March 6 (Bloomberg) -- A Canadian company may have found a way to ship more oil across the U.S. border without becoming enmeshed in the red tape that’s tied up the proposed Keystone XL pipeline -- by relying on a permit it got four decades ago.
Enbridge Inc. said this week it plans to replace a 46-year-old line from Hardisty, Alberta, to Superior, Wisconsin. The company says the $7 billion project shouldn’t trigger the type of lengthy approval process that TransCanada Corp.’s Keystone is undergoing because the construction is essentially a maintenance project to restore the pipeline’s previous capacity.
Critics, including the Sierra Club, a San Francisco-based environmental group, say a new permit from the U.S. State Department is necessary, because replacing the old pipeline would allow Enbridge to ship more of the carbon-heavy fuel across the border than it can now.
“Doubling the size of a pipeline that carries toxic, corrosive tar sands crude will require a full environmental review and will meet the same level of scrutiny and opposition as the other proposed tar sands pipeline projects,” said Doug Hayes, a staff attorney at the Sierra Club, in a statement.
Enbridge says it is not doubling the line’s capacity -- only restoring what it was permitted to carry by laying a new pipe with a slightly larger diameter alongside the old. The company has had to reduce the volume of oil in the current pipe to below its approved capacity to prevent leaks. Even with the new line, the company says it will be limited in what it can carry by downstream pinchpoints. Once the project is completed the old line will be decommissioned.
Nevertheless, the State Department should evaluate Enbridge’s proposal -- called “Line 3” -- with the same rigor it examined Keystone, which was proposed by TransCanada more than five years ago, Hayes said.
The department’s decision may signal how closely the administration will review other projects that would expand imports of Canadian oil after Keystone is finally settled. Canada is the largest foreign supplier of oil to the U.S. and rising production in the U.S. and Canada is pushing companies to look for ways to get to market.
The production boom has drawn a focus to the environmental risks of fossil fuels as well as the safety of the U.S.’s aging oil and gas pipeline network.
“We shouldn’t be doing anything to slow down or block efforts to make existing pipelines safer,” John Stoody, vice president for government relations at the Association of Oil Pipe Lines in Washington, said in an e-mail.
For environmental groups, Enbridge’s proposal underscores the importance of Keystone, which would link Alberta’s energy resources with refineries in Texas and Louisiana. They oppose that project because they say it would encourage production of the oil sands, which release more greenhouse gases than conventional forms of crude.
If they are able to block TransCanada’s $5.4 billion project over climate issues, that makes it easier to make the case against future cross-border pipelines, including another effort by Enbridge to expand its Alberta Clipper pipeline, which also runs from Alberta to Wisconsin.
Christine Tezak, managing director at ClearView Energy Partners LLC, a Washington-based energy consultancy, said in an e-mail that Enbridge may avoid a State Department permit because it doesn’t plan to expand the crude carrying capacity of the pipeline.
Gavin MacFarlane, vice president for Moody’s Investors Service, agreed that the department wasn’t likely to hold Line 3 up to the same type of review as Keystone, an entirely new project.
Given the high profile of oil sands pipeline projects, though, “political, regulatory and public scrutiny of the project could lead to increased costs and delays,” MacFarlane said in a March 5 note to investors.
The State Department is responsible for overseeing cross border energy projects like Keystone. Large infrastructure projects first require an environmental impact statement overseen by the agency.
Once that is completed and released, the department then recommends whether the project is in the national interest, weighing factors including its environmental, diplomatic and economic impacts.
Eight agencies, including the Environmental Protection Agency, have 90 days to advise the State Department. A 30-day public comment period on Keystone ends tomorrow.
Enbridge announced plans March 3 to replace the entirety of its 1,031-mile (1,660 kilometer) Line 3 pipeline. The line now can handle about 390,000 barrels per day. The company’s permit allows it to carry as much as 760,000 barrels a day.
Chief Executive Officer Albert Monaco has said the Calgary-based company had to trim the flow to reduce the chance of leaks. Steve Wuori, strategic adviser to Monaco, said at an energy conference in Houston this week that the company has spoken to the State Department and believes it won’t need to change its permit.
The agency hasn’t given the company a green light yet, however. A State Department spokesman didn’t respond to a question by deadline.
An environmental impact statement released in late January said Keystone wouldn’t have a big impact on greenhouse gas emissions because the oil sands would be developed anyway.
The Natural Resources Defense Council, the Sierra Club and others argue the State Department’s environmental assessment underplays the importance of Keystone.
Keystone foes are also opposed to Enbridge’s plan to almost double the carrying capacity of the Alberta Clipper, to 880,000 barrels a day, more than the 830,000 barrels Keystone could transport.
Enbridge does need to get a new permit for the Clipper project because it would expand the capacity.
Environmental groups have argued the pipelines should be considered together to accurately gauge the impact they would have on greenhouse-gas emissions from the oil sands.
“This attempt by Enbridge to replace their Line 3 tar sands pipeline with a new, larger pipeline is another move by the tar sands industry to get their landlocked, dangerous product to export markets,” Hayes said in the statement. “Will this new pipeline ‘significantly exacerbate’ carbon pollution? Of course it will.”