Tar Sands Mining Comes to Utah

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As the controversial TransCanada Keystone XL pipeline lingers in political limbo, inroads have been made in developing tar sands (also known as oil sands) resources in the United States. A Canadian tar sand processing company now known as U.S. Oil Sands Inc. has begun building a tar sands extraction and processing operation in Utah. This first project consists of 213 acres leased from the Utah State Institutional Trust Lands Administration, straddling the boundary between Uintah and Grand Counties, Utah. The project will consist of open-pit mining of tar sands, extraction of bitumen using d-limonene (a proprietary solvent); and storage of processed sands, processed fines and waste rock in the mine and two additional storage areas, totaling 70 acres in size. The mine will extract tar sands as far as 150 feet below the surface.

Much of the world's oil (more than 2 trillion barrels) is in the form of tar sands, although it is not all recoverable with current technology. While tar sands are found in many places worldwide, the largest deposits in the world are found in Canada (Alberta), Venezuela, and in various Middle Eastern countries. However, we do have large deposits of tar sands in the United States. These tar sands deposits are primarily located in Eastern Utah, mostly on public lands, both state and federal. The U. S. Geological Survey estimated the Utah tar sands oil resources to be 12 to 19 billion barrels of oil.

Tar sands

US Oil Sands Inc. has two project areas in Utah: PR Spring Project Area and Cedar Camp and NW Project Area. The PR Spring Project Area which consists of 5,930 contiguous acres; and a portion of this lease is the site of the approved and permitted surface mine development project that is now under construction. The initial project will produce 2,000 billion barrels per day of bitumen and first-oil and is expected to begin operations in 2015. The Cedar Camp and NW Project Area holds leases in 26,075 acres of exploration land which is to be assessed for future development.

The company was incorporated in 2003 as Earth Energy Resources Inc. and demonstrated their tar sands extraction process on the basis of a 150 billion barrel per day test unit. The company filed for an international patent in 2004, after demonstrating a six hour continuous trail. In 2005 the company acquired 2,562 acres and 50 acres of the PR Spring Project area and demonstrated their process in the field in Uintah County, Utah. From 2005-2009 the company now called U.S. Oil Sands continued to raise capital, develop their proprietary tar sands extraction process, characterize the mining site and obtain permits. Their process is reportedly a less energy and resource intensive than the Clark Hot Water Extraction Process developed in the 1920s by Dr. Karl Clark and the Alberta Research Council. The Clark process was first put into commercial production in 1967 by the Great Canadian Oil Sands Limited, now Suncor Energy Inc.

Further advances in tar sands technology in both oil sand extraction and refining techniques and rising oil prices altered the economics and made the commercial extraction of tar sands possible, but it still requires more energy to produce crude oil from tar sands. The Canadian tar sands mining and processing using Steam Assisted Gravity Drainage (SAGD) method still increased the CO2 released in every gallon of gas adding to the carbon footprint of the oil. In addition, older methods of mining the tar sands left open pits many that need to be reclaimed. The SAGD method in use in Canada allows groups of wells to be 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, but increases the need for steam. This additional energy increases the carbon footprint of the tar sands produced crude as compared to conventional crude or fracked light sweet crude from Montana.

The U.S. Oil Sands extraction process uses a non-toxic bio-solvent derived from citrus products. This new process reduces the mechanical energy needed to process tar sands, eliminates liquid tailings and the “middling” phase. This new process eliminates all of the capital cost and operating expense associated with creating bitumen froth, froth treatment, middlings treatment and tailings pond management and reclamation that is necessary with the Clark process. I could not find the energy profile of the resulting crude to compare to traditionally produced crude oil or Clark processed tar sands, but the new process is less polluting, recovers 98% of the bio-solvent for immediate reuse and 95% of the water for reuse. The environmental impact of the Utah tar sands needs to be examined carefully in this first U.S. operation.

As part of its panned development of tar sands in the United States, US Oil Sands leased the land in the PR Spring Designated Tar Sand Area of the Uinta Basin from the State of Utah School and Institutional Trust Lands Administration (SITLA), paid all lease payments since 2005. Since that time the company has been raising money, delineating the bitumen resources on its leases and characterizing ground water resources (or lack of them) in the vicinity, developing its process, permitting the PR Spring Mine and fighting legal challenges.

Last June the Utah Supreme Court dismissed the only outstanding regulatory challenge against US Oil Sand’s first PR Spring Mine project. The Court found that the groundwater discharge permit-by-rule originally issued in 2008 by the Utah Division of Water Quality was correctly issued based on the conclusion that the Company’s extraction process would have a "de-minimus" or negligible impact on ground water quality because the zone of saturation known as the Mesa Verde aquifer is 1,500 to 2,000 feet below and surface in the project area and the project will only mine to a depth of 150 feet below grade.

It was agreed by the environmental group that the U.S. Oil Sands project posed no threat to the deep, regional aquifer. The issue has been the potential presence of shallow ground water that may be affected by the project. However, during the summer of 2011, the company drilled 180 holes in and around the mine site, with a dense grid of 55 holes within the project area, drilled to a depth of 305 feet, more than twice the depth to which the company plans to mine. No groundwater was found.

