For Trudeau, Life After Trump Is Off to Surprisingly Rocky Start

(Bloomberg) -- President Joe Biden’s cancellation of the Keystone XL project has put Justin Trudeau in a no-win situation. He has no good options to retaliate. But a failure to fight back could fracture the unity of his own country.

Biden revoked the permit for TC Energy Corp.’s oil pipeline via executive order hours after his inauguration on Wednesday. The cross-border project would have transported more than 800,000 barrels a day from the western province of Alberta to Nebraska, and from there to U.S. refineries.

Trudeau immediately came under pressure from Alberta Premier Jason Kenney, who called on the prime minister to consider trade sanctions against the U.S. It’s unclear Trudeau will be willing to go that far. In a statement Wednesday evening, the prime minister said: “We are disappointed but acknowledge the President’s decision to fulfill his election campaign promise on Keystone XL.”

The confrontation scrambles Trudeau’s plans for a full reset in Canada’s relationship with the U.S. -- by far its most important foreign ally -- after four years of bruising trade battles with Donald Trump. In western Canada, a failure to push back on Biden will only sow greater mistrust over Trudeau’s handling of the nation’s vast oil riches.

‘Gut-Punch’

Keystone XL is a charged political symbol and an economically-vital project in the country’s west, worth billions of dollars a year in additional oil revenue. Building it would have opened the way for new energy development in Alberta, where the unemployment rate is 11%, and helped the region sell its heavy crude at higher prices.

In the 2015 election campaign that brought Trudeau to power, he argued that stronger climate policy would help win approval for Keystone. It hasn’t worked out that way, and Biden’s move is likely to fuel further anger against the federal government in the west.

“This is a gut-punch for the Canadian and Alberta economies. Sadly, it is an insult directed at the United States’ most important ally and trading partner on day one of a new administration,” Kenney said at a news conference Wednesday.

Part of Trudeau’s political dilemma stems from his attempt to reconcile his image as a progressive politician with his role as the leader of an economy with huge energy and mineral resources.

While enacting new environmental policies, including a carbon tax, the prime minister has also tried to help Canada’s oil and gas sector in other ways, including the C$4.5 billion ($3.6 billion) purchase of the Trans Mountain pipeline in 2018.

That move was intended to keep alive a plan to expand the conduit that runs from Alberta to Canada’s west coast. But it alienated some voters in left-leaning districts that Trudeau’s Liberal Party needs to win in order to regain a parliamentary majority in the next election.

The Trans Mountain deal did little to win him support in western Canada; Trudeau’s party won no seats in Alberta or neighboring Saskatchewan in 2019. Another election could come as early as this spring.

The end of Keystone “will help feed the resentment that Albertans feel toward the rest of the country,” said George Hoberg, a political scientist at the University of British Columbia.

The new president’s executive order may also cause political damage to Kenney, a conservative who is a frequent critic of Trudeau’s government.

For Kenney, whose government invested $1.1 billion in the pipeline in a bet that starting construction would make canceling it more difficult, Biden’s decision is devastating. The financial cost comes on top of thousands of construction jobs lost. Kenney said 2,000 people had been let go right away and that his government would consider legal action.

Read more: Keystone XL May Be Sold for Scrap If Biden Moves to Kill It

The province’s pipeline shortage may ease in the medium term. Two other export pipelines -- the Trans Mountain expansion and Enbridge Inc.’s Line 3 into Minnesota -- are under construction and scheduled to start shipping crude in the next two years. Combined, those pipelines will offer enough space to accommodate growth in the oil sands into the early 2030s, according to the Canadian Energy Regulator.

But Kenney warned that if Trudeau doesn’t fight back, he’ll embolden the Biden administration to cancel other projects as well.

Keystone XL makes economic sense and could still be revived in the future, Dennis J McConaghy, former executive vice-president of corporate development for TC Energy, said by phone.

“It’s ending to placate the demands of the environmental movement,” he said. “In four years, there may be a different president and he may take a different view.”