Oil and Gas Pipelines have a Hard Week

Last Sunday Dominion Energy and Duke Energy cancelled the Atlantic Coast Pipeline announced that they have cancelled the Atlantic Coast Pipeline, despite last month’s victory where the Supreme Court upheld the easement to cross the Appalachian Trail granted by the Forest Service. Nonetheless, after spending an estimated $3.4 billion, the Atlantic Coast still faced legal challenges.

Thomas F. Farrell, II, Dominion Energy chairman, president, and chief executive officer, and Lynn J. Good, Duke Energy chair, president, and chief executive officer, released the following joint statement:
“We regret that we will be unable to complete the Atlantic Coast Pipeline. For almost six years we have worked diligently and invested billions of dollars to complete the project and deliver the much-needed infrastructure to our customers and communities. Throughout we have engaged extensively with and incorporated feedback from local communities, labor and industrial leaders, government and permitting agencies, environmental interests and social justice organizations. We express sincere appreciation for the tireless efforts and important contributions made by all who were involved in this essential project. This announcement reflects the increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the United States. Until these issues are resolved, the ability to satisfy the country’s energy needs will be significantly challenged.”

The next day to emphasize the challenges and legal uncertainty faced by large infrastructure projects the U.S. District Court for the District of Columbia, cancelled a federal permit that had allowed the Dakota Access Pipeline to operate while the United States Army Corps of Engineers, which had granted the permits for the pipeline, conducted an extensive environmental impact review. The Court ordered the pipeline that runs from North Dakota to Illinois to shut down pending an environmental review and be emptied of oil by August 5, 2020.

The same day the U.S. Supreme Court upheld a federal judge’s rejection of Nationwide Permit 12, is a key requirement for oil and gas pipelines in the U.S. It allows them to be built across waterways. The court’s order upheld a Montana judge’s April ruling that federal officials violated the Endangered Species Act by issuing the permit to Keystone XL without properly assessing the impact on it could have on wildlife.

Keystone XL is a project of TC Energy (formerly TransCanada). 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 than the proposed Keystone XL. The Keystone XL would replace Keystone I with a a new and better pipeline. Keystone I is old and this would be an upgrade to the oil transport infrastructure. The existing 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 in the beginning of 2014.

 

The Keystone XL Pipeline has been very controversial. At first most of the environmental controversy 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 have mitigate that concern, but the controversy grew. 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, but the oil cost more in energy use to mine and process. Now this controversy has expanded on climate grounds to oppose all pipeline infrastructure.

At the same time as the Keystone XL decision this week, the Supreme Court cleared the use of the Nationwide Permit 12 for some 70 other pipelines, allowing their construction to continue as well as the protests. Protest and litigation have become weaponized. Billions of dollars have be spent for nothing and wasted, when there are real human needs and needs for maintaining our infrastructure. We must stop this waste and be honest about what the questions and issues are.

To some, possibly many, protesting and litigating to stop the pipelines, the issue is simply to stop the use of all fossil fuels. At this moment in time that is unreasonable and unworkable. According to the U.S. Energy Information Administration, the major energy sources in the United States are petroleum-gas and oil (37%), natural gas (32%), coal (11%), nuclear (8%), and renewable energy primarily biomass and hydro power generation (11%). Though renewable energy has been growing at an amazing pace, at 11% of the energy use it will not be able to supply our needs for energy in the short run.

Natural gas is the source of 32% of the energy consumed in the United States and in 2019 was used almost equally for industry, electrical generations and residential and commercial heating. The natural gas consumed in the United States is produced in the United States and moves by pipeline, train and truck. Electrical forms of heat are not as efficient as a gas furnace. Petroleum at 37% is used mostly for transportation (cars, trucks, trains, planes and ships).

