Keystone pipe dreams

Why the project's U.S. approval now hinges on railways and a lawsuit

Keystone pipe dreams

Jonathan Ernst/Reuters

It may already be the most studied, picked-over and argued-about stretch of pipe ever laid in America. And just when it looked as if TransCanada’s proposed Keystone XL pipeline—from Alberta’s oil sands to refineries on the Texas Gulf Coast—was in the home stretch to a final decision, it now faces two more potential hurdles in its fifth year of U.S. federal review.

Neither hurdle was thrown up directly by President Barack Obama’s high-profile climate change speech last month, even though his declaration that climate impacts of the project would play a crucial part in his decision heartened opponents of the pipeline. “Our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution,” Obama said at Georgetown University on June 25. “The net effects of the pipeline’s impact on our climate will be absolutely critical to determining whether this project is allowed to go forward. It’s relevant.”

Opponents were jubilant.

“Now, after the way he presented that to a large audience, I don’t see how he then approves the pipeline,” said Jane Kleeb, founder of Bold Nebraska, a leading advocacy group against the pipeline in the state of Nebraska. “My initial gut reaction was this is a message to the [Democratic] base. He knows that he needs the base for gun control, for immigration, for the 2014 election cycle.”

But supporters of the project parsed the speech and took comfort in the specific language Obama had used, which, on closer inspection, could be consistent with an approval of the permit. For example, crude from the oil sands takes more energy to extract than conventional oil, and the Department of State has deemed it to be 17 per cent more polluting over its life cycle. But Obama’s reference to “net” effects suggested he would consider mitigation efforts in Alberta, such as carbon capture and sequestration, to offset the higher carbon emissions associated with oil-sands production.

Moreover, Obama’s condition that the pipeline should “not significantly exacerbate” emissions seemed to echo the State Department’s language in its draft environmental assessment in March, which stated that the Keystone XL project “is unlikely to have a substantial impact on the rate of development in the oil sands,” because, the report assumed, if Keystone XL is not built, then some other method would be used to transport the oil to market. So if Keystone is not in itself the driver of oil-sands development, then it can’t be considered the villain if carbon emissions go up.

But therein lies the first land mine ahead. In reaching that conclusion, State relied less on the uncertain future of alternative pipeline projects than on railway cars, emphasizing “the proven ability of rail to transport substantial quantities of crude oil profitably under current market conditions, and to add capacity relatively rapidly.” Now that premise is under fierce attack. In April, the Environmental Protection Agency (EPA) issued its comments on the State Department’s report, outlining what State needed to do in order for a final environmental review to get a passing grade. In its discussion of greenhouse gases, the EPA told State to conduct a “more careful review” of the potential of rail transport, which had been “so central” to State’s “key conclusion” about the effect of the pipeline on emissions. “This analysis should include further investigation of rail capacity and costs, recognizing the potential for much higher per-barrel rail shipment costs,” the EPA wrote: The point was that higher railway transit costs might reduce the economic viability of expanded oil-sands crude production.

Further to that, a detailed study published in June by research analysts at Goldman Sachs concluded that railroads lack the capacity to match the Keystone pipeline as a means of moving oil-sands crude, or bitumen—which is denser and heavier and requires specially built rail cars and safety procedures—to U.S. markets. Citing “the long distances and higher cost of rail” compared to pipeline transportation, Goldman Sachs wrote that if Keystone XL or another proposed cross-border pipeline encounter further delays, “we believe risk would grow that Canadian heavy oil/oil-sands supply would remain trapped in the province of Alberta.”

Seizing on this critique and others, several large U.S. environmental groups are pressuring the State Department to reverse its finding that the pipeline would have no significant impact on oil-sands development—a prospect that could be fatal for the pipeline under the criteria laid out by Obama in his recent speech. They have also highlighted to the State Department comments by Minister of Natural Resources Joe Oliver to the Reuters news agency in April, in which he said of rail: “I don’t think anybody feels that it could be a substitute for pipelines.”

Pipeline proponents are fighting back. Greg Stringham, vice-president of markets and oil sands at the Canadian Association of Petroleum Producers, says several issues are being overlooked by opponents of the project. He concedes that bitumen, a heavy oil extracted from the oil sands, does indeed require special railcars. Because it’s so viscous, it needs to be heated to be pumped out. But he says that diluted bitumen—the substance that would flow through the pipeline—does not. Further, even if most of the oil moved by rail remains light crude and not diluted bitumen from Alberta, the oil sands will still gain more access to U.S. markets, thanks to freed-up capacity in the existing pipeline system. He also emphasizes that rail is just one option the industry could turn to in the absence of a permit for Keystone XL. “Whether it be through rail or other pipelines, conversions [of natural gas pipelines] or reversals [of existing pipelines], the capacity may get there. It may not be in the same exact time frame, but eventually, it will get there.”

Even as the State Department works through the rail issue, a separate potential obstacle is looming once more in the state of Nebraska, where opposition to the pipeline has already delayed the federal review process once. Back in November 2011, in response to an outpouring of public concern over the routing of Keystone XL over an important aquifer— whose pollution by any major spill would be a disaster—the Nebraska legislature held a special session to pass legislation setting out a formal review process for large pipelines. It was to be led by an independent public commission. But a few months later, after much lobbying, the legislature quietly passed a new law transferring regulatory decision-making authority over projects already in the application process directly to the governor. It also gave TransCanada the power of eminent domain to acquire land along the proposed pipeline route, even if its owner refuses to sell. TransCanada proposed a revised pipeline route, and Nebraska Gov. Dave Heineman, a Republican, approved it last January. Now, a group of landowners has challenged the law in court as a violation of the state constitution. A state judge has allowed the case to move ahead, and a trial could be held in late summer or fall, leaving a question mark over the route in Nebraska once again.

“If we win,” says Brian Jorde, a lawyer for the landowners, “TransCanada could be handed a presidential permit and could build all the way up to Nebraska—but not do anything in the state.”

The pipeline that was supposed to be a “no-brainer” is proving once again that, when it comes to climate policy in the Obama era, there’s no shortage of politics, or hot air.