A deeper dive: State's environmental review of Keystone XL tar sands pipeline shows it is not in the nation's interest

White House KXL Protest.jpg

The State Department’s release of the final environmental review for the Keystone XL tar sands pipeline marks a new stage in the evaluation of that controversial project. Moving forward, the National Interest Determination process will allow other federal departments and members of the public to bring their expertise to bear on the project’s environmental impacts. However, a deep delve into the assumptions and analysis provided State’s review of Keystone XL paint a picture of a tar sands pipeline with significant environmental impacts – in many cases greater than State suggests - and little public benefit. State now recognizes there are conditions in which Keystone XL would enable substantial climate emissions.  With respect to water, the State Department acknowledges that large leaks on Keystone XL could go undetected and that tar sands spills constitute unique risks to water resources.  And the environmental reviews shows that most of the tar sands flowing through Keystone XL will be exported and very few jobs will be create. Indeed, President Obama and Secretary Kerry have more than enough information to reject the proposed tar sands pipeline.

Let’s take a closer look at the environmental review.

Keystone XL’s carbon impact

State’s environmental review found that tar sands are significantly more carbon intensive than conventional crude. In particular, State concluded that tar sands crudes are more carbon intensive than other heavy crudes and are 17 percent more carbon intensive on a lifecycle basis than the average barrel of crude oil refined in the United States in 2005. According to State, the tar sands in Keystone XL would have total emissions of up to 168 million metric tons CO2e - equivalent to the tailpipe emissions of 35 million passenger vehicles. Even when you consider the increased emissions from tar sands flowing  (over and above the emissions that would occur if the pipeline carried conventional oil), Keystone XL would add 27.4 million metric tons CO2e, equivalent to the tail pipe emissions of 5.7 million passenger vehicles. 

Over Keystone XL’s projected 50 year lifetime, State estimates that Keystone XL’s increased greenhouse gas emissions could be as high as 1.4 billion metric tons of CO2e. Under the Administration’s Social Cost of Carbon guidance, these increased emissions from Keystone XL (over and above what would happen if the pipeline carried conventional oil)  would generate up to $100 billion in costs.[1]

Keystone XL as a linchpin for expanded tar sands production

In a departure from all of its previous environmental reviews, State recognized there are conditions under which Keystone XL would enable substantial tar sands expansion and associated climate emissions.  According to State, if proposed tar sands pipelines continue to be blocked and oil prices remain relatively low (both real possibilities), the approval of Keystone XL would enable more than 830,000 bpd of tar sands expansion which would bring a major climate impact. According to the State Department, at prices below $75 a barrel, the cheapest tar sands expansion projects will be vulnerable to cancelation without Keystone XL. While the State Department seems to conclude this scenario is unlikely, the facts suggest otherwise:

Lower oil prices are likely

While State believes that the low oil price scenario is unlikely (projecting WTI prices to exceed $105 by 2020), the markets are placing big bets that State is wrong. 

The traders at the Chicago Mercantile Exchange (CME), where futures contracts for WTI are bought and sold, believe State’s “low oil price” scenario in likely. The cost of a barrel of WTI shows a consistent decline from its current price of $97.00 a barrel to reach $73.00 by December 2019. The International Energy Agency concurs with future traders, estimating that oil prices will decline by about $20 a barrel over the next five years. These oil forecasts, which assume business as usual climate policies, would still put the cheapest tar sands expansion projects in jeopardy if forced to use more expensive transportation alternatives such as rail.

Even at higher oil prices, rejecting Keystone XL would reduce tar sands expansion. 

In its "low price scenario", State identified what level oil prices would have to be to affected the profitability of the lowest cost tar sands expansion projects. However, it is the higher cost tar sands expansion projects that are most likely to be affected by the rejection of Keystone XL. While State recognized that tar sands mines and some high cost in situ projects have high breakeven costs - ranging from $70 to over $100 a barrel - State essentially excluded these projects from its consideration when making its conclusion that Keystone XL's rejection would have limited impact on tar sands expansion. This is why State's conclusions on Keystone XL's climate impact were at odds with its analysis - these high cost tar sands projects are the ones that are most likely to be cancelled if Keystone XL is rejected.  