Transporting gas can be dangerous. Pipelines are the most reliable and safe way, IF the pipelines are properly maintained, and that is a big if. The U.S. Environmental Protection Agency does not regulate pipelines; the regulations for secondary containment and spill prevention are inadequate. In addition, there are no regulations that limit the maximum life that equipment can continue to be used. Though the occurrences of pipeline failures are rare, the consequences are significant and more investment should be made in preventing a failure from existing infrastructure and improving existing pipelines and storage and delivery systems.

Most companies would rather pay penalties and fines than the costs of capital expenditures and operation and maintenance expense necessary to absolutely control spills. Pipelines are the safest form of transportation for crude oil and gas. We need to ensure that our pipeline are the safest they can be. Our biggest problem is not new pipelines, it is old pipelines.

The abundance of shale natural gas and oil coming from fracking has pushed the price for natural gas and oil very low and has created a glut in natural gas in this country keeping the cost of energy low and ensuring virtually everyone can have 24/7 power in essentially unlimited amounts, a competitive advantage if we do not destroy ourselves in litigation and protest. In Pennsylvania and Ohio where there is an abundance of available and cheap natural gas power companies are building new generation gas fired power plants to replace coal fired plants which are being regulated out of existence.

The new plants use a gas and steam turbine together to produce more electricity per gas BTU. Coal plant generate about twice the CO2 per megawatt of power and have higher particulate pollution than gas fired electrical power plants and the new hybrids are even more efficient. Electric demand is not growing overall nationally, but the pattern of use is changing as the end use changes. We are using more power in the evenings. In addition the closing of aging coal fired power plants has left sections of the grid short of power. There are many things we need to do now:

• Installing energy efficiency measures in buildings, and requiring increased efficiency in industry and transportation.
• Retiring coal-fired power plants. Continuing to increasing the share of power generation from renewable sources and from natural gas.
• Reducing methane released from the processing and distribution of oil and gas by replacing aging infrastructure and improving technology implementation.

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 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-Mégantic 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.

Energy East Pipeline instead of Keystone XL- Canadian Crude Will Reach Market

from TransCanada 

TransCanada’s second application for a Presidential Permit to build the northern most section of the Keystone XL pipeline (Phase IV) from the Canadian Border in Saskatchewan into Nebraska appears to be stalled despite a recommendation from Nebraska Governor Dave Heineman. Based on comments from President Barack Obama that the pipeline that would carry 830,000 barrels of crude oil from the Canadian oil sands and Bakken oil basin in Montana and North Dakota would not create a significant number of permanent jobs, and that the net effect of the climate would be critical to the decision, the outlook for approval is not bright.

Meanwhile, TransCanada’s proposed pipelines to Canada's West Coast, the Northern Gateway, that would carry crude oil from Alberta to the Pacific port of Kitmat, for export to Asia is facing strong opposition in British Columbia by First Nations groups and environmentalists. So now, TransCanada is moving forward with an east-west pipeline entirely in Canada and outside of British Columbia. Russ Girling, TransCanada's president and chief executive officer announced at a news conference last week that TransCanada is moving forward with the 1.1 million barrel per day 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.

The project is expected to cost approximately $12 billion to upgrade the existing pipeline and extend its run to the coast. The pipeline will transport crude oil from the oil sands in Alberta and Saskatchewan to Montréal, the Québec City region and Saint John, New Brunswick, greatly increasing access by the oil companies to Eastern Canadian and international markets. The pipeline could replace imported oil refined in Montreal and Quebec with Canadian oil. In addition the pipeline will terminate at Canaport in Saint John, New Brunswick where TransCanada and Irving Oil have formed a joint venture to build, own and operate a new deep water marine terminal and be able the supply the United East Coast refineries and other nations.

The Energy East Pipeline, which still needs regulatory approval in Canada, will have a capacity of approximately 1.1 million barrels a day and is expected to be in service by late-2017 for deliveries in Québec and 2018 for deliveries to New Brunswick. After the July train crash in Lac-Megantic, Quebec, that killed at least 15 people, and multiple derailments in recent months as petroleum products have increasingly been transported by railroad as the pipeline projects have languished, there is a growing recognition that pipeline transport of oil is safer. Prime Minister Stephen Harper stated while the pipeline will have a thorough review, it is the safest way to transport oil.

