Keystone XL decision – more questions than answers.

When I left the house this morning to attend the launch of the Alberta Government’s new Oilsands Information Portal, I was expecting that there might be a question or two on the Keystone XL saga.  It turns out that we just missed the big news story of the day.  Just as the event wrapped up, news started breaking that the US State Department was going to request a new route be examined for Keystone XL in Nebraska. At a minimum, this would delay the pipeline’s Presidential permit until at least the first quarter or 2013, although previous statements from TransCanada suggested that the timelines could be on the order of 3 years. I spent most of the afternoon answering the same questions from reporters both in Canada and the US, so I thought I’d try to elaborate on some answers here and draw some lessons from the decision.

What does this mean for Alberta? Will we be landlocked in bitumen?

No, or at least not any time soon.  Current export capacity out of the Western Canadian Sedimentary basin is just under 3.5 million barrels per day, with about 2.2 million barrels per day of that on Enbridge’s mainline system, 300 thousand barrels per day (kbpd) to the West Coast and 280 kbpd to the US midwest via Kinder Morgan’s Transmountain and Express pipelines, and 600 kbpd via the already-operating portion of TransCanada’s Keystone system.  If you consider the ERCB’s 2011 forecast for oil production (oilsands and conventional), and net out domestic demand, total oil removals from Alberta are forecast at just over 3 million barrels per day by 2020. With a lot of the growth in exports forecast to come between 2018 and 2020, at that point things get to start pretty tight with existing capacity.

There is significant room for expansion in the current network.  Enbridge’s Clipper pipeline could be expanded to add another 350 kbpd without significant regulatory hurdles since the pipeline is already in place. When combined with Enbridge’s 400kbpd Flannagan South and 800 kbpd Wrangler expansion projects, this could provide significant additional effective capacity from Alberta through to the Gulf Coast with limited greenfield development. Other expansion projects face significant regulatory hurdles – this document from the Alberta government lists 2 million barrels per day of potential future capacity, over and above Keystone XL.

So, the timeline to physical capacity constraints on the existing pipeline network is at least 6-8 years away, assuming production forecasts hold true and none of the proposed expansion projects listed above gets built.

What does this say about oilsands and the US?

It took exactly 3 minutes after I first heard the news for me to hear someone say, “if they don’t want our oil, we’ll send it to China!” Surprisingly, it took another 3 hours for me to hear someone make reference to letting Americans freeze in the dark.

The decision today was not a decision against Canadian oil – it was a decision against a particular pipeline which happened to transport Canadian oil.  I will not say that opposition to oilsands didn’t play a role, because it absolutely did, but President Obama didn’t come close to a ban on new Canadian oil imports today.  If we choose to interpret this as a referendum on US demand for oilsands, we would be making a mistake.

Today’s decision was about Nebraska, landowners, and people not wanting an oil pipeline in their backyards.  According to the State Department briefing, “what (the Review is) really looking at is an approach that would minimize or avoid the Sand hill region of Nebraska,” and, in answer to a question of whether GHG or other impacts of oil extraction would be considered, that, “the purpose of the review that we’re going to be doing is specifically to look at the alternative routes through Nebraska. It wouldn’t be broader than that.” The words Canada (apart from TransCanada), Alberta, oilsands, tarsands or climate do not appear in today’s briefing, and GHGs are mentioned just that once.

I used the analogy earlier today of an Alaskan oil pipeline crossing through our Rockies National Parks to the US.  I would hope that, in such a scenario, Albertans would ask serious questions about the risks, the project proponent, and the benefits to us, and that our National Energy Board and our government would give serious consideration to the opinions of Albertans and Canadians.  We’ve had a few similar discussions here in Alberta with respect to Bill 50 and the powerlines. That’s what you see happening in the US today.

What lessons should Alberta take away from this?

I think the first lesson and most important lesson is that no matter how loudly you scream that the world needs oil, there is no guarantee that we’ll be able to export ours.  If anything, today was a victory for NIMBYism as much as for environmentalism, and that should worry all of those who rely on energy infrastructure projects – green or brown.  If Alberta wants to grow oilsands production beyond about 3 million barrels per day, we are going to need others to accept infrastructure in their backyards to get it to market. In the past, landowners along 1000s of miles of pipeline would have no easy way to come together and oppose the project  – that has all changed and if you don’t believe me, ask the 4000 people who have signed up to intervene at the Northern Gateway Joint Review Panel hearings, or the 10000+ people who converged on the White House to oppose Keystone XL.

