Is the Keystone XL Pipeline Irrelevant?

Will building Keystone only save $5 a barrel or oil?

According to a State Department report, rail (or rail/tanker combo) is a viable alternative to Keystone XL.

From the Washington Post's Brad Plumer:

There are also the economics to consider. The State Department report estimates that shipping Alberta’s heavy crude by pipeline costs about $10 per barrel, with rail in the $15 to $18 per barrel range. Yet some producers are telling Reuters that shipping by train to the Gulf Coast could cost as much as $30 per barrel.

Now, even at those higher prices, shipping tar sands by rail can still be viable — it all just depends on the demand for oil and available alternatives. Here’s one illustrative example: In March, refiners in Texas could buy Mexico’s Mayan heavy crude for around $106 per barrel. Meanwhile, Canadian heavy crude was selling for about $83 per barrel up north. At those prices, for tar-sands product to be competitive down in the Gulf Coast, transport costs would need to stay under $23 per barrel. Not impossible, but harder without a pipeline.

Unfortunately, there’s no easy way to predict what will happen. If the White House does block Keystone XL, that will certainly make life more difficult for tar-sands producers at the margins. There’s a reason why Canada’s oil industry strongly supports this $5.3 billion pipeline project. But it’s impossible to say for sure that the industry won’t find a way to bring that extra oil to market — especially since the rewards are so lucrative.

“There’s no test case,” writes Schor. “Either Keystone XL will get approved or it won’t.” And how you think about this question goes a long way toward how you think about the environmental impact of the Keystone pipeline.

What I find most interesting is the selective cost and environmental comparisons of Keystone XL pipeline pathway alternatives and "no action" (i.e. no pipeline alternatives .  

But instead of summarizing, how about I just give you this link to the whole report, and show the "no action" alternative report section below:

Alberta's 'Green' Talk: A Serious Plan to Combat Greenhouse Gases, or Gambit to Secure U.S. Keystone XL Approval?

By Keith Edmund White

Editor-in-Chief

Alberta, Canada's oil production heavyweight, is pushing for increased carbon production taxes and seeking to slash GHG emissions.  Apparently, Ottawa is surprised.  Yeah, I thought I was reading an exceedingly dry Onion article.  Oh, wait...it's a plan offered by Alberta's Environment Minister...that is not endorsed by Alberta's Conservative government.  OK, the sky's not falling.  So the real question:  Are Alberta's Conservatives looking green to win Keystone, and then offer up a dead-on-arrival plan?

Is McQueen's  carbon plan for real?

The Globe and Mail reports (or hypes up?) a recent carbon tax and reduction plan offered by Alberta's Environment Minster:

The Alberta government has quietly presented a proposal to sharply increase levies on carbon production and force large oil-industry producers to slash greenhouse gas emissions by as much as 40 per cent on each barrel of production, a long-term plan that has surprised Ottawa and industry executives with its ambition.

Alberta Environment Minister Diana McQueen stunned a recent meeting in Calgary attended by senior oil executives and her federal counterpart, Peter Kent, with the proposal, which goes well beyond anything Ottawa or the companies contemplated, industry and government sources said Wednesday. The three sides are engaged in intense negotiations, with the industry warning that regulations that are too onerous could undermine the competitiveness of the oil sands sector as it seeks international investment. to drive production growth.

...

[Alberta Premier Alison Redford/Diana McQueen's boss] and Prime Minister Stephen Harper are under considerable pressure to introduce regulations for the oil industry to limit greenhouse gas emissions.

The Cynical Read:  Looking Green Key to U.S. Keystone Approval.  My guess is that this plan has one main audience:  the United States.  If Alberta looks 'super' green, it makes it easier for Keystone to get approved.  The catch:  the plan will be so long-term that the 'carbon pain' won't be felt until Alberta's Progressive Conservatives or either out of office or filled with new leaders.

