The politics of pipe: Keystone's troubled route
nathan vanderklippe
CALGARY
Globe and Mail
Dec. 24, 2011
Half-a-decade before TransCanada Corp.’s (TRP-T44.45----%) Keystone XL ran into a wall of political and environmental resistance, a key stretch of the route linking Canada’s oil sands to refineries in the southern U.S. emerged as a tricky, though seemingly surmountable, problem.
The route crossed a landscape of prairie and farmland, far from mountains, tundra, permafrost and other features that make it tough to dig trenches and lay pipe. But there was one obstacle.
Engineers working for another proposed pipeline project called Altex closely examined a route similar to Keystone XL’s and identified a trouble spot. Glen Perry, a pipeline entrepreneur who steered Altex, remembers the warning he received from an engineer in 2006.
“I said, ‘What are the route issues here?’ He said, ‘There’s really only one.’ I said, ‘What’s that?’ He said, ‘You have to go through the boiling sands of Nebraska.’”
Boiling sands are areas where sandy soil is so thin that groundwater can bubble up through it to the surface. In Nebraska, they are found in the Sand Hills, an ecologically sensitive region of grass-covered dunes underlain by a giant freshwater aquifer, called the Ogallala, that sustains agricultural production down the centre of America.
For TransCanada, Nebraska would come to form the heart of a fierce opposition to a $7-billion pipeline project that has now been put on hold, after a groundswell that started in Cornhusker country swept through activist environmental groups to Washington, D.C.
Before Mr. Perry could tackle the boiling sands issue, the 2008 financial crisis sank his project. But for TransCanada’s Keystone XL, which followed in the footsteps of Altex, the boiling sands of Nebraska would prove to be an immense hurdle.
TransCanada saw the Sand Hills as any pipeline builder would – as an engineering challenge, one that could be managed with special construction techniques and a tailor-made plan, drafted after speaking with local experts, to rehabilitate unearthed land.
But as TransCanada developed its Keystone XL plan, the world was changing.
Public confidence
For decades, pipeline permitting applications were fought largely on technical grounds, and they’ve virtually all been successful. Two other major cross-border oil pipelines – the first instalment of Keystone, and Enbridge Inc.’s Alberta Clipper – had been speedily approved in the years prior.
But Keystone XL was the first major pipeline to confront a country that had suddenly turned a sharp eye on the oil industry. The BP spill had erupted amidst still-simmering concerns about global warming – and in the following months, a series of pipeline spills into important U.S. rivers made headlines.
Against that backdrop, Nebraska’s boiling sands transformed from an engineering challenge into a political and social challenge – one that TransCanada, and the industry in general, was ill-equipped to handle.
“The world fundamentally changed in the last 18 to 24 months – starting with Macondo [Gulf spill] and the whole visibility of that,” said TransCanada chief executive officer Russ Girling in an interview. “It was a different kind of awareness of the oil industry than we’ve ever seen, I think, publicly.”
That, he added, “changed public awareness, and probably shook public confidence in what we do.”
TransCanada did what it could to fight back. Over the course of 2011, it spent heavily on lobbyists and advertising in an effort to sway a public that was already tilting against Keystone XL. But on Nov. 10, the U.S. Department of State announced it would delay its decision on Keystone XL until TransCanada could sort out a new route. It wanted the company to move away from Nebraska’s boiling sands. Now the fate of Keystone XL remains caught up in high-level political wrangling.
For pipeline companies, the old ways of operating are no longer good enough. Pipelines, out of sight and mind for decades, are suddenly seen as an extension of Canada’s controversial oil sands industry.
“All of a sudden we’re bad guys. And we are ill-prepared for that,” says Richard Ballantyne, an industry consultant and former chair of the Canadian Energy Pipeline Association and president of Terasen Pipelines. To date, the pipeline industry has put its energy into “making sure our pipelines are safe, making sure they’re incredibly reliable.”
Canada has big plans for the oil sands, which stand to be a prime source of employment, manufacturing demand and government revenues for decades to come. But the oil sands have already largely grown far beyond the needs of the Canadian oil markets they already serve. To grow, that oil must move elsewhere, which requires pipelines.
But pipelines are under attack – everywhere. It’s not just Keystone XL. It’s Northern Gateway, the proposed Enbridge Inc. pipe to the West Coast. It’s Trans Mountain, the Kinder Morgan line connecting Alberta to B.C.’s lower mainland. It’s Line 9, the Enbridge line from Ontario to Quebec. “We are in an era that we haven’t faced,” said Janet Holder, the Enbridge executive vice-president in charge of Gateway. “The way we in the past would have managed [issues] will not work in the future.”
The preferred route
For pipeliners, it’s hard to find a place you can’t bury steel.
“We’ve been in the pipeline business 40 years, and we always use the old expression, ‘If you can land a man on the moon, you can put a pipeline anywhere,’” says Barry Singleton, senior vice-president at Calgary-based Singleton Associate Engineering Ltd., which worked on both Mr. Perry’s Altex project and the first stage of the Keystone project.
In the pipeline industry, direct routes are preferred in order to save on costs – the main reason Keystone XL was pointed across the Sand Hills. Fewer kilometres means less pipe, land-clearing, trenching and reclamation.
Workers fly over the entire route – a process that can take two weeks . For Keystone XL, they actually walked its entire 2,673-kilometre length two or three times. One of the main issues they discovered was bedrock. In parts of Montana, the bedrock is shallow – trenching solid rock is far tougher than digging out soil. Sorting it all out took about a year. When they finished, they felt they had solved the main issues.
