Why Alberta is throwing billions behind the Keystone XL pipeline

With theenergy sector still reeling from weeks of economic turmoil,Alberta's United Conservative government announcedTuesday it isthrowingits financial heft behind the long-delayed Keystone XLpipeline.

The investment of $1.5 billion, plusa $6-billion loan guarantee, aimsto accelerate construction ofthe massive project and was warmly greeted by a sector desperate for some good news.

Still, the enormity of the investment will also raisemany questions including, why now?

But aswith many things in Alberta over the years, theanswer can often be found at the intersection ofoil, government and politics. Now, the stakes feelhigher than ever for an industry with an unsettledfuture.

"You remember what the [UCP] slogan of the election campaign was, right? It was economy, jobs, pipelines," said Duane Bratt, a political scientist at Mount Royal University in Calgary. "This fits all three of those."

Rough time in oil patch

For industry, there's little question the project is needed.

Alberta's oilpatch has struggled to add pipelines tocarry more oil out of the province, in part due to the political and legal hurdles they've faced in Canada and the United States.

The resulting pipeline bottlenecks led to an oil glut that's punished prices foroil out of Western Canada.

With a price tag of $8 billion US, Keystone XL would carry 830,000 barrels of crude a day fromHardisty, Alta.,to Nebraska. That oil would then finds its wayto Texas refineries on the Gulf Coast.

Oil prices are dismal today thanks to the economic impact of COVID-19 and an oil price war between Saudi Arabia and Russia with Alberta oil trading well below $10 US per barrel. But the sector'sexpectation is that prices will eventually improveafter economic activity restarts.

Once the current gloom is gone, analystsseethe project as improving market access and the price Alberta producers get for their oil.

"It's giving us more access to those [Gulf Coast] refineries and to a bigger demand sector,"said Stephanie Kainz, senior associate, RS Energy Group.

"That means that you can bring on more projects and definitely, hopefully, infuse more capital into the province and into the Canadian energy sector."

Future of sector is uncertain

There are many questionsabout whatthe Canadian energy sector will look like when the current crisis is over. Keystone XL's futurelooked uncertain, at least in the view of Premier Jason Kenney. This is why, in his opinion, governmenthad to get involved.

With no prospective private sector bidders for the project, Kenney said Alberta's investment was needed orthe pipeline would not be built, at least in the foreseeable future.

"I've always been skeptical about government intervention in the market but our failure to get pipelines built has been a failure of government policy and politics, not of markets," Kenneytold reporters onTuesday.

In making the announcement, Kenney could and did point to the decisions of governments ofthe past.

Politics and oil go hand in hand

Though many Albertans may call themselves free-marketers, their governments have often waded into the energybusiness in significant ways.

As Kenney noted himself, former premiers Ernest Manning and Peter Lougheed made key investments to help developnatural gas and the oilsandsindustries, respectively.

A little more recently, Ed Stelmach caused big waves across the industry when he tried to make good on his political promiseto get more money fromenergy royalties.

That's clearly not part of Kenney's playbook, but politics appearsto be atplay here as well.

As noted by Mount Royal University's Bratt, building pipelines was a key part of the premier's election campaign last year and the governmentwould have understood the blowback of letting Keystone fall off the table.

"This would would have been bad for the industry, for the Alberta governmentparticularly a government that is so aligned to the oil and gas sector," Bratt said.

For a premierthat also promised jobs, the pipeline project isimportant. The government says the work in Alberta will create over 1,400 direct and 5,400 indirect jobs in Alberta during construction.

Investment brings both financial and political risk

But as with all politics, there is also risk.

For one, Bratt wonders about the optics of investing so much money in a pipeline while the same governmentlooks to tighten spending in areas like education.

Alberta NDP Leader Rachel Notley had questions about the business case for the project, calling for the government to be transparent about how it came tothe decision to make such a big investment.

The government is also certain to bechallenged by those Albertans who believe the economy must become more diversified and that such dollars could have gone a long way in helping elsewhere.

There are legal risks, too.

Efforts to advance the pipelinehavebeen stymied by years of political, environmental and Indigenous opposition.

James Coleman,a law professor atSouthern Methodist University in Texas, says the project still faces legalhurdles that could trip up the project in the U.S. That includes a challengenow before a U.S. District Court in Montanalaunched by environmental and Indigenous groups.

"Most of the states that [the pipeline] is passing through have approved or tend to be favourable toward this pipeline, but that doesn't mean thatthere might not be some legal risk," he said.

"You can never predict what a court isgoing to do."

Kenney, on the other hand, is following the footsteps of some of his predecessors combining the interests of the oil industry with those of the province.

It may haveworked for governments in the past but there are few guarantees in the energy sector these days. And the question now for the UCP and citizensis whether the investmentwill pay off for Albertans.