Customers have already pledged to use at least 900,000 barrels a day of the line's capacity, as Canadian producers need a route to export their oil and Canadian refiners need oil, while regulatory hurdles delay the proposed pipelines through Western Canada and to the United States. The Canadian Association of Petroleum Producers has projected that Canadian oil output will more than double by 2030 to 6.7 million barrels per day, with most of the increase anticipated to be from the Alberta oil sands. There is demand in the world for oil and delay or denial of Presidential Permits for border crossing pipelines and delays in crossing the First Nations will not keep the oil in the ground or reduce world demand for oil and fossil fuels.

There is currently a TransCanada Keystone pipeline that runs east from Hardesty Saskatchewan to Manitoba and then south through the Dakotas to Steel City, Nebraska. It is a lower volume pipeline than the proposed Keystone IV. 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.

In 2012 TransCanada began building 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 section of the pipeline did not require a Presidential Permit for it crossed no international borders and received state approval. The Keystone Phase III Project (Oklahoma to Texas) plans to begin operations this year.

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.

Enbridge has also applied for a Presidential Permit to increase the capacity of their existing 36-inch diameter Line 67 pipeline, which runs 670 miles from Hardisty, Alberta, to Superior, Wisconsin. With these improvements, the pipeline line will be able to carry up to 570,000 barrels of oil per day up from the current 450,000 barrels a day. The Minnesota project is part a larger plan by Enbridge to upgrade pipelines in the United States and Canada to ship more Canadian oil from the Alberta oil sands to the Midwest and beyond.

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.

Keystone Pipeline the Never Ending Story

On February 27th 2012 TransCanada Corporation announced their intension to build the Cushing Oklahoma to the Gulf Coast portion of the Keystone XL pipeline, the Keystone Phase III, a 435 mile extension of the existing Keystone pipeline to Port Arthur and Houston. 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. As oil prices have climbed recently the 55 million barrels of oil that can be stored in Cushing have produced a glut of oil waiting to be refined and the lowest gas prices in the nation for the mid-west.

In response to the glut of oil in Cushing, Enbridge Inc. and Enterprise Products Partners (who purchased a 50% interest in November) owners of the Seaway pipeline that runs from the gulf coast area to Cushing, Oklahoma, announced their intention to reverse the flow in their gas pipeline to move crude from Cushing to the gulf coast refineries. The reversal requires pump station additions and modifications, scheduled to be completed by June 2012, the capacity of the reversed Seaway Pipeline will be up to 150,000 barrels per day and further expansions could increase that volume. Now, TransCanada Corp. has announced that it will build a portion of the Keystone XL pipeline from the Cushing oil hub south to the Gulf Coast to compete with the Seaway pipeline while attempting to obtain approval of a revised route for the Keystone Phase IV leg to increase flow from Canada to Steel City, Nebraska.

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, TransCanada is reapplying for State Department and Presidential approval of a revised rout for the northern portion that bypasses the Sandhills. 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. Until the recent protests against the Keystone XL pipeline that labeled these oil reserves “Canadian Oil Sands,” they had been variously known as unconventional oil or crude bitumen. These oil sands have been surfaced mined in Canada with drag lines and power shovels since the late 1960’s, 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.

Steam Assisted Gravity Drainage (SAGD) is the current method of extraction. In SAGD, two horizontal wells are drilled in the oil sands, one at the bottom of the formation and another about 15-20 feet above it. In each well pair, steam is injected into the upper well melting the bitumen, which flows into the lower well and is pumped to the surface. SAGD was the breakthrough that has quadrupled recoverable oil reserves and moved Canada into second place in proved world oil reserves. SAGD is cheaper than previous methods, allows very high oil production rates, and recovers up to 60% of the oil in place. It is the SAGD method that has created the need for a pipeline to deliver the oil to the American markets and the controversy. SAGD requires more energy to produce the oil and increases the carbon footprint of the crude. Those who believe completely in the positive feedback global warming model where increased CO2 raises global temperature, increases evaporation of water vapor to the atmosphere, and in turn increases the functional impact of CO2 on global warming see any increase in carbon as quickening the destruction of the earth. The Canadian oil sands increase 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..

