What you need to know about the Keystone XL assessment

Good news, bad news, or no news? Here’s Andrew Leach on today’s headlines

by Andrew Leach

Sue Ogrocki/AP

Sue Ogrocki/AP

Today, the U.S. State Department released the Final Environmental Impact Statement on the Keystone XL pipeline.  This document will be poured over extensively during the coming weeks and months as opponents and proponents of the pipeline look to bolster their cases. Here’s what you need to know, so far:

Is this an approval or denial of the pipeline?

Neither. The Environmental Impact Assessment does not reach a conclusion, it merely catalogues impacts. It does not provide a suggested means of weighing impacts against one another either. The report considers two scenarios: 1. A no-action case where the pipeline is not approved. 2. The approval of the pipeline as proposed. In some areas, the no-action scenario is decomposed to look at potential outcomes. As the report states, “the Final Supplemental EIS does not specify a departmental preference between these two alternatives because no final United States position has been established on the application before the department.” That determination will fall to Secretary of State John Kerry, and eventually to President Obama who must sign the permit to allow construction of the pipeline.

What did this look at that hasn’t been looked at before?

This analysis is not particularly different, at least at first glance, to analysis performed under the previous application by TransCanada for a presidential permit for Keystone XL, nor is it significantly different from the analysis provided last year in the draft version of this report. This final version contains enhanced analysis in four areas — implications of rail as an alternative, assessment of climate change impacts, updated oil market analysis, and new data on potential spills. Certainly, the pressure has been on the State Department to increase its focus on the implications of rail after multiple crude-by-rail accidents during the past year, and the president’s climate change speech last year, which stated the pipeline would not be approved it it were shown, “to significantly exacerbate the problem of climate change,” increased scrutiny in these two areas. There have also been extensive studies undertaken in the U.S. on the transportation risks associated with oil sands diluted bitumen, which are now part of the analysis.

What about greenhouse gases?

After the president’s climate change speech, which said the pipeline would only be approved if it didn’t significantly exacerbate the problem of climate change, this is likely the section most people will flip to first. On GHGs, this report mirrors previous conclusions — that the effect of the pipeline will be small in global terms because it’s not enabling new oil production so much as displacing other oil production that would have otherwise been imported to the U.S., or oil that would have been shipped to the U.S. from Canada by other means. The report states that, “the range of incremental GHG emissions (i.e., the amount by which the emissions would be greater than the reference crudes) for crude oil that would be transported by the proposed Project is estimated to be 1.3 to 27.4 MMTCO2e annually.” But, don’t stop there — the report goes on to say those numbers only make sense if you assume that oil sands production would not occur if Keystone XL were not built, and the oil which would be shipped via Keystone XL were replaced with a reference crude barrel. The report says that is not likely to be the case — here’s the headline quote: “approval or denial of any one crude oil transport project, including the proposed project, is unlikely to significantly impact the rate of extraction in the oil sands, or the continued demand for heavy crude oil at refineries in the United States.” The bottom line is that the greenhouse gas section gives the president all the room he needs under his standard to approve the pipeline.

What does the report have to say about diluted bitumen in pipelines?

The question of whether diluted bitumen is more hazardous to transport and more difficult to remediate in the case of a spill has been one of the key points of dispute. The FEIS parses these critiques into two categories, and the verdict is mixed. On the question of whether diluted bitumen transportation means increased risk (PDF) when the product is inside the pipeline, the report sounds a resounding, ‘No!’. The report finds that diluted bitumen, “is not a source of corrosive hydrogen sulfide,” that there are not expected to be, “significant changes in the composition of dilbit due to volatilization do not occur during transportation,” and that, “dilbit corrosivity rates could remain low even if the crude itself has a high total acid number.” All of these will be good news for pipeline proponents.

What the report has to say about dilbit spills, particularly in water, will be less welcome news for proponents. “After a period of several days in water, the diluent in dilbit will eventually volatilize … leaving the heavy bitumen behind to sink or become suspended. This could occur with dilbit more so than with other forms of crude.” This is a contradiction to much of what industry has argued — that diluted bitumen is like any other crude. The report goes further, to say that, “in the event of a release to a waterbody, more difficult cleanup scenarios (dredging, for example) for dilbit may be expected than with other types of crude oil.” However, what’s bad in the water turns out to be good on land. The report finds that, relative to other types of crude oils, a diluted bitumen spill would have slower, “vertical and horizontal dispersion in sandy soil, loamy soil, and topsoil.”

What about crude by rail?