Cynical Read 2.0:  What 'Great' Timing!  Oh, and this is a pretty well-timed leak, given that Alberta oilsands environmental data is about to be released. 

Yeah, yeah...but maybe the plan's for realies?  Ha.  This March 2013 Globe and Mail article shows just how blistering the Alberta's environmental hot potato is.  

The main takeaway:  Alberta Premier Redford will take heat for any real carbon tax increase, let alone steep reductions, unless (1) they come online way into the future and (2) secure Keystone XL in the short-term.  

And Redford's opponents, Alberta's Liberal Party and the strong provincial party Wildrose, are happy to exploit Redford's tough spot whatever way they can. 

Something tells me that Redford's Alberta critics and Keystone critics are going to react to news of Redford's Green Plan 2.0 with some help The Who:

But it might just get Alberta Keystone.

From the Globe & Mail ,March 2013 article on Alberta Conservative's environment-Keystone XL headache:

The Alberta government’s climate-change plan was under scrutiny Tuesday, a day after comments Ms. Redford made in Ottawa were interpreted as a call on the federal government to follow Alberta’s lead in putting a price on carbon.

...

The Premier quickly backed away from those remarks, saying that’s not what she meant, but was grilled in Question Period by the opposition. At one point, she scolded the provincial Liberals – a party that last year proposed what would ultimately be a $1.8-billion-per-year provincial carbon levy – for “saying that our environmental record in Alberta isn’t good enough. That’s not good for Alberta, and it’s not good for Canada.”

Liberal Leader Raj Sherman said a higher carbon price would help pave the way for pipelines. “If we actually dealt with the environmental issues that we face, we could get our pipelines to the U.S. and the West Coast. It’s hurting us not to do this right,” he said.

...

The Premier was said to have called on the federal government to follow Alberta’s lead and introduce a price on carbon. Her office later said she was misunderstood, issuing a clarification and then making Ms. Redford available to speak to reporters in Edmonton on Tuesday. “I am in no way advocating any sort of national carbon tax. That’s for other governments to decide,” she said.

Wildrose Leader Danielle Smith nonetheless accused the Premier of advancing a plan that “would see Alberta’s vast resource wealth sucked out of this province and pumped into Ontario and Quebec.” Ms. Redford later fired back. “The suggestion that that’s what the conversation was about [in Ottawa Monday] is absolutely absurd, but I don’t expect anything more from the opposition,” the Premier said, later noting that Ms. Smith said just last year that the “science isn’t settled” on climate change.

Obama Administration Won't Be Pushed on Keystone

Politico reports on the White House's refusal to "get ahead" on approving Keystone XL:

White House press secretary Jay Carney said the administration will not be pushed into making a hasty decision on whether to approve the Keystone XL pipeline.

More than half the Senate -- 53 senators -- signed a letter to President Obama on Wednesday urging quick approval.

"We appreciate input from lawmakers, but as you know, as is keeping with longstanding tradition, multi adminstrations, multi-administration tradition, these reviews are conducted by the State Department, and when the State Department concludes that process, we make, we’ll move forward," Carney said. "There will be a decision, but I'm not going to get ahead of that process.

The Globe and Mail probes today's confirmation hearing of Senator John Kerry, with Sen. Kerry likely to head the federal agency currently reviewing the Keystone XL project.  The article also focuses on environmentalists' hopes that the the inaugural address of President Obama--the ultimate decider on approving the project--signals aversion to the pipeline project:

Still, amidst the jibes and good wishes, Mr. Kerry’s views on climate change in general and Keystone XL in particular should provide a hint as to whether the President’s lofty rhetoric on cutting carbon will translate into political reality. Republican Senator John McCain, who, like Mr. Kerry, tried and failed in a bid for the presidency, joked that senators would use so-called enhanced interrogation techniques to make sure Mr. Kerry, was being forthcoming. “We will bring back, for the only time, water-boarding to get the truth out.”