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 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 simply increase volume. 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.

Keystone XL and Canadian Oil Sands

The Canadian oil sands have been known for decades. Until the recent protests against the Keystone XL pipeline that labeled these oil reserves “Canadian Oil Sands,” they had been variously known as unconventional oil or crude bitumen, the Canadians use oilsands as a single word. These oil sands had been surfaced mined in Canada with drag lines and power shovels since the late 1960’s, 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.

The crude bitumen contained in the Canadian oil sands is a semi-solid or solid in natural deposits. It is a thick, sticky form of crude oil, so heavy and viscous that it will not flow unless heated or diluted with lighter hydrocarbons. Decades ago Canadian oil companies discovered that if they removed the sand filters from the well pumps and pumped as much sand as possible with the oil, production rates improved remarkably. This technique became known as Cold Heavy Oil Production with Sand (CHOPS). Pumping out sand opened "wormholes" in the sand formation which allowed more oil to reach the well improving production rates and recovery from around 6% to 10%. However, it produced large quantities of sand with oil residue that need to be disposed of, the recently used method has been to dispose of them in underground salt caverns.

More advances in drilling techniques and the use of steam injection have allowed the Canadians to expand their recoverable oil. In Cyclic Steam Stimulation (CSS) steam at extremely high temperature is injected into a well over a period of weeks to months; then, the well is allowed to rest while the heat to soaks into the formation. Finally, the hot oil is pumped out of the well for weeks or months until the production rate falls off. Once the production rate falls off, the well is put through another cycle of steam injection, rest and production. CSS and has a recovery rate around 20 to 25%; the disadvantage is that the cost to inject steam is high.

Steam Assisted Gravity Drainage (SAGD) was developed after improvements in directional drilling technology made it possible. In SAGD, two horizontal wells are drilled in the oil sands, one at the bottom of the formation and another about 15-20 feet above it. Groups of wells are typically drilled off a central pad and like fracking wells can extend for miles in all directions. This reduces surface disturbances of the land and the footprint of the area to be reclaimed under the environmental license (the Canadian version of a permit). In each well pair, steam is injected into the upper well melting the bitumen, which flows into the lower well and is pumped to the surface. SAGD was the breakthrough that has quadrupled recoverable oil reserves and moved Canada into second place in proved world oil reserves. SAGD is cheaper than CSS, allows very high oil production rates, and recovers up to 60% of the oil in place. There are refinements in the technology using in-situ hydrocarbon dilution under development that could reduce cost and energy used in mining even further, and could further reduce the cost of extracting oil sands. It is the SAGD method, however; that has created the need or desire for a pipeline to deliver the oil to the American markets.

Like all petroleum production, oil sands operations can adversely impact the environment. In the past open pit mining of oil sands projects have impacted the land when trees, brush and overburden have been removed for the mining site. As a condition of licensing, projects are required to implement a reclamation plan, but reclamation is a slow process. The mining industry asserts that the boreal forest will eventually recolonize the reclaimed lands. In addition, large amounts of water are used for oil sands operations for the steam in the current SAGD method. Despite recycling, most of the water ends up in tailings ponds. The Alberta provincial government limits how much water oil sands companies can remove from the Athabasca River to avoid impact and newer treatment methods have reduced the treatment and recovery time for tailing ponds. Still environmental regulations need to evolve with technology. Last winter the Canadian press reported that Wikileaks released a cable written by the U.S. Ambassador to Canadian Environment Minister in 2009 that revealed that the Obama administration had inquired about a possible moratorium on new oil sands development. Former environment minister Jim Prentice responded (in 2009) to the U.S. Ambassador that he was prepared to step in and impose tougher regulations on the oil sands if the industry damaged Canada's green reputation and said that if industry did not take voluntary measures and the provincial government did not set more stringent regulations, he would step in and press federal environmental legislation.

