Analysis – South Bow plan to revive Keystone XL segment needs Trump approval, US oil pipeline links

By Amanda Stephenson

CALGARY, March 2 (Reuters) – A proposal by Canadian company Southbow to revive part of the canceled Keystone XL oil pipeline could increase Canadian crude exports to the United States by 12%, if it gets the green light from U.S. President Donald Trump and additional links to U.S. refineries are established.

The new proposal includes a different route through the United States than the previous Keystone XL pipeline project, which was canceled by former US President Joe Biden in 2021 after years of internal and environmental opposition.

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

Canadian Prime Minister Mark Carney brought up the pipeline restoration in talks with Trump in October, and it could give him an advantage in future negotiations around renewing the US-Mexico-Canada (USMCA) trade agreement.

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

South Bow’s potential U.S. partner, Bridger Pipeline, recently filed a proposal with Montana regulators that describes building a 645-mile (1,038-km) pipeline — capable of transporting up to 550,000 bpd — starting in Phillips County near the U.S.-Canada border and ending in Montana, Montana.

But analysts say Guernsey is not the final market for crude oil, so oil refineries such as Cushing, Oklahoma; You need additional connections to transport fuel. Patoka, Illinois; and the Gulf Coast of the United States.

The most likely arrangement would be a new pipeline about 425 miles from Guernsey to Steele City, Nebraska, where it could connect to the existing Keystone mainline system, said Matthew Lewis, founder of Plainview Energy Analytics. From there, the oil can go to underutilized pipelines that run to Cushing, Patoka and Wood River, Illinois.

However, it is not clear who will bear the risk associated with this leg of the project.

“The biggest challenge in this plan is obtaining permits and building a new pipeline on the Guernsey to Steel City section, which will likely lead to environmental litigation with the project in court,” Lewis said.

Southbow said its proposal could connect to downstream pipelines in the United States but declined to comment further. Bridger Pipeline declined to comment.

Leverage existing infrastructure

Bridger proposes to build the Montana-to-Guernsey leg in locations alongside existing pipeline infrastructure, its application states, which would likely make it easier to obtain the necessary permits. On the Alberta side, about 150 kilometers of the Keystone XL pipeline has already been built and has been sitting idle since the project was canceled.

A White House spokesman declined to comment on the South Bow-Bridge proposal, but analysts said presidential approval would be needed for the portion that crosses the US-Canada border. Even if the Trump administration supports the plan, there’s no guarantee the next U.S. administration will be, said Richard Mason, former executive director of the Alberta Petroleum Marketing Commission.

While the proposal may differ from Keystone XL, it remains a large-scale extension of the pipeline and will likely draw the ire of environmentalists, landowners and local communities.

Many pipeline projects in the United States have been canceled or closed in litigation. Trump and his team have tried to reduce regulations and speed permits, but a multi-year project across more than one agency would be politically risky.

“It brings up all the same issues. For those who wanted to repeal Keystone XL, it’s all the same stuff,” Mason said.

Competing to expand the export pipeline

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

South Bow’s competitor, Enbridge, has already approved expansion projects for its Flanagan and Mainline pipeline systems, which would add 250,000 bpd of capacity for Canadian heavy oil carriers to transport crude oil to the US Midwest and Gulf Coast.

Those projects are less complicated than South Bow’s proposal and would be more economical, TD Securities analyst Aaron McNeil said.

He said Southern Bow will face investor questions about its ability to finance new pipeline projects while protecting its shares and avoiding excessive debt.

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