Analysis: South Bow plan to revive parts of Keystone XL needs Trump approval and ties to US pipelines

By Amanda Stephenson

CALGARY, March 2 (Reuters) – A proposal led by Canadian company South Bow to revive parts of the canceled Keystone XL pipeline could boost Canada’s crude exports to the United States by more than 12% if it gets the green light from U.S. President Donald Trump and additional links are built to U.S. refining hubs.

The new proposal involves a different route across the United States than the previous Keystone XL pipeline project canceled by former US President Joe Biden in 2021 after years of indigenous and environmental opposition.

South Bow, which was created by former Keystone XL proponent TC Energy in 2024 to take over its pipeline business, is considering reviving part of the line that has already been built in Alberta and already has all the necessary Canadian permits.

Canadian Prime Minister Mark Carney mentioned the pipeline’s revival in a conversation with Trump in October and could give him leverage in upcoming negotiations on renewing the United States-Mexico-Canada (USMCA) trade agreement.

Trump – whose tariff wars and threats of annexation have strained relations with Canada – has repeatedly called for lower oil prices and many U.S. refiners depend on the roughly 4.4 million barrels a day of exports that Canada sends south of the border.

South Bow’s potential U.S. partner, Bridger Pipeline, recently filed a proposal with Montana regulators outlining construction of a 645-mile (1,038 km) pipeline, capable of “transporting up to 550,000 bpd,” that will begin near the U.S.-Canada border in Phillips County, Montana, and transit to Guernsey, Wyoming.

But analysts say Guernsey is not a final market for crude oil, so additional links would need to be built to transport the oil to refining centers such as Cushing, Oklahoma; Patoka, Illinois; and the Gulf Coast of the United States.

The most credible configuration would be a new pipeline spanning about 425 miles from Guernsey to Steele City, Nebraska, where it could connect to Keystone’s existing main system, said Matthew Lewis, founder of Plainview Energy Analytics. From there, the oil could flow into underutilized pipelines that run to Cushing, Patoka and Wood River, Illinois.

However, it is still unclear who would be willing to take on the risk associated with that part of a project.

“The biggest challenge with this plan on a segment from Guernsey to Steele City is obtaining permits and building new pipelines that would likely face environmental litigation that would stall such a project in court,” Lewis said.

South Bow said its proposal could connect to pipelines in the United States, but declined to comment further. Bridger Pipeline declined to comment.

USE OF THE EXISTING INFRASTRUCTURE

Bridger proposes building the stretch from Montana to Guernsey in locations next to existing pipeline infrastructure, its application states, which would likely make it easier to obtain the necessary permits. On the Alberta side, approximately 150 km of Keystone XL pipeline has already been built and has been idle since the project was cancelled.

A White House spokesman declined to comment on the South Bow-Bridger proposal, but analysts said a presidential permit would be required for the segment that crosses the U.S.-Canada border. Even if the Trump administration supports the plan, there is no guarantee the next U.S. administration will do so, said Richard Masson, former executive director of the Alberta Petroleum Marketing Commission.

While the proposal may be different than Keystone XL, it is still a large-scale pipeline expansion and will likely draw the ire of environmentalists, landowners and indigenous communities, he said.

Many pipeline projects in the United States have been canceled or bogged down in litigation. Trump and his team have tried to reduce speed regulation and permits, but a multi-year project across more than one administration would carry political risk.

“This brings up the same issues. For those who wanted to cancel Keystone XL, ‘this is all the same thing,'” Masson said.

COMPETENT EXPORT LINE EXPANSIONS

The proposed project comes as the company behind the Trans Mountain pipeline from Alberta to Canada’s west coast is planning a series of upgrades that could increase its capacity by 360,000 bpd.

South Bow competitor Enbridge has already approved expansion projects for its Flanagan and Mainline pipeline systems, which will add a combined 250,000 bpd capacity for Canadian heavy oil shippers moving crude to the Midwest and the U.S. Gulf Coast.

Those projects are less complicated than the South Bow proposal and will be cheaper, said TD Securities analyst Aaron MacNeil.

He said South Bow will face questions from investors about its ability to finance a new pipeline project while maintaining its dividend and avoiding taking on too much debt.

(Reporting by Amanda Stephenson in Calgary; additional reporting by Siddharth Cavale in New York, Valerie Volcovici in Washington and Georgina McCartney in Houston; Editing by Caroline Stauffer and Nia Williams)