The Keystone XL Debate

Location of bitumen depoits (

Location of bitumen deposits in Canada. Image via Wikipedia

The oil sands of northeastern Alberta represent the largest reservoir of crude bitumen in the world and make Canada second only to Saudi Arabia in terms of total oil reserves. In the past, the development of these oil sands was considered cost prohibitive. Bitumen is a heavy oil that is too thick to be conventionally pumped. Instead it must either be heated to a more liquid state or strip-mined and processed, both of which require a huge investment. With the rise of oil prices, however, these processes have become economically viable and Canada is positioned to become one of the largest oil producing countries in the world.

Currently almost all of Canada’s bitumen is transported to refineries in the U.S. where it is transformed into a variety of refined products representing about 20% of total U.S. oil and gas consumption. Each year, more oil is exported and Cambridge Energy Research Associates estimate that Canada could provide up to 40% of U.S. oil imports by 2035, but the refineries currently being supplied are estimated to run out of spare capacity by 2014. A critical component of increasing imports is a proposed pipeline known as Keystone XL, or the Keystone expansion project, that would transport oil to additional refineries.

The existing Keystone pipeline, owned by TransCanada Corp., supplies the midwest and has a daily capacity of 435,000 barrels of oil. The proposed expansion, running across the Great Plains to Texas and the Gulf Coast, could provide an additional 500,000 – 900,000 barrels. At first glance, the project seems promising: the U.S. has an opportunity to get more of its oil from a trusted neighbor rather than hostile regimes, construction and manufacturing jobs would be created, and states along the route would gain billions in tax revenues. But as TransCanada’s permit application waits for State Department approval (since the pipeline crosses an international border), debates are erupting over the project.

This is a picture of Syncrude's base mine. The...

Syncrude

Critics have long complained that the environmental impacts of oil sand recovery are unacceptable. Large areas of the boreal forest have been strip-mined and though mitigation work is being performed, only a small amount of land has so far been labeled as reclaimed. The toxicity of tailings is also a fear, since it could possibly pollute nearby waterways or affect area wildlife. Moreover, the amount of energy expended in oil sand recovery means its production releases higher amounts of greenhouse gas emissions compared to other sources. Finally, it is unclear whether Canadian regulators can keep pace with potentially rapid industry growth, leaving environmentalists to complain that U.S. energy money should be funneled towards efficiencies and alternatives rather than increasing production of the “dirtiest” of oils. Industry leaders have tried to fight back by pointing to the mitigation and reclamation gains that have been made, worried that the public impression of oil sand development is unbalanced. The Economist quotes government water scientist Preston McEachern comparing the oil sands to “the harp seal of the environmental movement.” The harp seal is considered to be an easy target.

But the explosion of BP’s Deepwater Horizon rig in the Gulf of Mexico, along with a spill of about 800,000 gallons of oil from Enbridge’s southern Michigan pipeline, has brought new opponents into the debate. Farmers and ranchers along the proposed route of the pipeline are worried what the impact might be if a similar spill occurred. Not only is the land of the Great Plains difficult to maintain in a productive state, but the main water source for the area is the shallow Ogalalla Aquifer. And with the release of a joint report from the National Resources Defense Council (NRDC), the Sierra Club, the Pipeline Safety Trust, and the National Wildlife Federation claiming the acidic and corrosive composition of bitumen crude puts pipelines at a greater risk of developing leaks, these fears seem well-founded. TransCanada, meanwhile, defends their state-0f-the-art pipeline system for detecting and stopping leaks, while Alberta’s Energy Resources Conservation Board called the NRDC report’s analysis flawed and misleading.

Environmental concerns aren’t the only issue being debated. The economics of the project have become contentious, with worries of cost overruns, foreseeable delays in reaching pipeline capacity, and assessments that shuttling the oil to the Gulf Coast will actually increase the price per barrel since there will no longer be an oversupply (and associated discounts) in the Midwest. Meanwhile lawsuits have been filed in Oklahoma over the ability of a foreign company (TransCanada) to exercise eminent domain rights in the U.S. in order to get the pipeline built.

America is not in a good position to replace its daily energy consumption with renewables any time soon; the threat from the Republican’s continuing resolution to current solar projects is just one indication that we aren’t moving away from fossil fuels. Nor is it likely we’ll be able to substantially reduce demand through conservation and efficiencies in the foreseeable future since no immediate or broad-reaching actions have been taken. Moreover, energy consumption is closely related to economic growth and as the weak economy begins to pick up, we’ll probably see an increase in energy demand rather than a decrease. And though we may not like the environmental impacts of bitumen extraction, we’re currently getting just as much oil from countries with reprehensible human rights records, little regulation or mitigation, and undergoing potentially volatile political situations.

Only time will tell how the U.S. plans to deal with the debate over Keystone XL (the State Department isn’t expected to issue a decision until later in 2011) as well as the larger debate over energy use and supply. While we bluster about without a clear energy plan, the planned northern extension of Keystone XL will allow Canada to export heavy crude from its west coast ports. The U.S. might fret about Canada’s dirty oil, but international markets, such as those in China, will be only too happy to take delivery. Perhaps it’s time to finally get serious about planning our energy future.

One response to “The Keystone XL Debate

  1. Thanks for the clear overview of the situation.

    Establishing the right balance between environmental concerns and socio-economic issues such as jobs and cost of living, must be found. Arm-chair quarter-backing – which seems to be rampant – is liable to obfuscate and only serve to delay real progress. We must begin to offer real solutions, and this only happens after agreeing on the scope of the problem. What is clear is that we need a long range plan that get’s this nation through the immediate years but that also seeds development of the next generation, which can become a new growth engine if we aren’t too late to compete on the world stage.

    It’s tempting to suggest that we put sunset clauses on any extraction projects and that a portion of the fees and taxes levied on fuel excavation, refining and distribution go towards alternative energy development. We should give companies created for the purpose of alternative energy installation and/or R&D a tax holiday. We should offer favorable credit terms so they can invest in necessary R&D or plant and equipment, or technicians. We should streamline the government bidding process and open it up to make it easier for more companies to compete – ensuring best pricing. Government grant processes for clean energy projects should be revamped to give greater notice and be less cumbersome to navigate as well. The market place is ingenious in filling a void, but needs economic stimulus to do so as well as government policies that encourage participation, rather than stifle it.

    But so long as the cost of natural gas and oil remain low, it’s going to be an uphill climb. The next generation of energy needs the seed capital and fossil fuel industry can be the benefactor (assuming the elected politicians find the backbones to stand up to them).

    Given the right policies and opportunities, we can get there. In the mean time the Exxons & Shells of the world will need to keep pumping the crude. – Enough arm-chair quarter-backing from this pen. BDale

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