The second lesson is that if you play poker, and you’re going to raise the stakes, it helps to have a winning hand.  TransCanada and the Canadian and Alberta governments seemed confident that they could push President Obama on the project, with Prime Minister Harper calling the pipeline approval a, “no-brainer, and then-energy-minister Ron Liepert telling President Obama to, “sign the bloodly order.” Unfortunately, the President saw things differently, and you could see the ground start to shift quickly last week as President Obama took ownership of the decision, and the local risks to Nebraskans. As the ground shifted, many were raising the stakes, talking about how a delay could kill the project, or how Keystone XL was not really that important and we could just ship the oil to China. There is hard backpedaling on those comments today and rightly so.

Finally, and I will try to do this without being revisionist, it’s important to see storms brewing before they hit.  The anti-Keystone-XL movement was the product of a perfect storm of circumstances some of which, taken separately, might seem innocuous or even beneficial to oilsands development.  First, rather than making oilsands look pretty, the BP spill eroded the trust of Americans in oil companies, and in particular foreign oil companies. Second, the Enbridge line 6b spill highlighted the risks of pipelines, despite the fact that these remain the safest way to transport oil. This spill, along with the poor initial performance of the Keystone line, was cleverly exploited by oilsands opponents, especially the NRDC, and it is now common knowledge that diluted bitumen presents higher transportation risks despite no scientific evidence to support these claims. I don’t feel like the Alberta government or the oilsands industry took these threats seriously enough, providing only offhanded responses. (I wrote about both of these in June of this year, but the damage had likely been done by then.) The Rainbow spill and the spill into the Yellowstone River served to bolster claims that pipelines with connections to Alberta oilsands simply were not as safe as others. TransCanada’s heavy-handed approach to landowners, trumped-up jobs numbers, inflexibility on a route which one look at a map will tell you was chosen to minimize the distance traveled, and suspicions of conflict of interest in the process simply added fuel to the fire. Combined with decreasing US oil import demand, Obama’s continual erosion of his environmental constituency and the need for an easy win, and you’ve got what can only be described as a perfect storm.  It’s easy in hindsight to say that we should have seen it coming.

32 responses to “Keystone XL decision – more questions than answers.”

  1. Joel

    Great post Andrew,

    Seems to me that this decision had a great deal to do with the 2012 presidential campaign. Energizing the base and all that.
    That caller today was hilarious. I assumed it was Mike Moffatt incognito.

    Cheers,

    Joel

  2. ronmac

    I understand the Keystone XL tar sands bitinum was to be exported to Europe and South America as diesel fuel. Nothing to do with “U.S. energy security.”

    In fact, according to one report, there is an oil glut developing in the U.S. now and that the U.S. oil industry needed to find export markets if it wanted to make a profit.

    Nothing wrong with making a profit but when it goes hand in hand with a massive land expropiation land bill not to mention the fierce political opposition from landowners and the state’s right crowd, well you can see why Obama shelved it. Keystone is a recipe that’s best served after 2012.

  3. Insights into Obama’s Keystone XL decision from the energy policy wonkosphere | GreenPolicyProf

    [...] Leach of the University of Alberta Business School looks more specifically at the implications for the oil sands. He argues that there is currently surplus [...]

  4. Robert Collier

    Excellent analysis. A similar “perfect storm” was the Seattle WTO summit in 1999, in which a progressive-labor-enviro coalition took big gambles, worked very hard and got extremely lucky. More at http://www.climatespeak.com

  5. Mike

    Great post. I really enjoyed how you accounted for the many factors that led to where we are today. I recommend you try and get something similar posted in the Globe and Mail so that the rest of Canada and especially Albertan’s can realize that this was not cut and dry situation. Most of the analysis on this decision I have read so far only covers one or very few of the many events and circumstances you cover in your piece. Many factors, erroneous and significant, contributed to the President’s influence on this decision. Everyone needs to realize that and move on.

  6. Holly Stick

    Who gets to define NIMBYism? If I refuse to accept the risk of having my well water contaminated with chemicals used for fracking, am I committing NIMBY or standing up for my right to clean water? Are charges of “NIMBYism” going to be flung at everyone who opposes a project, just as rightwingers accuse critics of the current government of Israel of being anti-semitic?

    I think you could be rather harsher with the current governments of Canada and of Alberta, not just for their stupid attempts to play the bully, but for their failure to be open and honest about the tar sands. If they want people to believe the tar sands operations are being environmentally responsible, they should not just hire more PR people to tell us more lies. They need to hire more scientists and set up that monitoring system they promised, which is another lie since the government of Canada is cutting funding to Environment Canada for such monitoring. They need to stop sucking up to the oil industry and to stop subsidizing it.

    I could go on and on, but you get the idea.

  7. Rob

    Excellent presentation of the facts and analysis.

    I think once they lost the Nebraska Governor’s support they should have tried to do whatever they needed to get it back and that meant change routes. They should have said we will change routes to make Nebraska happy. However, I feel it should have never got to that point. The route chosen was the wrong one. That falls to Trans Canada. I feel that someone from Trans Canada should not be working there any longer. If you look at a map of the route & location of Sand Hills & the Nebraska aquifier its kind of a “duh” moment.