Still, some expect Mr. Kerry to duck if and when he is quizzed about Keystone XL. In delaying a final decision until after the November election, the President sent the proposal back to the State Department for a revised assessment and Mr. Kerry may opt to await that outcome, expected in late March or April, rather than telegraph his views.
...
But the final Keystone decision “will be made in the White House, not by the Secretary of State,” said Daniel Kessler of 350.org. Hence the delight among Keystone XL opponents after the President’s stirring vow to take action on climate change. “A failure to do so would betray our children and future generations,” said Mr. Obama of the need to stop global warming.

Mr. Kerry’s environmental advocacy stretches back decades and he was co-sponsor of the ill-fated Senate effort to introduce a cap-and-trade effort to curb carbon emissions. Along with his wife, Teresa Heinz, heiress to the food fortune, he wrote a book in 2007 called: This Moment on Earth: Today’s New Environmentalists and Their Vision for the Future.

While the approval this week by Nebraska Governor Dave Heineman of a new pipeline routing that avoids a sensitive underground aquifer, Keystone XL is now banking on the President and Mr. Kerry to block the project.

“You cannot say the words the President did in his inaugural address and then turn around and approve the pipeline,” said Jane Kleeb, who heads Bold Nebraska, a group opposed to Keystone. “The fight continues, even though Governor Heineman sided with a foreign corporation.”

Keystone XL: The Roar of 2012, Now the Yawn of 2013?

"Canada needs pipe – and lots of it..."  -Andrew Potter, managing director, Equity research, CIBC

"[I]t [Keystone XL] looks… well, not irrelevant, but certainly much less important."  -Erica Alini, Macleans

Erica Alini blogged yesterday on the "much less important" Keystone XL pipeline project.  From her post:

Just over a year later, though, it looks… well, not irrelevant, but certainly much less important. “Even if the current Obama administration gives its final assent to the Keystone XL pipeline this will not resolve Canada’s export challenge,” notes a new CIBC report that came out yesterday. And it’s not just because we should really stop depending on a single buyer of our most prized export and diversify by catering to oil-thirsty Asian countries. It’s also because “US energy production is increasing at a pace that few, if any, saw coming,” reads a foreword penned by none other than Jim Prentice.

Instead, pipeline politics will be Pacific Canada's chief cause of concern, writes Alini.  From the excellent BIBC Alini links to in her post:

2013 WILL BE A DEFINING YEAR FOR CANADIAN PIPELINE POLITICS

Pipeline capacity out of western Canada is adequate for the short term, but substantial progress must be made on this front in 2013.  Progress (or lack thereof) will have a big impact on sentiment towards Canadian oil producers. we estimate that pipeline capacity out of the western Canadian sedimentary Basin (wCsB) could effectively be full in the 2014 time frame (our production forecasts are higher than consensus), suggesting little room for error/politicking in bringing on new pipeline capacity. 

There are ~2.9 mmbbl/d of long-haul pipeline proposals on the table (out of western Canada). that sounds like a lot until one considers that two of the largest (the proposed  525,000 bbl/d Gateway and 450,000 bbl/d tmX expansion through BC) face ever-increasing political risk; we assign no better than 50/50 odds that these pipes are built before the end of the decade. the proposed transCanada mainline conversion (estimated ~600,000 bbl/d) is compelling but very early stage and could also provoke some political backlash in Québec.  We also note that the 2.9 mmbbl/d proposed capacity is quickly depleted given our forecast of 100,000 bbl/d per year growth in Canadian conventional oil and 230,000 bbl/d per year growth in oil sands (or ~300,000 bbl/d when blended).  Canada needs pipe – and lots of it – to avoid the opportunity cost of stranding over a million barrels a day of potential crude oil growth.   [Source: A Look to the Future 2013 Edition, CIBC, Page 42]

President Obama’s Re-Election—for Obvious and Less Obvious Reasons—May Push the Canada-U.S. Relationship to Center-Stage

