Keystone XL Delays

Brian Hicks

Written By Brian Hicks

Posted September 4, 2013

The Keystone XL pipeline – the one that keeps getting kicked around by the United States – likely will take us into 2014 before we get any real answers.

Another delay of the approval of the pipeline will give both sides of the coin adequate time to gather up a good defense while President Barack Obama mulls over future dealings with Canada.

pipeline obamaTransCanada Corp.’s (NYSE: TRP) $5.3 billion pipeline would link Alberta’s oil sands to U.S. refineries in the Gulf Coast.

The project currently sits in the hands of the U.S. State Department, which has said it won’t complete its environmental-impact review until it has reviewed and published the 1.5 million public comments it has received. This month-long process could conclude as soon as this week, Bloomberg reports.

Once the environmental-impact review is complete, the Department then heads into a 90-day review of the project based on its national interest, looking at how it would affect foreign relations, national security, and the environment.

After that, outside agencies are granted 15 days to make an appeal, sending the matter straight to the top. The president could then push the final decision into the coming year.

As time goes by, the Keystone XL seems to be losing momentum. After all, it has been on the drawing board for five years now. TransCanada first proposed the project in September 2008. It was forced to revise the route after Nebraska officials said the pipeline presented too many environmental risks; the route changes are included in the State Department’s review.

But some analysts think extra time may be a good thing, giving the president adequate time to develop and offset policies to weaken opposition, focusing on climate-change measures and negotiating with Canada to reduce its impact of oil sands production – a highly contested aspect of the pipeline.

Also remember, the executive order has no set deadline for completing the process to allow an international pipeline. And while we all wait around, the Environmental Protection Agency is making more stringent policies for new and existing power plants. That, we know, is on the horizon.

The Stakes

If this thing doesn’t take off and we’re left without a Keystone XL pipeline, just how bad off would we be?

The mecca of North American pipeline would be in Cushing, Oklahoma, where there’s an abundance of pipeline and where most Alberta oil flows. The bulk of the shale oil boom is taking place in the U.S. Midwest at this very moment. Hydraulic fracturing revolutionized the entire scope, and now as production floods the region, there’s simply not enough pipeline capacity to move it all to refineries – even with all the pipe that’s there already.

The lack of sufficient pipeline has already contributed to the price drop of West Texas Intermediate (WTI) relative to Brent – at one point as much as $23 lower, according to Maclean’s. And Western Canada select, the grade produced by oil sands, also suffered a drop in price.

Without the Keystone XL, we’re all losing out on the 830,000 barrels per day it would be capable of carrying. 100,000 of that would be reserved for the light, sweet crude that comes out of the Bakken shale.

Rail Diversion

Many analysts believe that if the pipeline is held off, it will only increase greenhouse gas emissions. The oil sands that would be developed without the pipeline in place would then be shipped out mostly by rail.

U.S. regulators claim that last year was the safest in recorded history for the railroad, and that included a 10 percent rise in crude oil and petroleum product transportation, according to the Huffington Post.

Unfortunately, the Lac-Mégantic, Quebec train disaster last month left 47 dead after an explosion. Details of that incident are still being investigated, but it does bring rail safety measures to the forefront.

Without the Keystone XL, rail deliveries will jump from Canadian and U.S. producers alike. They have already more than doubled since last year, and this won’t be coming down anytime soon, especially as the U.S. ponders this new pipeline.

Rail transport is just more risky than pipeline, and not nearly as efficient. The U.S. would be running a big risk in rejecting the Keystone XL.

Where to Look

A speech the President gave in June at Georgetown University seemed to point in the direction to reject the pipeline, but that could also be a ploy to ease the mounting tensions. Still, he has indicated that while Canada has a clean record when it comes to the environment, it’s going to need to find a way to curb oil sands production if it wants the U.S. to get on board.

TransCanada does have another pipeline in the works. The Energy East pipeline would run from Saskatchewan to Ontario, helping to eliminate the need to import foreign oil. It would even run to ports capable of shipping to refiners in the U.S., Europe, and even Asian markets. It wouldn’t benefit the U.S. nearly as much as the Keystone XL, but it also wouldn’t face the strong regulations of the U.S.

This could be the only of the two major TransCanada pipelines that stands a chance. From there you’ve got a mass of new jobs, most of which would fall in Canada.

It looks like the railroad business is our best bet while we sit back and wait on the Keystone XL to move.

And we could be waiting a long time.


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