November 2011, Vol. 66 No. 11

Editor's Log

Keystone XL: Build, Baby, Build

Robert Carpenter, Editor

The oil industry is a market full of intangibles, plenty of knee-jerk reactions from investors and a dynamic that often defies logic and clear-cut forecasts. For the U.S., there are several constants that continue to influence the industry. Perhaps the most notable is that the majority of our oil continues to be imported.

The beginning of a fundamental change is on the horizon in terms of sourcing oil and benefiting the pipeline construction/maintenance market. Part of that change is the feasibility of shale to obtain vast quantities of oil and gas. The other is the oil sands area of western Canada and the proposed Keystone XL Gulf Coast Expansion – a $7 billion pipeline project.

Canadian-based TransCanada is the pipeline owner. The Keystone Pipeline’s start date, originally planned for 2012, remains fluid due to the delay in the start of construction. The mere fact that the pipeline crosses an international border with Canada has complicated the proposed pipeline to extremes. That border crossing shifted the approval process from FERC to the U.S. Dept. of State which means more bureaucratic procedures and the final decision subject to approval by Secretary Hillary Clinton. In short, politics may very well decide the fate of an otherwise financially-sound, environmentally-friendly, economically-beneficial pipeline.

While the pipeline has long-since been cleared by Canada, in the U.S., the environmental review process for Keystone XL has been the most exhaustive and detailed review for a cross-border pipeline that has ever been undertaken by the U.S. Department of State (over three years). Three detailed and rigorous environmental impact studies had to be completed by TransCanada. The Final Environmental Impact Statement (FEIS) reached the conclusion that the Keystone XL will have no significant impact on the environment.

TransCanada claims – and the EIS reports (all three of them) agree — that the proposed route is the shortest and would disturb the least amount of land and water bodies resulting in reduced environmental impacts. Alternative routes that were considered to avoid the Ogallala Aquifer and the Nebraska Sandhills are not preferable environmentally or otherwise. And contrary to what environmentalists would have us believe, oil sands-derived crude oil does not have unique characteristics that would suggest the potential for higher corrosion rates during pipeline transportation.

While obtaining the FEIS after three years represented a huge step, the approval process continued with a 90-day public comment period that wrapped up in early October. That has been another wild run, full of loony protesters against the pipeline and unlikely alliances supporting the project. Several government agencies have also had the opportunity to share their opinions.

Of the five states along the proposed path, only Nebraska has balked at the route, expressing concern that the potential for leaks could negatively impact the huge Ogallala Aquifer although the FEIS studied that issue at length and concluded an underground pipeline was the safest, most environmentally beneficial method of transporting the oil. Perhaps TransCanada could consider stopping the pipeline at the Nebraska border and instead use tankers to transport oil on state highways down to Kansas. Let them experience environmental impacts and wear and tear on the state’s infrastructure from surface transportation for just five years and I’ll bet Nebraska would consider a radical position shift.

Another recent argument against the pipeline came recently from an Oregon U.S. Senator who claims Keystone would be “an export pipeline,” allowing TransCanada to charge whatever it wanted for the oil and drive up prices. Of course it’s an export pipeline. But so what? Most of our oil is exported to the U.S. already. But would you rather receive oil from a friendly neighbor or an unpredictable and hostile government in Venezuela? As for price, Canadian oil is subject to the same market conditions as other oil exporting nations. I seriously doubt that would change when we receive our oil from a friend rather than an enemy. Energy security is a huge issue.

Keystone XL will also create major economic benefits to the states it crosses and the United States as a whole. The project will be financed entirely through the private sector – note the absence of the term “stimulus.” There will also be no need for billions in “subsidies” to develop an energy source that may or may not be viable in 30 to 50 years.

All the data is now in the hands of the State Department. But there is still some wiggle room and that’s where politics can really come into play. Bottom line, a decision could be made on the future of the Keystone XL by the time this column comes out. Or, the pipeline’s fate could hang in the balance for several more months depending on whether the environmental lobby or economic needs weigh out as more important to the administration.

Let’s hope common sense is the winner. Build the pipeline.

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