By Keith Edmund White 

Will Obama’s second term put the Canada-U.S. relationship on center-stage?  A quick round-up of Canadian headlines shows three major issues dominating the post-election Canada-U.S. relationship: (1) in the short-term, Canadian apprehension over America’s ability to reach a debt deal, (2) Keystone XL, and (3) moving forward on the Beyond the Border Initiative.  But let’s not forget two other wrinkles from America’s election night: Heidi Heitkamp’s Senate win and the failure of a state constitutional roadblock to the Detroit River Crossing Project.  And when you add to this Canada’s critical role in the Trans-Pacific Partnership talks, the Canada-U.S. relationship will be getting its fair due during Obama’s second term.

BC’s The Tyee offers a cautious Canadian reaction to President Obama’s re-election.  The article's two chief points: (1) If Obama does not reach a debt deal with Congressional Republicans, who still hold the U.S. House of Representatives, America could tumble into recession, and drag Canada along for the ride; and (2) hope that Obama will clear full construction of the Keystone XL pipeline.  But The Hill calls Keystone XL an energy election-night ‘loser,’ seeing a Romney White House fast-tracking the project.  My guess: with Keystone XL already under construction, I don’t expect the Obama administration to stall Keystone XL’s northern construction much longer.

But, in any case, Heidi Heitkamp’s Senate victory in North Dakota guarantees one strong, Democratic voice in favor of the pipe-line.

And then, of course, one major pit-fall in Canada-U.S. relations was avoided.  Yesterday Michigan voters shot down a state constitutional amendment that would have delayed—and perhaps killed—plans to build a second, bridge crossing connecting Detroit to Windsor over the Detroit River—a project with obvious economic impact in both Canada and the United States, and strongly supported by Canadian Prime Minster Harper.

But one less reported story bears mentioning.  December 2011’s Beyond the Border Initiative (BTB), a Canada-U.S. project to streamline border regulations and bolster border security, might get a jump start.   Birgit Matthiesen offers this BTB post-election update for the Canadian Manufacturers & Exporters:

Over the last four years, Canada has too often benignly neglected by our neighbour. But the next four years presents an opportunity to build a North American manufacturing base. The US business community has a partner in Canada. One-third of our cross border business is intra-company and another third is comprised of intra-industry shipments. Our best ideas are each other's next new product.

The ball is in our court, as it always is when dealing with an American administration. But we do not have to start at square one.

Two initiatives between President Obama and Prime Minister Harper have already been launched – the Beyond the Border Action Plan and the Regulatory Cooperation Council. The ambition is great, but the progress is slow. Now that the elections are behind us, Ottawa and Washington need to get back to the table on these two efforts.

We have a major opportunity right now. 2013 must be the year that celebrates our cross-border partnership and the strength that our industries bring to each other's communities. Obsolete border management policies and unnecessary regulations must be replaced by a modern framework that will protect us from the economic storms ahead.

But, the big story—and not once mentioned on cable news last night—is that an Obama victory will continue progress, without the interruption of a presidential transition, on the Trans-Pacific Partnership (TPP).  As earlier reported on CUSLI-Nexus, Canada may likely play a critical role in ensuring these talks succeed.  And if this massive trade deal succeeds, it will likely—over the medium and long-term—generate more economic growth--and, at times, painful economic shifting--than any stimulus or jobs bill.  Furthermore, how the TPP goes may well portend how the future effectiveness of the World Trade Organization. 

What’s the importance of listing these seemingly unattached policy items?  First, it seems that two big pressure points in the Canada-U.S. relationship—Keystone XL and the International Detroit River Crossing—have (or soon will be) taken care of.  Next, Canada represents low-hanging economic fruit for the United States.  And—after Obama does heavy lifting on a debt deal and a job bill—the name of the White House economic strategy will be (with one major exception) connecting small dots to generate growth.  One major and needless U.S. economic drain?  Canada-U.S. border regulatory burdens that could be eased through smart, cooperative policies.

