What you need to know about the Keystone XL assessment

Good news, bad news, or no news? Here’s Andrew Leach on today’s headlines

Sue Ogrocki/AP

Sue Ogrocki/AP

Today, the U.S. State Department released the Final Environmental Impact Statement on the Keystone XL pipeline.  This document will be poured over extensively during the coming weeks and months as opponents and proponents of the pipeline look to bolster their cases. Here’s what you need to know, so far:

Is this an approval or denial of the pipeline?

Neither. The Environmental Impact Assessment does not reach a conclusion, it merely catalogues impacts. It does not provide a suggested means of weighing impacts against one another either. The report considers two scenarios: 1. A no-action case where the pipeline is not approved. 2. The approval of the pipeline as proposed. In some areas, the no-action scenario is decomposed to look at potential outcomes. As the report states, “the Final Supplemental EIS does not specify a departmental preference between these two alternatives because no final United States position has been established on the application before the department.” That determination will fall to Secretary of State John Kerry, and eventually to President Obama who must sign the permit to allow construction of the pipeline.

What did this look at that hasn’t been looked at before?

This analysis is not particularly different, at least at first glance, to analysis performed under the previous application by TransCanada for a presidential permit for Keystone XL, nor is it significantly different from the analysis provided last year in the draft version of this report. This final version contains enhanced analysis in four areas — implications of rail as an alternative, assessment of climate change impacts, updated oil market analysis, and new data on potential spills. Certainly, the pressure has been on the State Department to increase its focus on the implications of rail after multiple crude-by-rail accidents during the past year, and the president’s climate change speech last year, which stated the pipeline would not be approved it it were shown, “to significantly exacerbate the problem of climate change,” increased scrutiny in these two areas. There have also been extensive studies undertaken in the U.S. on the transportation risks associated with oil sands diluted bitumen, which are now part of the analysis.

What about greenhouse gases?

After the president’s climate change speech, which said the pipeline would only be approved if it didn’t significantly exacerbate the problem of climate change, this is likely the section most people will flip to first. On GHGs, this report mirrors previous conclusions — that the effect of the pipeline will be small in global terms because it’s not enabling new oil production so much as displacing other oil production that would have otherwise been imported to the U.S., or oil that would have been shipped to the U.S. from Canada by other means. The report states that, “the range of incremental GHG emissions (i.e., the amount by which the emissions would be greater than the reference crudes) for crude oil that would be transported by the proposed Project is estimated to be 1.3 to 27.4 MMTCO2e annually.” But, don’t stop there — the report goes on to say those numbers only make sense if you assume that oil sands production would not occur if Keystone XL were not built, and the oil which would be shipped via Keystone XL were replaced with a reference crude barrel. The report says that is not likely to be the case — here’s the headline quote: “approval or denial of any one crude oil transport project, including the proposed project, 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.” The bottom line is that the greenhouse gas section gives the president all the room he needs under his standard to approve the pipeline.

What does the report have to say about diluted bitumen in pipelines?

The question of whether diluted bitumen is more hazardous to transport and more difficult to remediate in the case of a spill has been one of the key points of dispute. The FEIS parses these critiques into two categories, and the verdict is mixed. On the question of whether diluted bitumen transportation means increased risk (PDF) when the product is inside the pipeline, the report sounds a resounding, ‘No!’. The report finds that diluted bitumen, “is not a source of corrosive hydrogen sulfide,” that there are not expected to be, “significant changes in the composition of dilbit due to volatilization do not occur during transportation,” and that, “dilbit corrosivity rates could remain low even if the crude itself has a high total acid number.” All of these will be good news for pipeline proponents.

What the report has to say about dilbit spills, particularly in water, will be less welcome news for proponents. “After a period of several days in water, the diluent in dilbit will eventually volatilize … leaving the heavy bitumen behind to sink or become suspended. This could occur with dilbit more so than with other forms of crude.” This is a contradiction to much of what industry has argued — that diluted bitumen is like any other crude. The report goes further, to say that, “in the event of a release to a waterbody, more difficult cleanup scenarios (dredging, for example) for dilbit may be expected than with other types of crude oil.” However, what’s bad in the water turns out to be good on land. The report finds that, relative to other types of crude oils, a diluted bitumen spill would have slower, “vertical and horizontal dispersion in sandy soil, loamy soil, and topsoil.”

What about crude by rail?

The analysis considers three scenarios for what might happen to the oil in the event KXL is not approved – crude by rail to the Gulf, crude by rail to Prince Rupert and onward by tanker, and crude by rail to Oklahoma and then onward by pipeline. There are a few interesting tidbits here. First, with respect to shipping oil west, the report reaches the unsurprising conclusion that, “if crude oil reaches a Pacific port, regardless of whether by rail or by pipeline, the economics for movement via tanker would favor shipping the oil to Asia rather than the Gulf Coast area.” There’s some support, particularly via Enbridge’s Northern Gateway application, that a significant amount of crude could also find its way to California from a Pacific port, but it’s hard to imagine a scenario where you’d see it moved through the Panama Canal or around South America to the Gulf. The report also found that operating employment with the rail alternative would be, perhaps, 10 to 20 times higher than the pipeline – something sure to interest those who promote pipelines as job creation strategies. The reverse is true for those who point to the pipeline as a greenhouse gas emissions problem — the analysis finds that emissions would be higher in a crude-by-rail scenario than with the pipeline, although the differences are small. In the end, the most damning conclusion with respect to rail is likely the final one: “Adding 830,000 bpd (of rail transport) would result in an estimated 48 additional injuries and six additional fatalities,” relative to the construction of the pipeline.

Oil sands supply

Many of the conclusions above with respect to alternatives and to greenhouse gas emissions rely on the conclusion that oil sands development will not be significantly affected by a decision one way or another on this pipeline. The analysis finds that, above approximately $75 per barrel (West Texas Intermediate [WTI]-equivalent), revenues to oil sands producers are likely to remain above the long-run supply costs of most projects responsible for expected levels of oil sands production growth.” Of course, the same report written 10 years ago would have concluded that oil sands growth would continue as long as WTI prices stayed above $20 per barrel. Oil sands production growth has lagged forecast levels for the past decade even though prices have been well above forecast in almost every year. Interestingly, the report concludes that, “limitations on pipeline transport would force more crude oil to be transported via other modes of transportation, such as rail, which would probably (but not certainly) be more expensive,” but that this was unlikely to change production levels much. The report includes an analysis of costs which is going to require more investigation. It concludes that, “the net cost of transporting a barrel of bitumen from Alberta to the Gulf Coast is approximately $18 based on a long-term committed pipeline tariff,” while shipping a barrel of bitumen by rail costs $21.69/barrel. This forms the basis of the argument that the pipeline would make little difference to the amount of oil sands produced in Alberta, since the implied value of bitumen would only be reduced by a dollar or two per barrel without the pipeline. The interesting upshot of this, of course, is that Alberta won’t be getting world prices for our resources, even if Keystone is built — the best we can hope for is world prices less about $18 per barrel if these calculations are correct.

Is this good news, bad news, or no news?

It’s going to take a few days to go through the report in detail and for some of the important elements to emerge, but on first reading I think the only real news is that the report is finally out and now we’re on to the next stage. I don’t think the conclusions in the report have moved the dial much on the potential for approval, as they don’t seem that different from those in previous reports. We’ll now wait for the EPA and other government departments to weigh in, and perhaps we’ll have some real news to report in a few months when the decision is, finally, on the president’s desk. That, or the Republicans may choose to give the president another easy out on this decision by trying to force a decision before the process has run its course.

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