By Fred Jauss
Partner, Dorsey & Whitney
Every time I have travelled to Calgary to visit my Canadian clients during the last few years, the question that was always near the top of their list was, “When is the U.S. government going to authorize Keystone XL construction?” Now that the Trump Administration issued the presidential permit, TransCanada can move forward with construction, right? Unfortunately, the process is not that simple.
There is no central construction permitting authority for oil pipelines in the United States. That means for an oil pipeline crossing state borders, each state has independent permitting authority over the portion of that oil pipeline within its jurisdiction. Crossing an international boundary only complicates the permitting process by requiring the issuance of a presidential permit. The presidential permit authorizes construction and operation of energy infrastructure at the international boundary, which in the example of Keystone XL, is limited to approximately 1.9 kilometres (1.2 miles) of pipeline, at the Saskatchewan-Montana border.
In comparison, the permitting process for interstate natural gas pipelines is not as fractured. In lieu of separate processes at the state level, the federal government has nationwide authority under the Natural Gas Act to permit construction and operation of interstate natural gas pipelines. If Keystone XL were an interstate natural gas pipeline, the Federal Energy Regulatory Commission would have nationwide permitting authority over construction and operation, and would coordinate with the State Department’s issuance of a presidential permit.
Common to permitting of oil and natural gas pipelines in the United States is the role of the Army Corps of Engineers in permitting construction in “waters of the United States.” Any pipeline crossings of navigable waterways require a permit from the Army Corps of Engineers.
Similarly, the Interior Department has jurisdiction over access and use of federal lands. Any pipeline construction on federal lands requires the grant of a construction easement and right of way.
The issuance of the remaining federal permits for Keystone XL should move swiftly, due to a presidential memorandum issued in January, 2017 by President Trump. In parallel memoranda, he directed the Army Corps of Engineers and the Interior Department to expedite approval of requests for permits for both the Keystone XL and Dakota Access pipelines. Since the only barrier to completion of Dakota Access was an Army Corps of Engineers permit, presidential action could clear the path for Dakota Access.
Challenges for TransCanada
TransCanada’s path to completion of Keystone XL will not be as easy. Montana and South Dakota have already approved the proposed route and authorized construction in their respective states. However, the Nebraska Public Service Commission is just starting the regulatory approval process for the portion of Keystone XL from the South Dakota border to Steele City, Nebraska. The current schedule announced on April 6, 2017 calls for a hearing in August, 2017 with a final decision by the Commission no later than November 23, 2017. Of course, any final decision by the Nebraska Public Service Commission will be subject to judicial review.
TransCanada can expect legal challenges to the grant of a permit by Nebraska, which will extend the process out into 2018 or later. Permits already issued by South Dakota and Montana may also be swept up in extended judicial review. Litigation challenging the issuance of the South Dakota permit is currently ongoing in state court, and concerns have been raised regarding the routing of Keystone XL near tribal lands in Montana. In addition, litigation challenging the issuance of the presidential permit has commenced in Montana federal court. When the Army Corps of Engineers and Interior Department issue their respective permits, TransCanada can expect those decisions to be challenged in federal court as well.
Landowner approval is yet another set of hurdles that TransCanada must clear. If TransCanada does not reach agreements with landowners in Nebraska for easements and right of way, it may have to resort to use of eminent domain to acquire those rights.
What does all this mean for TransCanada and its prospective shippers? Unfortunately, it means more of the same: waiting. TransCanada has stated that it will not start construction of Keystone XL until it has all permits in place. In the best-case scenario, crude oil flows will not start until late 2020.
Legal challenges will likely push this date out by a year or more. While the issuance of the presidential permit was a major step forward, it is not a short-cut to the finish line.
Fred Jauss is a partner in the Washington, D.C. office of the international law firm of Dorsey & Whitney and a former attorney with the Federal Energy Regulatory Commission. He advises clients on federal and state regulatory issues facing the oil and gas industry.
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