Now, naysayers may argue the United States has had trouble keeping focus on Canada.   But, if the TPP talks keep moving ahead, the United States simply won’t have this luxury.  Hence, whether pushed by state-specific issues or international trade diplomacy, the Canada-U.S. relationship may just see its fair share of time on center-stage during Obama's second term.

The NYTimes Gets It Wrong: The Keystone XL Pipeline and Understanding the Canada-U.S. Energy Relationship

By Keith Edmund White

Editor-in-Chief

If you gave quick glance to yesterday’s NYTimes article detailing Canadian blowback from the Obama administration’s rejection of the Keystone XL pipeline, you might think that the Canada-U.S. energy relationship is now in grave jeopardy—and that the Keystone rejection has come with irreversible and grave economic costs to the United States.  But that impression has less to do with the actual facts surrounding Keystone than the NYTimes article’s poor and misleading structure, which suggests the NYTimes was more interested in getting ‘lazy clicks’ than actually informing the public on the state of the post-Keystone XL Canada-U.S. energy relationship.  

The short answer:  (1) there is no post-Keystone XL Canada-U.S. energy relationship--the southern leg of Keystone is already under construction and Keystone XL's reapplication is very likely to be approved after the presidential election; (2) the US isn’t losing energy security from its Keystone rejection; and (3) any loss of jobs from not constructing the northern portion of Keystone now seem delayed—not lost—because Canada is running into the same, if not stronger, environmental roadblocks that triggered the Obama administration’s Keystone rejection.  But even if you don't buy any of that, there's one glaring omission from Rosenthal’s article:  actually spelling out what was lost by the United States when the Obama administration rejected Keystone XL.

Yesterday, the NYTimes’ Elisabeth Rosenthal documented Canadian blowback resulting from the Obama administration's rejection of the Keystone XL pipeline.  While tightly written and not inaccurate, the article’s structure and considerable cherry-picking of facts implies the Keystone rejection has damaged America's energy relationship with Canada, a Saudi Arabian-sized energy supplier.  In fact, the real cost of not building the Keystone XL appears most likely to be only a delay in jobs related to constructing Keystone's northern portion and exporting Canadian oil outside North America through U.S. ports.

But you wouldn’t get that from reading Rosenthal opening paragraph: 

As the United States continues to play political Ping-Pong with the fate of the Keystone XL pipeline, Canadian officials and companies are desperately seeking alternatives to get the country’s nearly 200 billion barrels in oil reserves — almost equal to that of Saudi Arabia — to market from landlocked Alberta.

Six paragraphs down Rosenthal finally gets to discussing Canada’s ‘response’ to Keystone—three westward pipelines in Canada. Oh, but wait, in the next paragraph Rosenthal discusses a small problem with those plans:

Together, the new westward [Canadian] pipelines would carry more oil than Keystone XL would. But even with aggressive government backing, creating new pipelines may prove as difficult in Canada as it has been in the United States, though for different reasons.

And Rosenthal entirely omits another aspect of the Keystone XL debate: construction has already started on the Keystone XL’s southern portion. Why’s this important? Well, at the very least, it makes clear that the Canada-U.S. energy relationship isn’t fading anytime soon. From a February 2012 Mining.com article:

In a move that should go a long away to relieve the oil glut in the US Midwest TransCanada said on Monday it is going ahead with construction of the $2.3 billion southern leg of the Keystone XL oil pipeline from Cushing Oklahoma to the US Gulf Coast. 

The Calgary based company said the shortened pipeline could be operational by June-July next year. Keystone XL was designed to carry 830,000 barrels per day.

...

Canada exports 2 million barrels of oil per day to the US and almost all of it ends up at Cushing – the pricing point for US crude – where inventories have been piling up and refining capacity is limited.