The analysis considers three scenarios for what might happen to the oil in the event KXL is not approved – crude by rail to the Gulf, crude by rail to Prince Rupert and onward by tanker, and crude by rail to Oklahoma and then onward by pipeline. There are a few interesting tidbits here. First, with respect to shipping oil west, the report reaches the unsurprising conclusion that, “if crude oil reaches a Pacific port, regardless of whether by rail or by pipeline, the economics for movement via tanker would favor shipping the oil to Asia rather than the Gulf Coast area.” There’s some support, particularly via Enbridge’s Northern Gateway application, that a significant amount of crude could also find its way to California from a Pacific port, but it’s hard to imagine a scenario where you’d see it moved through the Panama Canal or around South America to the Gulf. The report also found that operating employment with the rail alternative would be, perhaps, 10 to 20 times higher than the pipeline – something sure to interest those who promote pipelines as job creation strategies. The reverse is true for those who point to the pipeline as a greenhouse gas emissions problem — the analysis finds that emissions would be higher in a crude-by-rail scenario than with the pipeline, although the differences are small. In the end, the most damning conclusion with respect to rail is likely the final one: “Adding 830,000 bpd (of rail transport) would result in an estimated 48 additional injuries and six additional fatalities,” relative to the construction of the pipeline.

Oil sands supply

Many of the conclusions above with respect to alternatives and to greenhouse gas emissions rely on the conclusion that oil sands development will not be significantly affected by a decision one way or another on this pipeline. The analysis finds that, above approximately $75 per barrel (West Texas Intermediate [WTI]-equivalent), revenues to oil sands producers are likely to remain above the long-run supply costs of most projects responsible for expected levels of oil sands production growth.” Of course, the same report written 10 years ago would have concluded that oil sands growth would continue as long as WTI prices stayed above $20 per barrel. Oil sands production growth has lagged forecast levels for the past decade even though prices have been well above forecast in almost every year. Interestingly, the report concludes that, “limitations on pipeline transport would force more crude oil to be transported via other modes of transportation, such as rail, which would probably (but not certainly) be more expensive,” but that this was unlikely to change production levels much. The report includes an analysis of costs which is going to require more investigation. It concludes that, “the net cost of transporting a barrel of bitumen from Alberta to the Gulf Coast is approximately $18 based on a long-term committed pipeline tariff,” while shipping a barrel of bitumen by rail costs $21.69/barrel. This forms the basis of the argument that the pipeline would make little difference to the amount of oil sands produced in Alberta, since the implied value of bitumen would only be reduced by a dollar or two per barrel without the pipeline. The interesting upshot of this, of course, is that Alberta won’t be getting world prices for our resources, even if Keystone is built — the best we can hope for is world prices less about $18 per barrel if these calculations are correct.

Is this good news, bad news, or no news?

It’s going to take a few days to go through the report in detail and for some of the important elements to emerge, but on first reading I think the only real news is that the report is finally out and now we’re on to the next stage. I don’t think the conclusions in the report have moved the dial much on the potential for approval, as they don’t seem that different from those in previous reports. We’ll now wait for the EPA and other government departments to weigh in, and perhaps we’ll have some real news to report in a few months when the decision is, finally, on the president’s desk. That, or the Republicans may choose to give the president another easy out on this decision by trying to force a decision before the process has run its course.




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What you need to know about the Keystone XL assessment

  1. “The project is designed to increase Canadian pipeline capacity in the
    U.S. by about one-quarter, to 2.4 million barrels per day.”

    Couple of points:

    The not enabling new production but displacing existing exports seems dodgy to me [as i've said before] and even disingenuous, and beside the point, in terms of global ghg growth. It simply matters not where the extra oil is burned. So much for the displacement theory- it is simply stating not my problem, this a way for under the carpet. Good for Canada, good for the US possibly. Good for the planet? Nope!! Beside are we to believe that existing SA and Mexican contracts can be terminated just like that?

    I’m also troubled by the conclusion this one pipeline wont significantly increase GHGs or the rate of extraction in AB. Perhaps they could explain just where they are going to find that extra 2.4 million barrels a day – from increased production? Will it come form existing production switched from rail, or even future foregone planned rail transportation? Will the pipeline magically fill itself? I’m skeptical that once rail is really ramped up there will be any retrenching of any description. IOWs once the pipeline is online it will be full speed ahead for both rail and keystone. And damn any inconsistencies…oopsie we made a rounding error i guess.
    The only way this no significant effect on extraction rate could possibly be technically true is if they posit the extra production [ 2 or 3 x present production] will be taken up by other pipelines such as Gateway or KM. This is where the disingenuous bit comes in big time. What is this, a game of pretend you’re not part of the problem because the problem does not yet exist? They seem to be able to weigh the effects of Gateway, but somehow not when it comes to the role that pipeline will play in increasing global ghg loads. Well, why not if the Canadian review couldn’t be arsed to do that, not in 18 months. Why should they!