Recently, the current Canadian Environment Minister Peter Kent announced that Ottawa will introduce environmental regulations to address oil sands and reduce greenhouse gas emissions without implementing a cap-and-trade program. Canada has committed to reducing greenhouse gas emissions by 17% below 2005 levels by 2020, the same target that the United States has committed to. Environmentalists contend that emissions trends suggest the expansion of the oil sands will prevent Canada from hitting its targets, unless tougher environmental rules are put in place, and strongly oppose further development of oil sands until a stronger regulatory framework is in place . These groups are fighting to stop the Keystone pipelines to the United States and western Canadian ports as a method of stopping the expansion of oil sands production. The Pembina Institute in Alberta states: “Filling the proposed KXL pipeline with oil sands will result in nearly a 50% increase in oil sands production. Until environmental management of the oil sands is improved, KXL will cause significant environmental harm due to increased oil sands production.”

In June 2010 the first phase of the Keystone Pipeline System went into operation moving crude oil from Canada to market hubs in the U.S. Midwest. Keystone Cushing (Phase II of the pipeline) extending the pipeline went into service in February 2011, connecting the storage and distribution facilities at Cushing, to the Midwestern hubs. The proposed Keystone XL, is an approximate 1,660 mile, 36 inch crude oil pipeline that would begin in Alberta and extend southeast through Saskatchewan, Montana, South Dakota and Nebraska continuing through Oklahoma to an existing terminal not far from Port Arthur, Texas. The oil would arrive at the Texas refineries and ports for American market and export. The U.S. State Department is the lead handling the issue because the pipeline crosses national boundaries, but President Obama has made it clear he will make the final decision on whether to approve the pipeline.

Recently, the Canadian Prime Minister Harper told reporters the project would create a vast number of jobs in Canada and the United States, and he fully supported the project. President Obama has said environmental issues would weigh just as heavily in any decision as job creation and energy security. The pipeline was originally planned to run through the Osgallala aquifer in Nebraska, a very important water source to mid-west agriculture. On Monday in response to U.S. State Department indications that the pipeline needed to avoid the Osgallala aquifer and the Sand Hills area, TransCanada (the pipeline owner) announced it had reached a tentative deal with Nebraska officials to move the proposed route of its Keystone XL pipeline away from Osgallala aquifer. After the announcement the U.S. State Department made it clear that another environmental assessment would be necessary and would take 12 to 18 months, pushing the decision to 2013. A decision should never be made too soon or too late.

Keystone XL and the Kaleidoscope Picture of Energy’s Future

On Sunday protesters from around the United States descended on the White House to protest the Keystone XL pipe line. The protesters represent several environmental groups that want President Obama to stop the pipeline. Last week, President Obama stated that he would be making the final decision on the Keystone XL pipeline himself. Jobs, renewable energy, environment, greenhouse gases, and energy security all come into play in this decision, and I would not try to guess the President’s mind on this. This decision is an important one in the new world we face.

We thought we knew what the world’s energy supply looked like. Peak Oil, the maximum global oil extraction rate would be reached at the dawn of the 21st century, at which time the rate of oil production would begin its terminal decline. After the 1970’s the U.S. had become dependent on the oil from the Middle East and Venezuela and this would be compounded by rising fuel prices, potential shortages associated with declining global oil supplies . The cost of everything would be increased by more costly energy. The decline of the chemical manufacturing sector (plastics, pesticides, herbicides) would be accelerated due to expensive base stock and high fuel costs reducing U.S. manufacturing employment and increasing food costs. The future of the United States was not a rosy one, but it is one we would share with the world and the positive side to this reality was the opportunity to make renewable energy sources economically competitive.

