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-Mégantic 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.

Keystone Pipeline New Nebraska Route Approved by Governor

On Tuesday, January 22^nd  2013 Governor Dave 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 boarder. This was expected after the Nebraska state regulators recommended approval of the new route for the Keystone XL Pipeline on January 4^th 2013. The recommendation is in support of the TransCanada second 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 Nebraska along this new route through Nebraska that would join up with the Keystone Phase II which runs from Steel City, Nebraska to Cushing, Oklahoma. The new route avoids many of the fragile soils in northern Nebraska and the shallowest areas of the Ogallala Aquifer, but still overlies portions of the aquifer, which covers most of the state.  

There is currently a pipeline 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. The existing Keystone Pipeline, is known as Phase I and run from Hardesty, Canada to Steel City, Nebraska near the Kansas and Nebraska border. Keystone Phase II runs from Steel City to Cushing, Oklahoma where it still terminates, leaving the Canadian crude oil in Oklahoma along with U.S. domestic production from North Dakota that has been using the pipeline to reach the Oklahoma storage facilities. Increased U.S. oil production combined with the Canadian production has produced a glut of oil waiting to be refined in Cushing, OK.

In February 2012 TransCanada announced their intention to build the Cushing Oklahoma to the Nederland, Texas portion of the Keystone XL pipeline, the Keystone Phase III, a 435 mile extension of the existing Keystone pipeline to Port Arthur and Houston areas. The Keystone Phase III Project (Oklahoma to Texas) began construction last summer and planned to begin operations in mid to late 2013. In response to the glut of oil in Cushing, Enbridge Inc. and Enterprise Products Partners owners of the Seaway pipeline that runs from the gulf coast area to Cushing, Oklahoma, reversed the flow in their gas pipeline to move crude from Cushing to the gulf coast refineries. The reversal  and change to crude required pump station additions and modifications, and was up and running in mid 2012, the capacity of the reversed Seaway Pipeline is up to 150,000 barrels of oil per day. 

According to the TransCanada the Keystone XL will also transport U.S. crude oil from the very large Bakken oil basin in Montana and North Dakota, along with Canadian oil, to U.S. refineries. TransCanada expects the cross border permit to be processed expeditiously and a decision made now that a new route in Nebraska has been approved by state regulators and endorsed by the Governor. This is alternative route for Keystone XL Phase IV will now be submitted as part of the Presidential Permit application. Though, it seems doubtful that the application will be approved any time soon.

The Keystone XL Pipeline has been very controversial. Most of the environmental controversy has seemed to focus on the vulnerability of the porous soils of the Sandhills and fears of a possible oil leak into one of the nation's most important agricultural aquifers. Moving the pipeline away from the Sandhills should mitigate that concern. However, many who oppose the Keystone XL pipeline want to prevent the development of the oil sands resources in Canada to prevent the acceleration of global warming. 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 which could reach only about 8% of the oil sands. Advances in technology in both oil sand extraction and refining techniques and rising oil prices altered the economics and have made the in-situ extraction of oil sand possible. Using Steam Assisted Gravity Drainage (SAGD) combined with horizontal drilling has allowed for in-situ extraction of the oil. These 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 oil from the Middle East or Brazil.

The current method of mining the Canadian oil sands increases the CO2 released in every gallon of gas adding to man’s carbon footprint. In addition, older methods of mining the oil sands left open pits that still need to be reclaimed, thought today groups of wells are typically drilled off a central pad and like fracking wells and can extend for miles in all directions. This reduces surface disturbances of the land and the footprint of the area to be reclaimed. Canada’s Imperial Oil just started operations at another new oil sands site, Kearl,  producing  another 110,000 barrels per day of bitumen. This bitumen doesn’t need to be refined. It goes straight to the pipeline, but in general, refining capacity and pipeline capacity are not keeping up with the production of Canadian crude and the price has fallen to the lowest in the world.

The Keystone XL is planned to initially transport of 830,000 barrels a day which will be ultimately expanded to 1.3 million barrels a day of oil, to be processed in the oil refineries along the Gulf Coast and in Oklahoma. The Keystone XL Phase IV pipeline could be completed by the end of 2014 if they received the Presidential permit this spring. In 2011 for the first time since 1949 the U.S. exported more petroleum products than it imported.  The United States remained a net importer of crude oil, some of which was refined into petroleum products that were then exported. The increase in exported distillate fuel (mostly diesel) is what allowed the U.S. to become a net exporter of petroleum products.

American refiners still imported large, although declining, amounts of crude oil from Canada, which in 2011 topped 2 million bbl/d for the first time, and from North Dakota's Bakken formation to process into petroleum products.  According to the U.S. Energy Information Agency, the U.S. consumed 18.8million barrels per day of petroleum products during 2011, making us the world's largest petroleum consumer. Current imports are 8.4 million barrels a day and Canada supplied the largest share of these petroleum imports. The next biggest sources of U.S. petroleum imports in 2011 were Mexico, Saudi Arabia, Venezuela, and Nigeria, in that order. Overall, about 40% of U.S. petroleum imports came from countries in the Organization of the Petroleum Exporting Countries (OPEC), while 60% came from non-OPEC countries such as Canada, Mexico, Russia, and Brazil. Most ofthese petroleum imports were crude oil. 

