Monday, February 3, 2014

Keystone XL Pipeline Update

On Friday, January 31, 2014, the U.S. Department of State released the eleven volume Final Supplemental Environmental Impact Statement for the Keystone XL Pipeline. If you recall, back on May 4th 2012 TransCanada Corporation made a new application for a Presidential Permit to construct and operate the Keystone XL Pipeline after the Department of State rejected their original 2008 application in January 2012. At the time, the Department of State was under a deadline imposed by Congress and rejected the application because of inadequate time to determine the environmental impact of the proposed pipeline.

TransCanada Corporation turned around and on May 4th 2012 announced a new application for a Presidential Permit to build the northern most section of the Keystone XL pipeline (Phase IV) from the Canadian Border from where Saskatchewan meets Montana using a route that would cross South Dakota and a route (that would be determined later) to cross Nebraska and meet up with the Keystone Phase II which runs from Steel City, Nebraska to Cushing, Oklahoma. On January 22, 2013 Governor Heineman of Nebraska signed the recommendation to the U.S. Department of State for a Presidential Permit for the Keystone XL pipeline to cross the international border after the Nebraska state regulators recommended approval of the revised route selected (with their guidance) for the Keystone XL Pipeline.

There is currently a pipeline Keystone I that runs east from Hardesty Saskatchewan to Manitoba and then south through the Dakotas to Steel City, Nebraska. It is a less direct route and is a lower volume pipeline. Keystone II runs from Steel City to Cushing, Oklahoma at the Oklahoma storage facilities. Keystone III running from the Cushing Oklahoma to the Nederland, Texas began delivering crude oil from Cushing, OK, to the oil refineries in Texas on Wednesday, January 22, 2014. The Gulf Coast Project, Keystone III, did not require a Presidential Permit because it does not cross an international border.

I did not review the 11 volumes of the Supplemental Environmental Impact Statement. I read the 38 page Executive Summary and though I spent a large portion of my professional career preparing and reviewing environmental reports, my eyes glazed over at reading more than the executive summary. Keystone XL 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 based on expected oil prices, oil-sands supply costs, transport costs and supply-demand scenarios.” In other words, no matter what action the Administration chooses to take on this portion of the pipeline-approve, reject, or stall- the oil sands are not staying in the ground in Canada. There is world demand for heavy crude oil and it will be met. The Texas refineries are optimized for heavy crude either from South America or Canada. The crude oil will come by pipeline, boat, and truck or rail road.

There is strong opposition to the Keystone XL pipeline. However, as the Supplemental Environmental Impact Statement argues the pipeline will not determine if the oil sands resources in Canada will be mined. To account for uncertainties about oil production, consumption, and transportation, the Environmental Impact Statement modeled 16 different scenarios that combine various supply-demand assumptions and pipeline constraints. Under most scenarios examined in the report whether or not the pipeline is built had limited impact on development of the oil sands. Oil sands production and development will slow or accelerate depending on oil price trends, regulations, and technological developments. The Canadian oil sands have been known for decades, but until oil prices rose and technology improved these oil deposits were too expensive to exploit beyond the limited scope of surface mining. Advances in technology in both oil sand extraction and refining techniques and rising oil prices altered the economics and have made the extraction of oil sand possible. While the advances in extraction techniques have quadrupled recoverable oil reserves and moved Canada into second place in proved world oil reserves, it requires more energy to produce the oil and increases the carbon footprint of the crude as compared to fracked light sweet crude from Montana.

Now that the final Supplemental Environmental Impact Statement is complete the Presidential Permit review process will now focus on whether the Keystone XL Pipeline serves our national interest. The Department of State is opening a 30 day comment period on February 5, 2014 where members of the public and other interested parties can submit comments on the Keystone XL Pipeline. Though under the executive order currently in place, Secretary Kerry is empowered to make the final decision, the next step requires consideration of: energy security; environmental, cultural, and economic impacts; foreign policy; and compliance with relevant federal regulations and issues. During this time, the Department will consult with, at least, the eight agencies identified in the executive order: the Departments of Defense, Justice, Interior, Commerce, Transportation, Energy, Homeland Security, and the Environmental Protection Agency.

Meanwhile, TransCanada’s proposed pipelines to Canada's West Coast, the Northern Gateway, would carry crude oil from Alberta to the Pacific port of Kitmat, for export to Asia is also facing opposition from environmentalists and the aboriginal Yinka Dene Alliance and Coastal First Nations. TransCanada is also moving forward with an east-west pipeline, the Energy East Pipeline project. The Energy East Pipeline project would convert a redundant 1,864 mile portion of the TransCanada's Canadian Mainline natural gas distribution pipeline to a crude oil pipeline and build the additional 870 miles of new pipeline to reach the port in Saint John, New Brunswick. This pipeline has more public support after the Lac-M├ęgantic train disaster that killed 47 and obliterated sections of the town last year and the incident this month when 19 cars derailed in New Brunswick.

The cylindrical DOT-111 rail cars used to transport oil have come under scrutiny in recent years for some of their design flaws. Last month the Canadian Minister of Transport announced proposed regulatory amendments to improve the safety of transporting oil by rail. She announced plans to alter DOT-111 regulations, requiring that all new cars be built with thicker steel, include a reinforced top fitting, and a head protection shield to lessen the risk of puncture. The new regulation does not require that older tank cars be retrofitted to come into line with new regulations, but that is expected to happen gradually. DOT-111 tank cars are non-pressurized, cylindrical railcars designed to transport a variety of liquids. They are also the most common tank cars in service with an estimated 265,000 of them operating in Canada and the United States.

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