In addition, the subsurface consists mostly of interbedded and impermeable shale, siltstone, and mudstone with almost every sand zone wholly or partially saturated with bitumen creating in effect a geologic tar roof for the subsurface. In effect there is no recharge area in the areas of heaviest bitumen concentration. The Judge upheld the permit and dismissed the case. With that win in June the US Oil Sands Inc. began construction on July 24th 2014.

from U.S. Oil Sands Inc. 

In addition, the U. S. Bureau of Land Management is planning to offer federal leases on 2,116-acre tar sand parcel in eastern Utah’s Asphalt Ridge area near Vernal, Utah.

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 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, Fracking, and the Price of Natural Gas

Last year, New York placed a moratorium on hydro fracturing in the New York portion of the Marcellus Shale while it assessed the effects of fracking. New York Department of Environmental Conservation’s draft environmental impact statement (EIS) on drilling was released almost four months ago and recommended that drilling be permitted, but with conditions. The comment period was scheduled to end on December 12, 2011, but was extended to January 11, 2012 and closed after having received more than 20,000 comments. In their press release at the close of the comment period the New York Department of Environmental Conservation stated: “Public input is an important part of establishing responsible conditions for high-volume hydraulic fracturing as well as determining whether it can be done safely. Many significant improvements were made to the 2009 draft based on comments DEC received. We expect additional improvements will be made to the 2011 draft based on the comments submitted during this comment period." The pressure is off on immediately ending the ban on hydro fracking in New York because the price of natural gas has hit a two year low, but the ban will be lifted. There is really no way to permanently prevent drilling to access the shale gas. Sooner or later it will be done, hopefully in a safe and environmentally sensitive manner.

The race to lock up leases on shale gas and a mild winter (so far) in significant parts of the United States has resulted in an oversupply of natural gas. Despite the fall in natural gas prices fracking will continue, not because it is profitable at this price, but because drilling leases and agreements made when gas prices were higher required drilling within a certain period of time. If a company fails to drill they will lose the lease and the money paid for those leases. So, for the next two years or so, no matter the price of natural gas, they will drill where permits are available. In addition, natural gas is often a by-product of much more profitable oil drilling. With oil prices topping $100 a barrel, oil companies in Texas continue to produce natural gas. In Texas where gas is often a by-product of oil production about 40 billion cubic feet of natural gas is flared off each year for the past several years as drilling has expanded. Texas requires oil wells to hook up to gas pipelines eventually which will increase the supply of available natural gas as the hookups catch up with production.

The high oil prices driving the Texas tight oil boom are also making the crude bitumen contained in the Canadian oil sands highly profitable. The current price of oil combined with threats from Iran to close the Strait of Hormuz and block oil shipments from the Middle East have made the oil sands even more attractive. A provision that was attached to the recent payroll tax bill signed by President Obama requires a decision by February 21st 2012 on the construction of the controversial Keystone XL pipeline from Canada to the U.S. 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 would make the final decision on whether to approve the pipeline, and the recent tax bill has forced a decision the issue that had been delayed until 2013.

As expected the State Department declined the Keystone XL Pipeline that would have provided a guaranteed oil supply from Canada. The project's critics argue that the mining and refining of oil sands would increase greenhouse gas emissions, pollute water and destroy the Canadian forests. Many Nebraska residents also opposed the Keystone XL pipeline because it originally would have crossed the Ogallala aquifer, the main source of drinking water in the upper Midwest. The administration decided in November to require bypassing the aquifer, but the increased carbon dioxide load associated with tapping the oil sands is a problem to the administration. Proponents of the project worry about lost jobs and energy security and that rejecting the Keystone XL project will push the Canadians to build the 730 mile Enbridge pipeline to a new port in British Columbia and ship the oil to China. However, building a pipeline through British Columbia's northern wilderness faces British Columbia environmental regulations, the stronghold of Canadian environmental regulations, and that project is also experiencing resistance from an existing decades-old moratorium on oil tanker traffic on the British Columbia coastline. The rejection is about the carbon content of the fuel.

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. In addition, large amounts of water are used for oil sands operations for the steam in the current method of extraction. Despite recycling, most of the water ends up in tailings ponds, but newer treatment methods have reduced the treatment and recovery time for tailing ponds as environmental regulations evolve with advances in technology in both oil sand extraction and refining techniques that have allowed the profitable extraction of this oil. These advances and rising oil prices have altered the economics and have made the extraction of oil sand possible and inevitable. Still the energy required to heat the oil sands so that they will flow results in increase the carbon footprint for each barrel of oil. The politics of energy security are not consistent with the overall goal of reduction of greenhouse gas emissions since the extraction and refining of oil sands reportedly produce more greenhouse gases than the extraction and refining of Iranian oil. The President has pledged to reduce U.S greenhouse gas emissions to 17% below the 2005 levels by 2020 and all regulatory and policy decisions have been consistent with that goal. The United States thirst for oil is not going to abate and the Middle East is becoming increasingly unstable. Given his consistent record in reducing greenhouse gas, it is likely the administration will choose the geopolitical risk over the environmental risk of oil with a higher carbon footprint.

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.