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.