simple permit approval process was unfairly hijacked by U.S. politics, TransCanada Corp. filed a request for arbitration on June 24 under the North American Free Trade Agreement (NAFTA), demanding $15 billion in damages related to the rejection of the Keystone XL Pipeline.
“Respondent ultimately denied Keystone’s application, not because of any concerns over the merits of the pipeline, but because President Obama wanted to prove his Administration’s environmental credentials to a vocal activist constituency,” TransCanada charged in its request. The argument by the environmentalist community, disputed by the company, is that the pipeline would lead to increased production and consumption of crude oil, leading to significantly increased greenhouse gas (GHG) emissions.
The application for a presidential permit to build the Keystone XL was denied on Nov. 6. TransCanada filed a notice of intent to submit the claim to arbitration on Jan. 6 and held consultations with representatives of the U.S. State Department in April but failed to resolve the issue.
Presidential Support
TransCanada contends that it originally had no reason to believe the project would be rejected, given Executive Order 13212 by President George W. Bush in February 2001 to expedite energy-related projects. It also cited a report August 2015 by the Congressional Research Service that the “permitting process is generally used to determine how a project must be implemented to comply with federal law (and meet the national … interest standard) rather than whether it can be implemented.”
The filing also quoted President Obama directly in his support for the Gulf Coast segment of the pipeline during a visit to Cushing, Okla., in March 2012.
“Now, right now, a company called TransCanada has applied to build a new pipeline to speed more oil from Cushing to state-of-the-art refineries down on the Gulf Coast,” he said. “And today, I’m directing my administration to cut through the red tape, break through the bureaucratic hurdles, and make this project a priority, to go ahead and get it done.”
The $2.3 billion, 487-mile Gulf Coast project began delivering crude oil from Cushing to Gulf Coast locations in January 2014.
No GHG Impact
The company’s request, prepared by Sidley Austin LLP, noted that the State Department affirmed on six occasions that Keystone XL would not have a significant impact on GHG emissions or climate change. Secretary of State John Kerry’s explanation for the rejection was that “moving forward with this project would significantly undermine our ability to continue leading the world in combating climate change.”
Presumptive Republican presidential nominee Donald Trump indicated in May that he was open to approving Keystone XL if TransCanada would share a portion of the profits with the U.S. Government. Supporters of the pipeline have expressed concern that such a demand could hurt relations with Canada.
Hillary Clinton, the presumptive Democratic presidential nominee, opposes construction of the pipeline. As secretary of state, she said in 2010 that the State Department was “inclined” to sign off on permit approval, but the context of her statement indicated reluctant support, given the high GHG emissions tied to oil from the Western Canadian Sedimentary Basin.
TransCanada’s argument for compensation is that the length of time needed to build a 1,179-mile pipeline led the company to move forward early in the process on the expectation the permit would be approved.
“Time is of the essence in constructing a pipeline after a presidential permit has been granted,” the company said in the filing, adding that the permit will expire if construction has not begun within five years of the permit being granted.
While not directly commenting on the case, State Department spokesman John Kirby told Bloomberg that “we are confident that this determination is entirely consistent with all of our domestic and international obligations, including our obligations under NAFTA.”
Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.
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