That included Nebraska’s Sand Hills, which TransCanada was confident it had figured out. It had spoken with ranchers, landowners, regional agencies and experts. It had told them how it planned to build the pipe. It was told its plans were appropriate.
The company took those statements, and concluded there was no reason to skirt the Sand Hills. “We didn’t feel there was concern,” said Michael Schmaltz, who led TransCanada’s environmental work on Keystone.
“We’ve got 40,000 miles of pipeline we’ve built through all of North America, through various different types of terrain,” including similar terrain in Saskatchewan, said Mr. Schmaltz. The Sand Hills would be challenging. But would that challenge “tilt the world on a different axis? I don’t think so.”
But Saskatchewan’s sand hills aren’t boiling sands. They don’t overlie the most important aquifer on the continent. And they aren’t an icon. Nebraska’s Sand Hills are, one of the state’s U.S. senators has said, to Nebraskans what the Rockies are to Albertans.
Adapting to new realities
Despite its financial firepower, and millions spent on lobbyists, TransCanada couldn’t outmatch its critics.
“There’s probably 10 large environmental organizations with a lot more staff that are blogging, that are writing news releases, that are out there in the communities,” said TransCanada spokesman James Millar. The company struggled to know what to say. The debate over Keystone XL was, for a pipeline company, uncharted territory for a blue-chip utility with no experience fighting environmentally minded Hollywood actors.
“One of the things we’ve learned through this process,” Alex Pourbaix, the company’s president of energy and oil pipelines, said at a Toronto investor day in November, “is we have to be a lot more pro-active in dealing with those emotional issues.”
The company failed to listen to key voices. In Nebraska, TransCanada faced down a year of calls to switch its route around the Sand Hills, calls that came from powerful people like Nebraska’s governor and its two U.S. senators. The company refused, adamantly. The Sand Hills route, it said, was far and away the best.
Then, on November 10, 2011, the State department said it had “determined it needs to undertake an in-depth assessment of potential alternative routes in Nebraska,” citing the environmental sensitivities of the Sand Hills. Public concern had trumped technical reassurances. Hollywood had trumped the engineers.
It took four days for TransCanada to agree to change the route and skip the Sand Hills, prompting the question of whether it could have avoided the conflict all along.
Now the pipeline industry is learning how to change with the times. Pipeliners need to “advocate for better environmental management regimes up-stream,” said Ed Whittingham, executive director of the Pembina Institute, a Calgary-based environmental advocate, In other words, they should push for cleaner oil sands.
Enbridge is considering a new social media effort for the public to “manage their way through the rhetoric to get to the real answers, so they can actually come to an informed decision,” said Ms. Holder, the Enbridge executive.
TransCanada, too, is figuring out what it needs to do. “It’s going to be a huge job for us as an industry,” said Mr. Girling, the TransCanada CEO.
“It’s an awareness campaign, working right from the grassroots, through education, through means we haven’t used before,” he said. “But we don’t have all the answers yet. We have to get the answers. And we have to get smarter at those.”
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KEYSTONE’S GENESIS
TransCanada’s Keystone project started with a phone call to the company’s headquarters in Calgary, forwarded to the general corporate voice mail box. It came from someone at the Canadian Association of Petroleum Producers.
The message: “Hey, we’d like to talk to somebody about converting one of your pipelines for crude oil service.”
That’s how Robert Jones remembers it. It was 2004 or 2005. Mr. Jones, an engineer, had come to TransCanada after spending a decade working at Enbridge Inc., a titan in moving oil by pipe. That made him the only person doing business development for TransCanada who had any oil pipeline experience.
Pipelines are a bit like gold mines. The vast majority of them don’t get built. People like Mr. Jones get paid to come up with ideas. They will whittle down a list of 100 potential new pipes down to 10. If they’re lucky, one will get built. The success rate isn’t high.
He spoke with people representing ConocoPhillips, Canadian Natural Resources Ltd. and another company. The oil sands were growing, they said, and they needed to get the crude to market. And they wanted someone other than Enbridge. Why not push oil through part of TransCanada’s network of six underused gas pipes across Canada and then send it south to U.S. refiners?
It was an intriguing idea for TransCanada.
“So we took it away and we thought: how can we be different from our competitors?” Mr. Jones said.
He assembled a stealth team, just a half-dozen people with a code name, which he had grabbed from Google. Knowing the pipe would cross Iowa, he popped the state’s name into an Internet image search. He discovered photos of a lot of arched bridges – the kind that appeared in Bridges of Madison County. He figured a pipeline was a bit like an energy bridge.
“And if you look at these archway bridges, the critical part of a bridge is the keystone,” he said.
Keystone was born. So was a major chapter in Mr. Jones’s career, which would become devoted to the project. It came in two parts: the first involved the gas pipeline conversion. It was designed, permitted, and built with little fuss. Its first barrels reached market on June 30, 2010. TransCanada, which had focused almost exclusively on natural gas, had been transformed into a vital mover of oil. And it was hungry for more.
Enter Keystone part two. Around 2007, fears about falling oil supplies from Venezuela set U.S. Gulf Coast refiners on a quest for a new crude source. Some refiners had contracts for Venezuelan oil that expired in 2012 and 2013. They were also watching their supplies from Mexico begin to diminish. They needed something to fill the gap. Canada’s oil sands crude shared much in common with what comes out of Mexico and Venezuela – they are heavy oils. And the oil sands were growing, fast.
It all seemed to fit.
So TransCanada began planning Keystone XL, so named because it would be an eXpress Line capable of rapidly delivering oil to markets.
Nathan VanderKlippe
http://www.theglobeandmail.com/globe-investor/the-politics-of-pipe-keyst...