These projects include over 900,000 bpd of tar sands mining projects have been approved and are waiting for company go aheads to move toward production. In addition to those, nearly 600,000 bpd of tar sands mining projects are waiting on government approvals. Whether these projects move forward depend on a large part on whether Keystone XL moves forward.  That’s why Cenvovus’s CEO recently told reporters that “if there were no more pipeline expansions, I would have to slow down” his company’s tar sands expansion plans.

In fact, the environmental review recognized that some tar sands projects are already being affected by market dynamics and transportation bottlenecks right now. The State Department restates CIBC’s conclusions that a variety of factors, including lower prices due to transportation bottlenecks, are already keeping higher cost tar sands production projects – such as tar sands mines with upgraders - from moving forward.

Simply Stated, there is significant space between State’s low oil price scenario (below $75 a barrel) and its reference scenario (around $110 a barrel). State's environmental impact statement shows there are still many proposed tar sands expansion projects which will not be profitable if a) pipelines are constrained, b) oil prices stay under $100 a barrel and c) Keystone XL is rejected.

Pipelines constraints are likely to continue

Public opposition to tar sands pipelines and the expansion of tar sands production they enable has increased over the years and is likely to continue to do so. The level of opposition to tar sands pipelines is evident in State’s environmental review. For the first time State acknowledged that the public opposition to Northern Gateway, the proposed tar sands pipeline across British Columbia, renders that project so speculative that it eliminated it from consideration. This is a notable shift from State, which in previous environmental review considered Northern Gateway as the tar sands industry’s alternative for Keystone XL. The reality is that cross border tar sands pipeline proposals are all becoming increasingly speculative as the public learns more about them and opposition grows.

Rail is no substitute for pipelines for tar sands

State finally recognize that  transporting tar sands by rail is likely to be more expensive than transporting tar sands by pipeline. The environmental review included are a wide variety of cost estimates for tar sands by rail, with rail shipments to the Gulf Coast costing $15 to $20 a barrel, relative to Keystone XL’s cost of $8 a barrel. On average, State projects that rail will costs about $8 a barrel more to transport than pipelines. These higher costs are significant for an industry that recently told Canadian officials that a regulation increasing costs by $0.80 per barrel would constrain investment and production growth.

While State continues to suggest that tar sands by rail can replace pipelines – a conclusion at odds with tar sands producers and rail companies themselves, State  took a step away from its earlier rail projections. In its March Draft SEIS, State forecast that Canadian tar sands crude by rail to the U.S. Gulf Coast alone would reach 200,000 bpd or more in 2013. But the State Department had to concede these optimistic forecasts have not born out recognizing that total Canadian crude by rail shipments to all locations only reached 180,000 bpd. Meanwhile, U.S. Energy Information Administration data shows only a small fraction of that figure was tar sands by rail destined for the Gulf Coast averaged less than 30,000 bpd in 2013 – a small fraction of the amount forecast by State.

And finally, State declined to incorporate the higher costs associated with recent rail regulations advocated by the National Transportation Safety Board (NTSB), the Canadian Transportation Safety Board (TSB) and the rail industry. These regulations are part of an effort to address some of the safety issues associated with the Bakken crude by rail boom. Some of these measures – including rerouting around high population and otherwise sensitive areas, modifications of tank cars, and requiring non-crude spacer tank cars and reduced speed for crude unit trains – all address legitimate safety risks associated with a crude by rail boom that is much bigger and broader in scope than Keystone XL. These measures will likely increase the per barrel costs of rail relative to pipelines for tar sands producers, further increasing the impact of the Keystone XL pipeline decision on tar sands expansion.

Keystone XL’s leak detection system would miss spills smaller than half a million gallons a day

Landowners will not be pleased to know that they are on the front lines when it comes to detecting leaks that pass notice of Keystone XL's real time leak detection system, which State acknowledged can't detected leaks smaller than 500,000 to 750,000 gallons per day. Keystone XL’s real time leak detection system has a minimum threshold of 1.5 to 2 percent. Translated for a 830,000 bpd pipeline, this means the KXL can only detect leaks larger than 500,000 to 750,000 gallons per day in real time. This is consistent with recent revelations of industry-wide gaps in leak detection – leak detection systems missing 19 out of 20 spills. State’s review of Keystone XL recognizes the front line role that landowners play in detecting pipeline spills, noting the leaks smaller than 500,000 gallons a day may be identified by direct observations by the public. That’s small comfort for the farmers and ranchers along the proposed route for the Keystone XL tar sands pipeline.