    Lastly, is there some kind of assumption that should the pipeline not be built it can all go by rail? This also seems odd to me. At a time when the US is on a tear of its own i would have thought that finding more rail capacity for 2.4 million barrels a day might be difficult to say the least. IOWs it is a hollow or at worst irresponsible threat.

  2. “What the report has to say about dilbit spills, particularly in water, will be less welcome news for proponents. “After a period of several days in water, the diluent in dilbit will eventually volatilize … leaving the heavy bitumen behind to sink or become suspended. This could
    occur with dilbit more so than with other forms of crude.” This is a
    contradiction to much of what industry has argued — that diluted bitumen
    is like any other crude. The report goes further, to say that, “in the event of a release to a waterbody, more difficult cleanup scenarios (dredging, for example) for dilbit may
    be expected than with other types of crude oil.” However, what’s bad
    in the water turns out to be good on land. The report finds that,
    relative to other types of crude oils, a diluted bitumen spill would
    have slower, “vertical and horizontal dispersion in sandy soil, loamy soil, and topsoil.”

    What a crying shame this sort of analysis wasn’t available for the NG joint review panel. Perhaps they might then have just had to issue 300 condition instead of 200. Perhaps they might have found their courage and simply said NO!

  3. Pored over.

  4. We have American owned companies extracting oil sands from Alberta , most likely with a large labor component from offshore , a proposed pipeline to the Gulf of Mexico where a Koch Brothers refinery will upgrade and refine the dilbit to ship to profitable markets in other countries, where most of the profits are made.
    Because of the abundant supply , bitumen prices will be discounted and royalties and taxes will add almost nothing to the Alberta /Canada coffers. Environment aside , is this even a good business model for Canada , or are we just hewers of wood and drawers of water ??

  5. It’s complex, but even with the cherry-picking of the studies on which it bases its figures, the report does say that extraction and mining of bitumen emits several times more that the most polluting alternative, Mexican Maya. They give a range but if you look at the range, the low end is not a real statistical low end, it is what happens if you omit some of the data. There are several of their calculations (the displacement of coal by pet coke, ignoring upstream fugitive emission and emissions associated with diluents, scrubbing of sulfur, etc) that I could nitpick with, but the biggest criticism is what happens to the crude that gets displaced.

    The report says, in effect, that bitumen will only displace the heaviest highest-emission crude feedstock, to the point that refining it has less emissions. That is based in part on fact, the only refineries that can handle bitumen are those with a delayed coker unit, and they are currently refining Mexican Maya and Venezuelan Orinoco heavy crude. In fact the report concentrates only on the highest end of emissions of the heaviest heavy oils, and calculates the difference. Now, current Canadian bitumen still emits a lot more, and the heaviest alternatives are not the only ones that will be displaced, but the biggest mistake is the implicit assumption that Venezuela and Mexico will just stop producing. That’s not what will happen. Venezuela is already planning to build more refineries for their heavy oil around the Caribbean, and Mexico will also use those as well as refineries in California, which because they are using existing ports will not require a new environmental assessment. Mexico also burns excess heavy oil it can’t sell to produce electricity. You can’t simply subtract those other heavy oils from total emissions.

  6. There you have it folks. Don’t try to spin what you can’t anymore. Don’t try to discredit the report when you clearly don’t know what you are talking about. It is what it is, and what it has always been. This political (not environmental) chaos is ending. We will all be better for it.

  7. A total disregard of NAFTA, they have to approve it…sugar coat it every way they can…see you on court!

    • You should re-read NAFTA.

  8. Not surprised Andrew, an Albertan, thinks the GHG analysis is a slam dunk. The net was set at 5ft off the ground rather than the regulation 10 ft. Big fault in the report’s market analysis section was using WTI as the reference price. That’s not the price faced by Canadian producers — WCS is. Had WCS been used, the case could be made that approval would increase WCS price (by relieving capacity constraints) and hence incent more OS production (and GHG emissions) than otherwise. There’s also a temporal angle — the report is based on the long run (i.e, the oil will get out of Alberta eventually). In the short run, an absence of take-away capacity is reducing the pace of OS development and hence creating a GHG benefit. And, according to State, there is a benefit — it concluded OS is more GHG intensive on a lifecycle basis than Mayan or Venezuelan substitutes.

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