(Credit: Pixabay)The cancellation of the Keystone XL Pipeline has significant implications for how energy projects are assessed and final investment decisions (FIDs) are made. Keystone XL illustrates that pipeline projects underway may not reach the finish line, driving energy companies to take a more in-depth look at the viability of projects moving forward and diverting investment into alternatives such as renewable energy.
The Keystone XL project involved a planned 1,179-mile (1,897km) pipeline designed to carry 830,000 barrels of heavy crude a day from the Canadian province of Alberta down to Nebraska, where it would join an existing pipeline. First proposed in 2008, TC Energy's construction of the pipeline began last year with approximately 300 miles of the pipeline built thus far, according to a news report by NPR. Construction was recently halted due to an executive order signed on January 20 by President Joe Biden, revoking the permit of the Keystone XL pipeline, bringing an end to more than 12 years of investment in the project.
Pipeline projects are no stranger to being scrapped and delayed. Duke Energy also abandoned plans for an $8 billion Atlantic Coast natural gas project after delays caused by legal roadblocks. Similarly, Enbridge Inc.'s proposal to replace its Line 3 crude pipeline continues to be hampered by protests in Minnesota. This trend is leading energy companies to rethink investment in these projects.
The fate of Keystone XL and similar projects are fueling reinvention in the oil sector. Companies like Shell and BP are no longer defining themselves as oil companies, building newbrand identities as integrated energy companies. However, it would probably be more accurate to describe these and other companies in the energy sector as asset management companies.
Companies like BP, Exxon and Shell, to name a few, own refineries that are not purely energy focused. For example, some of these refineries use hydrocarbons to make things like plastics and cosmetics. Their business model is to invest in assets that have a rate of return.
To make investment decisions, these companies use software that essentially creates an excel-based decision tree to analyze risk and help them make more informed business decisions. This analysis includes simulation, optimization and forecastingtechniques to develop more accurate forecasts and financial and operational predictions.
The decision to halt Keystone XL is shaping these analyses, directing energy company investments away from more traditional assets like pipelines and toward alternative investments in the renewable energy sector. Analysis of the probabilities, costs, and likely returns of solar, wind and other alternative technologies are moving these solutions to the forefront in the development of infrastructure projects.
Today, energy companies are looking at opportunities to find renewable energy sources and move away from fossil fuels. BP recently revealed plans to ramp up its annual low-carbon investment from $500 million in 2019 to $5 billion per year by 2030 and is targeting 50 gigawatts of renewables capacity by 2030. The company's renewables target includes a 20-gigawatt goal by 2025, up from today's 2.5 gigawatts. Shell is also shifting to alternative sources of energy. According to S&P Global Market Intelligence, Shell planned to spend as much as $2 billion on new energies through 2020 to help meet net-zero emissions goals.
These investments are starting to deliver returns with renewables accounting for the most new US electricity generating capacity in 2021, according to the US Energy Information Administration (EIA). The EIA's latest inventory of electricity generators found that developers and power plant owners are planning for 39.7 gigawatts (GW) of new electricity generating capacity to start commercial operation in 2021. Solar will account for the largest share of new capacity at 39%, followed by wind at 31%.
The scrapping of the Keystone XL pipeline project not only resulted in 48,000 tons of steel left behind but a reshaping of the way companies assess energy infrastructure projects, accelerating the shift of investment to renewable resources.
By Anthony Shaw, Founder, Progeneration Energy