In June 2010 TransCanada commenced commercial operation of the first phase of the Keystone Pipeline System. Keystone's Phase I was the conversion of natural gas pipeline to crude oil pipeline and construction of a bullet line that brings the crude oil non-stop from Canada to Steel City at 435,000 barrels a day. Phase II of Keystone was an extension of the pipeline from Steele City, Nebraska to Cushing, Oklahoma and began operations in February 2011. Keystone Phase II increased the volume per day of Keystone Phase I with the addition of pumping stations; the system now runs at 591,000 barrels a day. The Seaway pipeline began operations in June completing the ability to pipe crude from Canada to the Gulf Coast carrying 150,000 barrels a day. The Keystone Phase III when completed in 2013 will increase volume in the Oklahoma to Texas portion of the pipeline. The Keystone Phase IV when and if approved will increase volume of the upper portion of the pipeline from the current 591,000 barrels a day to 1.3 million barrels a day.

The Canadian pipeline, known as the Northern Gateway, is a 730 mile route from Alberta where the oil is produced to the Pacific port of Kitmat, for export to Asia. In order to  reach the port the pipeline must travel through British Columbia (the California of Canada) and is facing strong public opposition and the political leaders in British Columbia offer no support. Economic Benefit to British Columbia would be minimal. The Northern Gateway would open a potentially large new market for Canadian crude by taking oil over the Rockies to Kitimat, British Columbia, where it could be loaded onto tankers bound for China and other Asian markets. Due to the current excess in supply in the United States, the price of West Texas Intermediate crude has fallen and the price of the Canadian crude has fallen even more to near $50 per barrel due to a lack of capacity to refine the heavier crude.  The Northern Gateway could reduce that price differential somewhat and is being proposed to carry 525,000 barrels of crude a day. If it wins approval, Enbridge expects it to be up and running in 2017. 

Keystone Pipeline the Saga Continues

On May 4th 2012 TransCanada Corporation announced their 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 Nebraska using an as yet undetermined route through Nebraska to join up with the Keystone Phase II which runs from Steel City, Nebraska to Cushing, Oklahoma. This is the newest step after announcing on February 27th 2012 their intension to build the Cushing Oklahoma to the Nederland, Texas portion of the Keystone XL pipeline, the Keystone Phase III, a 435 mile extension of the existing Keystone pipeline to Port Arthur and Houston areas. The Keystone Phase III Project (Oklahoma to Texas) is expected to begin construction this summer and begin operations in mid to late 2013. TransCanada hopes to have the northern section completed in 2015.

If you recall the   existing Keystone Pipeline Phase I runs from Hardesty, Canada to Steel City, Nebraska near the Kansas and Nebraska border. Keystone Phase II runs from Steel City to Cushing, Oklahoma where it terminates, leaving the Canadian crude oil stranded in Oklahoma along with U.S. domestic production from North Dakota that has been using the pipeline to reach the Oklahoma storage facilities. Increased U.S. oil production combined with the Canadian production has produced a glut of oil waiting to be refined in Cushing, OK.

Russ Girling, TransCanada's president and chief executiveofficer was quoted in the TransCanada press release as saying: "KeystoneXL will transport U.S. crude oil from the very large Bakken oil basin inMontana and North Dakota, along with Canadian oil, to U.S. refineries.” Mr. Girling added that he expected the cross border permit to be processed expeditiously and a decision made once a new route in Nebraska is determined. TransCanada is working directly with Nebraska's Department of environmental Quality (DEQ), to determine an alternative route for Keystone XL Phase IV that avoids the environmentally sensitive Sandhills watershed. Several alternate routes and a preferred route were submitted to the DEQ April 18. The DEQ will now determine a specific route and oversee the public comment and review process. Once a route is finalized, it will be submitted as part of the Presidential Permit application.

The Keystone XL Pipeline has been very controversial. Most of the environmental controversy has focused on the porous soils of the Sandhills and fears of a possible oil leak into one of the nation's most important agricultural aquifers. Moving the pipeline away from the aquifer should mitigate that concern. However, many who oppose the Keystone XL pipeline want to prevent the development of the oil sands resources in Canada to prevent the acceleration of global warming. 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 oil from the Middle East or Brazil.

The current method of mining the Canadian oil sands increases the CO2 released in every gallon of gas adding to man’s carbon footprint. In addition, older methods of mining the oil sands left open pits that still need to be reclaimed, thought today groups of wells are typically drilled off a central pad and like fracking wells and can extend for miles in all directions. This reduces surface disturbances of the land and the footprint of the area to be reclaimed.

The Keystone XL is planned to initially transport of 830,000 barrels a day with a planned expansion of 1.3 million barrels a day of oil, to be processed in the oil refineries along the Gulf Coast and in Oklahoma and used within the U.S.  According tothe U.S. Energy Information Agency, the U.S. consumes 14 to 15 million barrels of oil each day. Current imports amount to almost 9 million barrels a day, approximately 60% of the United States' requirements. The Keystone XL pipeline could ultimately represent 10%-14% of oil imports.  

In June 2010 TransCanada commenced commercial operation of the first phase of the Keystone Pipeline System. Keystone's Phase I was the conversion of natural gas pipeline to crude oil pipeline and construction of a bullet line that brings the crude oil non-stop from Canada to Steel City at 435,000 barrels a day. Phase II of Keystone was an extension of the pipeline from Steele City, Nebraska to Cushing, Oklahoma and began operations in February 2011. Keystone Phase II increased the volume per day of Keystone Phase I with the addition of pumping stations; the system now runs at 591,000 barrels a day. The Seaway pipeline, a joint venture between Enterprise Products Partners L.P. and Enbridge Inc., will begin operations in June completing the ability to pipe crude from Canada to the Gulf Coast carrying 150,000 barrels a day. The Keystone Phase III when it is completed will increase volume in the Oklahoma to Texas portion of the pipeline. The Keystone Phase IV when and if approved will increase volume of the upper portion of the pipeline from the current 591,000 barrels a day initially to 830,000 barrels a day then to 1.3 million barrels a day.