    Let’s say Trans Canada insisted for a route around the aquifier, before the perfect storm conditions all aligned, before the final route was chosen. They could of said pipelines are safe but we at Trans Canada want to eliminate any change of oil getting into a water supply. If Obama wanted to not approve it to get votes from his base then that would be up to him. Trans Canada gave him a perfect way out.

    Somebody should be fired for this fiasco.

  8. Marty

    Great post, Andrew.

    I’m curious on your take about shipping raw bitumen out of Alberta, thus shipping out jobs for future generations. I haven’t heard a lot on this and it seems like our provincial leaders are ignoring it.

    The seemingly obvious solution is to upgrade and refine in Alberta, to ensure our kids have jobs, as well as shipping a more marketable product.

    What am I missing?

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  10. Milan

    The oil sands produce only the illusion of profit. They allow people who are alive today to profit from selling the fuel, but they impose even greater climatic costs on future generations. As such, exploiting the oil sands is unethical.

    Neither the government of Alberta nor the general population seems likely to recognize that anytime soon. As such, blocking in the oil sands by denying as many export options as possible is a sensible and ethical strategy.

  11. What the Keystone XL delay means for tar sands and the green movement | Greediocracy

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  12. Holly Stick

    Andrew, you wrote: “No funding has been cut for oilsands water monitoring at Environmemt Canada.”

    How do you know this? Do you know which monitoring programs have been cut and which ones are needed for a “world-class” monitoring system? There are many news articles about the cuts to ozone monitoring, and I did see one comment that program was needed for oilsands monitoring, but I do not recall who said it (a scientist I believe) or what article it was in.

    David Schindler appears to believe the cuts at Environment Canada and other departments may affect the monitoring:

    http://www.edmontonjournal.com/business/Graham+Thomson+Action+needed+oilsands+monitoring/5710977/story.html

    1. Holly Stick

      Here’s the article I was thinking of:

      “…Tom Duck, an atmospheric scientist at Dalhousie University in Halifax…”

      “…Duck said the government’s recently expanded oilsands monitoring program was also going to rely on some of the ozone measurements.

      “Its surprising that they would announce a program to monitor oilsands, but at same time be gutting Environment Canada of the capability to implement it.”

      He noted that staff cuts at Environment Canada will also affect a large number of other environment monitoring programs, including the solar radiation program that also feeds into the UV index, aircraft measurements of the atmosphere that were also to be used in oilsands monitoring, and a program to look at toxic substances such as pesticides in the atmosphere.”…”

      http://www.cbc.ca/news/technology/story/2011/09/16/environment-ozone-monitoring.html

  13. When Public Policy Goes Porky’s - Polynerd

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  14. Deep Climate

    Regarding the NRDC, you state: “… and it is now common knowledge that diluted bitumen presents higher transportation risks despite no scientific evidence to support these claims.” In a CBC As It Happens interview, a spokesperson for TransCanada went even further, saying that NRDC was propagating “lies” about Keystone XL.

    In your June piece (referenced above), you were somewhat less definitive, criticising the Alberta ECRB for simply stating that there was “no indication” that dilBit is “more corrosive than conventional crude oil”.

    “That’s simply not good enough. I expect our regulatory agency to be able to provide an answer that slams the door shut on any safety concerns we and others might have. My conversations with many experts in the field suggest that we have those answers, but far be it from me, the economist, to try to convey them to you.”

    However, the ERCB made some specific claims in their response. For example, they seemed to imply that dilBit contains no more sulphur than other crude,and indeed no sulpur at all, in direct contradiction of NRDC findings.

    “In conventional oils sands processing, sulphur is removed during processing, as well as water (which is a primary concern in regards to corrosivity).”

    A few seconds of searching led me to the NRDC response to the ERCB statement, which appears not to have appeared here before.

    http://www.nrdc.org/media/2011/110218.asp

    “The ERCB incredibly makes the claim that diluted bitumen is not corrosive and that it does not contain sulfur. It is difficult to understand how the ERCB can make this claim given the chemical composition of diluted bitumen. …

    “Sulfur also contributes to corrosivity through a process call sulfide stress corrosion cracking. ERCB may claim that sulfur is removed before diluted bitumen comes into U.S. pipelines, but U.S. refiners say differently. The diluted bitumen that US refiners are getting has five to ten times more sulfur than benchmark crude. For example, a significant portion of the $3.4 billion “modernization” program underway at BP’s Whiting Refinery in Indiana is devoted to sulfur-specific equipment (a new gas oil hydro-treater and an expansion of the sulfur recovery complex).”

    Now one possible interpretation is that ERCB meant to say that some sulphur is removed, but not all, leaving less sulphur than there would be otherwise. Or perhaps there is some other explanation for the discrepancy. In any case, it hardly reassures us that ERCB or anyone else has the “answers” about safety concerns you claim exist.

