Donald Trump has triggered excitement in Canada’s oil heartlands over the country’s potential to become an energy superpower by floating the revival of the ill-fated Keystone XL pipeline.
On Tuesday night, hours before US levies on $20bn worth of Canadian goods were set to go into effect, Trump hinted the massive cross-border pipeline could be resuscitated as part of a trade deal between the neighbours.
“The great Keystone XL Pipeline, long ago killed by Sleepy Joe Biden, may be awoken from the grave,” the US president posted on his Truth Social platform.
Trump’s missive opens the possibility that the pipeline project — which has been cancelled by two US presidents — could become a reality, almost two decades after it was first proposed.
But it comes as Prime Minister Mark Carney tries to break Canada’s dependence on the US after Trump launched devastating tariffs on vital sectors such as cars, steel and lumber.
In May Ottawa and Alberta signed an agreement to develop a new pipeline to the west coast to send 1mn oil barrels per day to Asian markets.
Keystone XL, an expansion of the existing Keystone pipeline that would send about 830,000 barrels per day of heavy crude from Alberta to refineries on the US Gulf Coast, was shuttered in 2015 by then-president Barack Obama before Trump relaunched it in 2017. Biden scrapped the project in June 2021 on environmental grounds.
Alberta’s premier Danielle Smith, who wants Canada to double its oil output of 6mn b/d, said there would be more clarity about the viability of reviving the Keystone XL project after the terms of a US-Canada trade deal are announced, potentially before the new deadline on Friday.
“Alberta wants to build new pipelines west, east, north and south, and we are always in discussions with industry to support these opportunities,” she told the FT.
Analysts and investors said a Keystone revival had the potential to benefit the US and Canada, tying the two North American economies closer together at a time of global upheaval.
Adam Waterous, chief executive of Calgary’s Waterous Energy Fund, a large oil sands investor, said pursuing Keystone XL would ease the trade war by providing energy security to Washington as the shale boom over the past two decades begins to slow.
“It’s a huge strategic problem,” he told the FT. “They are going to go from 13mn b/d to 8 [mn b/d] over the next decade . . . Thank God, Canada’s right next door.”
Lisa Baiton, president of the Canadian Association of Petroleum Producers, said Canada could provide “unmatched energy security for the US”.
Canada supplies more than 4mn b/d of crude to the US, accounting for about 60 per cent of total US crude imports — a figure that has nearly doubled over the past decade.
The potential Keystone XL revival comes as analysts predict the Americas will play an increasing role in feeding rising oil demand over the coming decades — a trend set to benefit Canadian producers and exporters of crude.
Bob McNally, president of Rapidan Energy, said there was a recognition that “peak demand will be delayed” just as “the Middle East has a new, big and permanent disruption risk”.
“Connect those dots, and it’s structurally bullish for western hemispheric hydrocarbons, up and down the supply chain, from Alaska to Tierra del Fuego,” he said.
But building two new pipelines would require expanding Canada’s oil sands patch, which will require huge investment in the range of $100bn, analysts say.
Eric Nuttall, a partner at Toronto-based Ninepoint Partners, said: “We have the resource depth to allow, but investors continue to want some return of capital which reduces growth capex.”
“Alberta needs to incentivise this to persuade investors, the owners of the businesses, to allow it,” he added.
Trade tensions over the past 18 months have also raised doubts in Ottawa over the benefits of closer ties to its southern neighbour. The US and Canada last year raised the prospect of reviving Keystone XL as part of trade talks to ease Trump’s tariffs on steel and aluminium.
“Does Canada want to continue to integrate its oil production into the US system — based on the dramatic change in the relationship?” asked Kevin Birn, an analyst at S&P Global.
Trump on Wednesday said the US would be a big beneficiary of a shift away from reliance on Middle Eastern oil. “People are finding alternatives,” he said.
“[This] is very positive news for Canadian oil producers,” said Cole Smead, chief executive of Smead Capital Management, an investment firm with holdings in Cenovus, Imperial Oil, Strathcona and Tamarack Valley Energy.
“There are now as many as four pipelines or pipeline extensions being talked about in Canada and strong signals of government support. I’m confident that some of these pipelines will happen,” he said.
Representatives of South Bow, which operates the Keystone project, and Enbridge, one of Canada’s biggest pipeline operators, did not reply to a request for comment.
