Decision on Keystone XL oil pipeline looming

In the days following President Barack Obama’s re-election, the Keystone XL debate reared its head again, as pressure from both its supporters and opponents has been directed at the White House. A final decision on the controversial pipeline could see daylight in Q1, 2013.

As Mitt Romney, the candidate who had promised to approve the controversial 1700 mile, US$ 7 billion pipeline “on day one” of his presidency, conceded, energy trade groups such as the American Petroleum Institute released statements urging the administration to sign off on the project "right off the bat".

In a report on the election, ratings agency Moody's noted it expected Obama to approve the project. "But approval will not be quick," the report stated, and the analysts warned that "A prolonged permitting process risks missing the very oil price boom that inspired Keystone XL in the first place."

The year of rejection and revision

In January, Republicans in Congress forced the President to make a hasty decision on TransCanada Corp.’s application to build Keystone XL. The US State Department (involved because the pipeline would cross an international border to Canada) had already postponed its decision at the end of 2011, due to insufficient information on alternative routes in Nebraska’s Sandhills region overlying the important Ogallala Aquifer.

Obama was given 60 days to assess the project but ultimately vetoed it based on the proffered route information, declaring that the new Congress-imposed deadline "prevented a full assessment of the pipeline's impact." This was a delay that won support amongst the environmental groups expecting the pipeline to be killed eventually, but also strategically left the President open to point out to supporters that the project was not dead and the administration was simply awaiting final results from an environmental review, scheduled conveniently for after the election.

Since then, TransCanada has rerouted and submitted a new permit application with the US State Department, which is currently undergoing state and local reviews. A spokeswoman from the department confirmed it does not anticipate completing the review before Q1, 2013.

Obama also revealed his support for the southern part of the project during a March speech in Cushing, Oklahoma, the oil-pipeline hub of the nation. At the time he said that he would expedite the construction of the southern leg of the pipeline, from Cushing to the Gulf Coast, a move some say hinted at the eventual approval of the northern leg, which would run from Canada to Cushing.

As the new permit request for the northern part of the pipeline is reviewed fully and finds its way back to the State Department, the organisation faces a simple but loaded question: Is the pipeline in the national interest? Many believe that because of the high profile and controversial nature of the project, it is likely that the final decision will be in the President’s hands.

“The administration never resolved the fundamental question of whether Keystone is in the national interest,” said Michael Levi, Director of the Program on Energy Security and Climate Change at the Council on Foreign Relations. “That’s where the real question remains, and that’s where there’s the most ambiguity – the basic question about how you balance oil production and trade commitments against climate change.”

Analysts have also noted the pipeline’s possible political role in the future, as Obama hopes to move serious legislation to fight global warming, and could use the pipeline to bargain with Republicans to achieve his energy and climate goals.

The larger oilsands debate

The debate around Keystone XL is entrenched in a larger debate on Alberta’s oilsands development and production.

With the third largest proven oil reserves on Earth, considered by many as enough to make North America largely energy-independent, the Athabascan oilsands are already producing in the region of 2 million bpd and are expected to supply 3.3 million bpd by 2020.

If approved, the Keystone XL pipeline would carry 700 000 bpd of oil to refineries in Oklahoma and Texas. In wake of the pipeline’s initial rejection, a rival project, Enbridge’s Northern Gateway project which would ship its product to Kitimat, British Columbia and then on to Asia via oil tankers, received support in Canada as the country sought new markets and to reduce its dependency on the US.

“We don’t want to be in a situation where [the] US is the only market,” Rick George, the former Suncor CEO, said in a recent interview. “You only have to see how political the Keystone pipeline became.”

Oilsands are essentially bitumen, an extra-heavy crude oil, mixed with sand, water, and clay, or other minerals. Bitumen is so viscous that it cannot be pumped and will not flow through pipelines without heating or dilution, and needs treatment before undergoing processing in refineries.

While Canada’s oilsands producers are co-operating with each other to reduce per-barrel emissions, bitumen production still generates more carbon dioxide and greenhouse gas output than conventional oil, according to estimates by the Canadian Association of Petroleum Producers. In September, Royal Dutch Shell Plc announced it would begin carbon capture and storage at the oilsands by 2015.

Moving ahead

More optimistic than Moody’s, TransCanada has said in a recent statement that it continues to believe the US will approve the pipeline early next year.

"The facts that support the approval ... remain the same, and the need for this pipeline grows even stronger the longer its approval is delayed," said company spokesman Shawn Howard.

Meanwhile, public support for the pipeline is high. In March, a Gallup poll found that a solid 57% of Americans support Keystone’s construction, while only 29% oppose it.

In Canada, approval in the next couple of months is also the given outcome for many. Prime Minister Stephen Harper expressed hope during a visit to India and told the media, “The President has told me several times that he hasn’t yet made a decision, that he will follow the regulatory process in the US, and evidently the next steps will be very soon, and I remain optimistic.”

Similarly confident, Canadian Natural Resources Minister Joe Oliver pointed out that Keystone XL is in US’ national interests in terms of national security, jobs and economic growth.

“I don’t know exactly why he postponed it but the point is right now we’re not in the middle of an election campaign and it will be decided by the administration on its merits,” Oliver told reporters in Ottawa.

On the other side of the fence, protestors are gathering forces to further protest the pipeline and to demand that the President rejects it for a final time.

Bill McKibben, an activist who galvanised last year’s Keystone protests, admitted that with Obama’s second term secured, environmental groups no longer hold the same political leverage over the White House. However, the groups aim to appeal to what they believe are Obama’s core convictions on climate change.

McKibben also said that close attention would be paid to Secretary of State Hillary Rodham Clinton’s role in the decision. “If she plays any part in it this, it is a test for her if she runs for President in 2016. We’ll remember.”

Mark Mellman, a Democratic pollster sums it up; no matter what the decision, “somebody’s going to be mad,” he says. “My strong guess is that he’ll make a decision based on the merits as he sees them and let the chips fall where they may,” Mellman concludes. “You’re not going to please all the people all the time, but that’s what you can do as a second-term President."

Written by Cecilia Rehn

Read the article online at: https://www.worldpipelines.com/business-news/14112012/decision_on_keystone_xl_oil_pipeline_looming_123/