Oh, and that brings up an interesting point about Keystone XL. The additional oil that Keystone would have flowed into the United States would then be likely exported out of the United States. Why’s that? Because the United States can already take in the Canadian oil it needs—with or without Keystone. From a March 2012 MSNBC article:   

Most analysts agree that more Canadian oil flowing south would help reduce imports from other regions. Less obvious, however, is the fact that the Keystone XL pipeline is not actually needed to bring all that new Canadian oil to the US – a flow now projected to rise to 1.7 million barrels per day by 2030, according to the same DOE study. Often characterized by proponents as validating the need for the pipeline, that study actually found that Canadian oil import growth will go on at “almost identical” levels through 2030 using existing and new pipeline capacity as well as rail shipments – whether or not Keystone XL is built.

This brings us an important point: what’s at cost for the US economically in rejecting Keystone is not energy security, but--again--additional pipeline construction, refinery, and export-related jobs tied to being Canada’s access point to non-U.S. consumers of Canadian oil.

Now if you read Rosenthal’s piece that point was probably lost one you, since the entire narrative she constructs comes awfully close to:  ‘The U.S. Rejection of Canada’s Pipeline Jeopardizes the Canada-U.S. Energy Relationship.’   Sure, the Keystone rejection was driven by domestic politics, and did come at an economic cost to the United States.  But the scale of this cost seems rather minimal:  (1) Canada was pushing a pipeline in the US to avoid its own domestic opposition to westward pipelines in Canada, (2) the U.S.-Canada energy relationship (whether in terms of oil supply, refinery operations, or construction of pipelines) is still ongoing and growing, and (3) work on Keystone continues.  And the environmental concerns that led Obama to ‘cave’ to an interest group, well guess what?  They're even stronger in Canada.

And then there's the underlying point that makes most of this article, and this blog post, moot:  a modified Keystone XL pipeline will likely be approved after the presidential election--regardless of the election's outcome. A May 2012 Fox Business report states: 

TransCanada Corp is taking its second shot at asking Washington to approve the contentious Keystone XL oil pipeline, betting that a new route through Nebraska and post-U.S. election time frame for a decision will push the project forward.

… 

"This project has been caught up in presidential politics long enough, it's time to get to work," Senator Lisa Murkowski, an Alaska Republican and ranking member of the Senate Energy and Natural Resources Committee, said in a statement.  

[Alex] Pourbaix said he believes the Nebraska Department of Environmental Quality will be able to decide on a new route that skirts environmentally sensitive areas by September or October. [Pourbaix is TransCanada's pipeline division president.]

Now, perhaps this criticism of Ronsenthal’s piece is asking too much for a moderately sized news article, which has to boil down complicated ideas and can’t inject every wrinkle into a story.  This posting—if it has succeeded—has brought up some nuanced--if easy to find--points, and perhaps crafting a compact NYTimes article including these points is simply impractical.  And, admittedly, she does—six paragraphs down—discuss Canada’s own challenges in getting their western pipelines off the ground.  But wait, what about this: 

As Canadian officials and companies desperately seek alternatives to get the country’s nearly 200 billion barrels in oil reserves – almost equal to that of Saudi Arabia – to market from landlocked Alberta, Canada pushes forward with Keystone XL alternatives forcing the United States to gauge the cost of Keystone’s rejection.

Now this opening paragraph, while still buying into the misleading narrative pushed by Rosenthal, at least lays a groundwork for understanding the micro-topic (Canada wants to get its oil out) without suggesting the United States is sacrificing its own energy relationship with Canada, let alone its energy security, by rejecting a portion of the pipeline. Furthermore, at the very least, it focuses on what matters to readers: spelling out the actual costs of the Obama administration's decision to reject Keystone XL.

Perhaps that type of article lacks the (misleading) black-and-white narrative that drives readership in today's newsmedia marketplace. But, at the very least, aren't these the type of topics that a world-class news organization—with their voluminous research database, rolodex-bursting access to public officials and experts, and supposed commitment to fostering informed discourse—should answer? And wouldn’t that article get more ‘clicks’ than an article that simply documents Canadian discontent without giving readers the context necessary to assess the Keystone XL delay's impact?