The bell ringing of that world view was the failure of the American Clean Energy and Security Act of 2009 or the Waxman-Markley bill. This bill would have established a variation of cap and trade similar to the European Union Emission Trading Scheme. The emissions cap under that plan would grow tighter over time reducing the amount of carbon dioxide that can be emitted in total and pushing up emissions prices and thus prodding industry to release less carbon dioxide by utilizing cleaner energy sources or increasing efficiency of the existing ones. Other provisions of that bill included new renewable energy requirements for utilities, studies and incentives for carbon capture technologies, energy efficiency incentives and penalties for homes and buildings, and grants for green jobs. The bill was approved by the House in June 2009, but died in the Senate, and was possibly the last stand of the world view that cap and trade can stop climate change on a planet with an ever growing human population.

The change in the world energy picture had started slowly in the 1990’s with the first deep water wells in the Gulf of Mexico and Brazil, but it has taken off in the last decade as a result of declining conventional fields, climbing energy prices and swift technological change. The Deepwater Horizon disaster and the political environment slowed the U.S. exploration and extraction in the Gulf, but did not stop it. Regulations tightened as the failure was better understood. Massive new oil and gas fields are being identified and exploited in the United States and around the world utilizing new technologies developed in the past decade or two. Some of the reserves have been known to exist for decades but were inaccessible either economically or technologically, others have been newly found as in Brazil, Israel, Norway, and Argentina. Regulations need to be tightened before large failures in drilling, fracking and extracting oil from sands.

The devastating earthquake and tsunami that struck northeastern Japan in March, 2011 resulted in extensive loss of life and infrastructure damage, including severe damage to several nuclear reactors at Fukushima Daiichi. This nuclear disaster has prodded the European Union, notably France and Germany to rethink their nations’ reliance on nuclear power. Both are sun-setting their utilities’ reliance on nuclear power generation. The newly available natural gas from shale, oil from deep water drilling and oil steamed from sands will replace nuclear power in Europe and extend the era of the dominance of fossil fuels for at least a generation and possibly a hundred years.

The Canadian oil sands have been known for decades, but until oil prices rose and technology improved they were too expensive to exploit. Technology and rising oil prices altered the economics in their favor and streamlined the refining process. Recovering reserves from deeper underground using steam injection, rather than mining techniques, has reduced the footprint of operations and environmental damage to the forests. According to the New York Times “The United States may now have the means to reduce its half century of dependence on the Middle East.” This will only occur if the extension of the Keystone pipeline is approved.

Canadian oil sands production is expected to increase every year for the next two decades, and it is estimated that current known reserves exceed Iraq’s total reserves. Canada is now a premier oil producer- the world has changed. However, many American and Canadian environmentalists strongly oppose this change. These groups are fighting to stop the Keystone pipelines to the United States and western Canadian ports. In June 2010 the first phase of the Keystone Pipeline System went into operation moving crude oil from Canada to market hubs in the U.S. Midwest. Keystone Cushing (Phase II of the pipeline) extending the pipeline went into service in February 2011, connecting the storage and distribution facilities at Cushing, to the Midwestern hubs. The proposed Keystone Gulf Coast Expansion Project, Keystone XL, is an approximate 1,660 mile, 36 inch crude oil pipeline that would begin in Alberta and extend southeast through Saskatchewan, Montana, South Dakota and Nebraska. It would incorporate a portion of the Keystone Pipeline (Phase II) through Nebraska and Kansas to serve the markets at Cushing, before continuing through Oklahoma to an existing terminal not far from Port Arthur, Texas. The oil would arrive at the Texas refineries and ports for export.

So far President Obama has been non-committal on the project, which is strongly opposed by many environmentalists in both the United States and Canada. The Canadian Prime Minister Harper told reporters the project would create a vast number of jobs in Canada and the United States, and he fully supported the project. President Obama has said environmental issues would weigh just as heavily in any decision as job creation and energy security. The pipeline runs through the Osgallala aquifer in Nebraska, a very important water source to mid-west agriculture (secondary containment should be considered in sensitive locations) and continued dependence on fossil fuels goes against the administration’s support of renewable energy as the long term future of the United States.