The State Department acknowledges tar sands spills pose greater risks to water resources

The State Department has acknowledged that the diluted bitumen tar sands that would be transported by Keystone XL presents additional spill risks to water bodies. Following the Kalamazoo tar sands spill, which became the most expensive pipeline spill in U.S. history with a price tag of over one billion dollars, and the tar sands spill in Mayflower, Arkansas, it has became clear that tar sands spills posed unique risks to water bodies.

“The release of dilbit to a river or other aquatic environment introduces the potential for additional impacts and additional recovery challenges for responders of such an event to the environment.” 

Following a diluted bitumen spill, the light petrochemicals used to dilute the tar sands gas off, leaving the heavier than water bitumen to sink below the water’s surface. Conventional spill response measures rely on containing and removing oil from the surface of a water body. When tar sands crude sinks, it circumvents most spill response countermeasures. This dynamic played a large part in the significant impacts from the Kalamazoo tar sands spill, which cost over a billion dollars and left nearly 40 miles of the Kalamazoo river contaminated with tar sands over three years after the spill.

There is widespread public concern about a tar sands spill contaminating the Ogallala Aquifer.   Additionally, the pipeline route still traverses the sensitive groundwater resources of the Sandhills.  According to Jane Kleeb at Bold Nebraska, “The State Department acknowledges the current route still crosses the Sandhills, the Aquifer and that chemicals could reach surface water with a spill.”

Keystone XL would cross more than 1000 water bodies, including 50 perennial rivers or streams, and several aquifers, including the Ogallala. It also comes within a mile of approximately 2500 water wells.  Approving a tar sands pipeline that would cross America’s heartland would pose major and unacceptable risks to water resources.

Keystone XL is not a national jobs plan

The State Department's analysis again confirms the pipeline is not a major job creator – far from it. According to the FSEIS, the project will require a total of 50 long term employees – a figure that includes 15 temporary contractors. During construction, the proposed Project would only generate 1,950 construction jobs per year. President Obama himself said:

And my hope would be that any reporter who is looking at the facts would take the time to confirm that the most realistic estimates are this might create maybe 2,000 jobs during the construction of the pipeline -- which might take a year or two -- and then after that we’re talking about somewhere between 50 and 100 [chuckles] jobs in a economy of 150 million working people. — President Obama, July 24, 2013

The majority of the tar sands oil piped through Keystone XL is for export

The environmental review has also confirmed Keystone XL is mostly for export. The review acknowledges a trend of increased exports from the Gulf Coast where the Keystone XL tar sands oil will eventually flow. In the draft environmental review, State found that over half of the crude from Keystone XL would be exported after it is refined in the Gulf. State forecast that international exports of refined product are likely to increase in the future. Moreover, State concluded that Keystone XL President Obama has said it himself:

“So what we also know is, is that that oil is going to be piped down to the Gulf to be sold on the world oil markets, so it does not bring down gas prices here in the United States. In fact, it might actually cause some gas prices in the Midwest to go up where currently they can’t ship some of that oil to world markets.” --President Obama, in an Interview with the New York Times, July 24, 2013

The process is far from over

As the case against Keystone XL continues to build, the information in State’s environmental review will form part of the evidence that policy makers will consider as they evaluate the pipeline’s national interest implications. In addition to Final SEIS, policy makers from the other eight federal Departments evaluating Keystone XL will consider comments received during a 30 day public comment period. As Administration officials will consider the State Department’s environmental review, along with other information from industry indicating that Keystone XL is a linchpin for tar sands expansion and the climate emissions associated with it, as they undergo the 90 National Interest Determination process. However, the President and Secretary Kerry have more than enough information to reject the Keystone XL pipeline as a risky project that is incompatible with the nation’s climate goals.

[1] Interagency Working Group on Social Cost of Carbon, U.S. Government, Technical Support Document: Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 (May, 2013) (online at www.whitehouse .gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf)  (all dollar amounts in 2007$).

About the Authors

Anthony Swift

Director, Canada Project, International program

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