  15. Deep Climate

    The NRDC has advocated that proper data be gathered on pipeline use and performance *by product*, both in the U.S. and Canada. This level of reporting should have been mandated long ago. Then we wouldn’t be trying to reconstruct true pipeline performance of dilbit from woefully incomplete data.

    This issue parallels in some ways oil sands monitoring. As recently as January of this year, environment minister Peter Kent claimed there was “no scientific evidence” of contamination from oil sands operations, including tailings ponds. This was well *after* independent research by David Schindler’s team unequivocally demonstrated both bitumen and heavy metal contamination. Not to mention the woefully inadequate industry-government monitoring in place.

    http://deepclimate.org/2011/01/12/ethical-oil/

    And whatever the merits of the original NRDC critique, it is clear that they did raise valid issues.

    I’m fed up with oil sands proponents claiming that the “facts” and “common sense” are on their side, and demonizing legitimate opposition as lies. From where I sit, Canadian industry, government and associated lobbyists are more guilty of “torquing” than the NRDC.

    One of the most outrageous government gambits is to tout planned “reductions” of “projected emissions”, while failing to mention the much lower real reduction from current emissions. For example this headline from Alberta’s http://www.solutionsstarthere.ca/ CCS website.

    “Did you know? Alberta has committed to reducing its projected greenhouse gas emissions by 200 megatonnes by 2050.”

    And did you know? That represents a very much smaller reduction from 2005 emissions – 30 Mt. That’s right – only 15% of the “reduction” in Alberta’s climate change plan is an actual reduction, a fact seldom mentioned. Not to mention that the CCS reductions are wildly optimistic. Does anyone really believe that there will be 50 Mt of CCS reductions by 2020?

    Anyway, for “common sense” and “facts” on all the environmental issues regarding Keystone XL, I would recommend the EPA report on the draft State Department EIS.

    http://yosemite.epa.gov/oeca/webeis.nsf/%28PDFView%29/20100126/$file/20100126.PDF

    On the face of it, it does appear that many of the issues raised by the EPA did not make it into the Final EIS. There is now an opportunity to rectify the FEIS shortcomings.

    Make no mistake: the routing issue was simply the most convenient rationale to arrive at the “no brainer” postponement of a final decision. There are many other “big picture” issues to be resolved.

    And one shouldn’t underestimate the importance of conflict of interest issues raised in Congress. The State Department’s Inspector General has yet to report, but any fallout will need to be dealt with before subsequent review. It’s quite possible that there will have to be significant changes in the actors and process.

  16. Holly Stick

    Further information on the cuts to ozone monitoring:

    “…Karen Dodds, an assistant deputy minister from Environment Canada’s science and technology branch, told Postmedia News at the time that there was no need for “the same level of redundancy that we have now” in monitoring of ozone, which is also a smog-causing pollutant in the air people breathe. But less than a week before making those comments, she approved a briefing note, dated Sept. 16, which told a different story about the two technologies used to measure ozone levels in the lower and upper atmospheres.

    “These methods measure different characteristics of the atmosphere and thus complement, but do not duplicate each other,” said background advice included in the briefing material approved by Dodds and released through access to information legislation…”

    http://www.canada.com/technology/Senior+bureaucrat+cast+doubt+about+ozone+monitoring+cuts/5740883/story.html

    So how can we trust such a two-faced government to set up that ‘world-class’ monitoring system?

    I wonder if Dodds is included in the group of senior bureaucrats who will get a bigger bonus for cutting more:

    http://www.theglobeandmail.com/news/politics/deeper-cuts-mean-bigger-bonuses-senior-bureaucrats-told/article2197020/

    1. Holly Stick

      Here is the same article with a different headline – a little more attention-grabbing: “Public happy face on federal environment cuts smeared by official’s private memo”

      http://www.canada.com/technology/Public+happy+face+federal+environment+cuts+smeared+official+private+memo/5741132/story.html

  17. Holly Stick

    Oh look, energy industry cuts to monitoring too!

    http://twitter.com/#!/drgrist/status/139437597578637312

    “…For its part, CEMA says its work has grown in importance amid a fast-paced expansion of the oil sands that has created numerous new environmental concerns. The monitoring of “cumulative effects” – which examines the impacts of an entire industry on a region’s ecology, rather than a project-by-project assessment of environmental degradation – has emerged as an increasingly important issue confronting the oil sands…”

    http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/energy-industry-set-to-cut-funding-for-oil-sands-environmental-watchdog/article2242814/

  18. Deep Climate

    Suncor tar sands refinery leaks crude into South Platte River

    http://switchboard.nrdc.org/blogs/aswift/suncor_tar_sands_refinery_leak.html

  19. What the Keystone XL delay means for tar sands and the green movement | Grist

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