Thursday, April 24, 2014

Keystone XL Pipeline Delayed Indefinitely

On Friday, April 18th 2014 the U.S. Department of State announced that it will delay with no definitely period of time cited a decision on the Keystone XL Pipeline citing uncertainty from a February court decision that struck down a Nebraska state law (LB1161) allowing the Governor to approve the route in Nebraska as reason to keep the federal agency comment period open. If you recall on January 31, 2014, the U.S. Department of State released the eleven volume Final Supplemental Environmental Impact Statement for the Keystone XL Pipeline that found that whether or not the Keystone XL Pipeline was built would have limited if any impact on the development of the Canadian Oil Sands resource.

Nebraska state Law LB 1161 is a streamline approval process. Under LB 1161 a pipeline carrier submits a route for evaluation (and recommendation) by the Nebraska Department of Environmental Quality, NDEQ, and receives the Governor's approval instead of obtaining approval from, the Public Service Commission, PSC, under the requirements of the MOSPA. The MOSPA process includes review by the Nebraska Departments of Environmental Quality, Natural Resources, Revenue, and Roads, the Game and Parks Commission, Nebraska Oil and Gas Conservation Commission, Nebraska State Historical Society, State Fire Marshal, and Board of Educational Lands and Funds and also requires the PSC to schedule a public hearing within 60 days of receiving an application.

The Nebraska decision is being appealed to the Nebraska Supreme court, and there is always the option of subjecting the Keystone XL Pipeline route to the review process by the PSC under MOPA. Now the Presidential Permit review process is delayed, again for at least this construction year. On January 31, 2014, when the U.S. Department of State released the Final Supplemental Environmental Impact Statement for the Keystone XL Pipeline it looked as if a final decision on the pipeline might be made by the administration this spring, but that’s not happening this year.

The executive summary of that report states that 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.

The U.S. Department of State has now extended the comment period for the Keystone XL Pipeline indefinitely. Though under the executive order currently in place, Secretary Kerry is empowered to make the final decision, the next step in the process if we ever get there 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 of State 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 and each agency are to be given the opportunity to thoroughly review all comments. No decision will be made this year.

There is strong opposition to the Keystone XL pipeline and in one route or another it has been under consideration since 2008. However, as the Supplemental Environmental Impact Statement argues the pipeline will not determine if the oil sands resources in Canada will be mined and is the safest way to transport oil. The risks of transporting oil by rail car were seen in the Lac-M├ęgantic train disaster that killed 47 and obliterated sections of the town last year and the incident last February when 19 cars derailed in New Brunswick. 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.

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