Politics Stamps Out Oil Sands Pipeline, Yet It Seems Likely to Endure
By JOHN M. BRODER and DAN FROSCH
Published: December 23, 2011
WASHINGTON — The Obama administration confirmed this week that a provision in the payroll tax bill requiring a quick decision on the proposed Keystone XL oil pipeline from western Canada to the Gulf Coast will probably lead to cancellation of the project.
But does that mean the $7 billion pipeline project is dead forever? Will its cancellation curb the inexorable global demand for the exploitation of Canada’s huge oil sands deposits? Will it affect the concentration of atmospheric carbon dioxide in beneficial ways and slow the pace of climate change?
The answer to all three questions, barring unexpected changes in the politics and economics of oil, appears to be no.
The tax cut and unemployment insurance extension approved by Congress on Friday included a Republican provision that requires President Obama to make a decision on the pipeline within 60 days. The State Department, which has authority over cross-border pipelines, said that it would not be able to complete the required environmental review within that short a period and would be unable to recommend that the project be approved. White House officials said Mr. Obama would honor the agency’s advice.
But State Department officials and industry analysts say there is nothing to prevent TransCanada, the company proposing to build Keystone, or a different pipeline operator, from submitting a new application to build a similar project.
A State Department official said that such an application would have to begin from scratch and require a new series of public hearings and the completion of another environmental impact statement, a process that in Keystone XL’s case has already taken more than three years.
A spokesman for TransCanada said the company was not ready to throw in the towel and believed that only a small portion of the pipeline’s route required additional State Department review. Mr. Obama announced last month that he was delaying the project for at least a year to take a new look at the segment that crosses the environmentally sensitive Sand Hills region of Nebraska and the Ogallala Aquifer, which provides water to much of the Great Plains.
Shawn Howard, the TransCanada official, said that the problem could be resolved by rerouting 100 miles of the 1,700-mile pipeline.
“The only outstanding question that remains involves just that short section of line,” he said in a telephone interview. “The rest of the route has been confirmed.”
As eager as TransCanada is to build the new pipeline, there is sufficient pipeline capacity for now to carry current production of crude from the Alberta oil sands to American refineries. With relatively minor adjustments, there will be enough space on existing transborder pipelines to handle expected flow until 2018 or later, analysts said.
It is only after 2020, when production of Canadian crude is expected to double from today’s 1.5 million barrels a day, that the pipeline crunch becomes severe. Canadian companies are already planning to expand current pipelines and build new ones to carry oil to the coast of British Columbia for export to Asia.
Notably, however, one such proposed project, Enbridge’s Northern Gateway pipeline from Alberta to Kitimat, British Columbia, has been stopped for at least a year by the Canadian government because of strong opposition on environmental grounds from local landowners and indigenous populations.
Nonetheless, Stephen Harper, the Canadian prime minister, said in a television interview this week that if the United States blocked the Keystone pipeline, Canada would look to China as a market for its oil.
“I am very serious about selling our oil off this continent, selling our energy products off to China,” Mr. Harper said.
The oil sands formation in western Canada, sometimes referred to as tar sands because of the density of the extracted oil, contains an estimated 1.75 trillion barrels of recoverable oil, the second-largest known deposit of oil in the world after Saudi Arabia’s. Extracting, transporting and refining it, however, is energy intensive, producing 15 percent to 80 percent more carbon emissions over its life cycle than average petroleum products. Thus James Hansen, an eminent climatologist at the National Aeronautics and Space Administration, has warned that if development of the oil sands deposits goes forward unchecked it means “game over,” in his words, for the global climate.
Removing and burning all that oil, Dr. Hansen has warned, would spew so much carbon dioxide into the atmosphere that it would be impossible to stabilize the climate and avoid disastrous global impacts.
But experts in oil economics say that the oil is coming out of the ground in any event because of steadily growing global demand and the heavy investment in infrastructure already made in Alberta.
Andrew Leach, an associate professor of natural resources at the Alberta School of Business, said that Canada would continue to develop its oil resources, but that it would need additional pipeline capacity in coming years to meet export demands, whether to the United States or Asia. Slowing or stopping a particular project — Keystone or Northern Gateway, for example — could temporarily slow production in the oil sands, but eventually that resource will be tapped, he and others said.
Dr. Leach added, however, when asked about Dr. Hansen’s argument, that even at the higher end of production estimates, it would take until the year 3316 to burn all the oil, so the atmospheric effect would be gradual. And it would make no difference to the atmosphere whether it was burned in the United States, China or elsewhere, he noted.
The oil industry continues to invest in Canadian oil sands because such projects are expected to produce a steady stream of crude for decades, said Philip Budzik, a research analyst at the Energy Information Administration, a federal research organization. He said that over time, costs and the energy required to extract the oil would come down as technology improved.
“In an era of limited accessibility to overseas oil resources and in contrast to conventional oil fields that produce at their peak production level for only three to six years before going into decline,” Mr. Budzik said, “long-lived productive assets such as oil sands provide a company some insurance as to its long-term financial viability.”
He said that canceling Keystone would probably slow the rate of increase of oil sands production, but only until new routes to Asia or North America were found.
Bill McKibben, an environmental activist and professor at Middlebury College, led two big anti-Keystone protests at the White House that factored into Mr. Obama’s decision in November to delay the project.
He argues that without a predictable United States market for Canadian oil, and a major new pipeline to deliver it, the oil sands project would be crippled.
“Right now, they’ve only got a straw into that formation, but they want to quintuple production over the next five years,” Mr. McKibben said. “They want that stuff out of there and they have to have some kind of pipe to get it out.”
“Stopping Keystone will buy time,” he said, “and hopefully that time will be used for the planet to come to its senses around climate change.”
John M. Broder reported from Washington, and Dan Frosch from Denver.
http://www.nytimes.com/2011/12/24/us/provision-may-halt-keystone-pipelin...
