Keystone Oil Pipeline Assessment Signals U.S. Approval

A long-awaited environmental assessment of TransCanada Corp.’s Keystone XL pipeline cheered oil executives who see it as a signal the Obama administration will approve a project that has come to be viewed as a fight between jobs and the environment.

The draft assessment, released yesterday by the U.S. State Department, makes no recommendation as to whether the Keystone pipeline should be built, and an administration official cautioned the report was a work in progress.

On at least one main point though -- that the $5.3 billion project won’t worsen the risks of global warming because Alberta’s oil sands would be developed anyway -- the analysis represents a clear win for the oil lobbyists and a loss for environmentalists who applauded Obama’s pledge to fight climate change in his second inaugural and State of the Union.

“The fact that they came out and said, ‘Eh, it doesn’t really effect the oil sands development,’ to me this is a prelude to approval,” said Sarah Emerson, president of Energy Security Analysis Inc. in Wakefield, Massachusetts.

Environmentalists view the Keystone decision as a test of Obama’s sincerity about making climate change a priority in his second term after failing to advance legislation to cap carbon dioxide in his first. The administration is also scheduled to release final rules that for the first time will restrict greenhouse gases on new power plants, and the EPA will then face legal and political pressure to issue related standards for existing plants. It is also considering regulations for a drilling technique known as hydraulic fracturing, or fracking, that has boosted the nation’s energy production but raised concerns about air and water pollution.

September Decision

The draft analysis released yesterday, which sets in motion a series of reviews that pushes a final decision to September, examined the revised route TransCanada proposed after Obama blocked an original path amid concerns it posed a threat to an aquifer in Nebraska. On that issue, too, the report found that the risks were minimal with the new route.

“We’re looking for feedback now from the public to help us shape this going forward,” Kerri-Ann Jones, State’s assistant secretary for oceans and international environmental and scientific affairs, told reporters yesterday on a conference call. The agency is conducting the review because the pipeline would cross an international border.

After the State Department receives the comments, it must compile its final environmental statement and then would have two months to decide whether to issue a permit. After that the project goes to Obama for a final sign-off, which could come by the end of September, according to pipeline opponent

TransCanada Reaction

For TransCanada, which has spent years developing the project and lobbying in Washington for its approval, the draft analysis represents another cleared hurdle.

The draft report is “an important step towards receiving a presidential permit for this critical energy infrastructure project,” TransCanada Chief Executive Office Russ Girling said in a statement.

TransCanada fell 0.5 percent to C$47.81 ($46.56) at 4:30 p.m. in Toronto. The shares have climbed 7.4 percent this year.

The pipeline is designed to carry about 830,000 barrels a day of tar sands fuel from Alberta and oil from shale rock formations in the U.S. to refineries in Texas along a route that would traverse six Great Plains states. The administration has previously given approval for the pipeline’s southern leg to relieve an oil glut in Cushing, Oklahoma.

Washington Rally

There was little evidence yesterday’s analysis would end the controversy surrounding the project. A crowd estimated by organizers at 35,000 rallied Feb. 18 in Washington against Keystone, urging Obama to reject the pipeline.

“President Obama needs to match his soaring oratory with climate action, and the State Department just made that harder,” Michael Brune, executive director of the Sierra Club, a San Francisco-based environmental group, said on a conference call following the report’s release.

Representative Henry Waxman of California, the top Democrat on the House Energy and Commerce Committee, in a statement said the report was “seriously flawed.”

Senator Ron Wyden of Oregon, the chairman of the Energy and Natural Resources Committee, said the latest review failed to answer how the pipeline would affect U.S. consumers, and Senator Barbara Boxer of California, who leads the Environment and Public Works panel, said she remained “very concerned” about Keystone and climate change. Both lawmakers are Democrats.

House Speaker John Boehner, an Ohio Republican, in a statement called on Obama to approve Keystone.

Signals Approval

John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said the finding that the project won’t significantly affect oil sands development signals approval.

“It’s still a long way away, but at least there’s a roadmap forward,” Kilduff said.

Environmentalists said they were disheartened by the report’s findings. The pipeline would exacerbate climate-change risks by promoting the use of Alberta’s oil sands, which generate more carbon dioxide than most lighter crude, critics say.

The analysis “reads like an on-ramp to justify the Keystone XL pipeline project,” said Erich Pica, president of Friends of the Earth in Washington. “We cannot solve the climate crisis when the State Department fails to understand the basic climate, environmental and economic impacts of the Keystone XL pipeline.”

Emissions Impact

The analysis said that while oil-sands mining releases more of the gases linked by scientists to global warming, rejecting the pipeline won’t reduce the rate of development in the oil sands or the amount of heavy crude refined in the U.S.

If both Keystone and the other proposed pipelines from the tar sands aren’t built, the reduction in annual emissions would be at most 5.3 million metric tons a year of carbon dioxide, less than 0.1 percent of total U.S. emissions, the department’s analysis found.

Oil and gas producers say the project proposed by Calgary-based TransCanada will create thousands of jobs and boost U.S. energy security.

“This project will replace oil from Venezuela and the Middle East with a stable continental supply, including from the oil sands and improve the energy security of North America,” Joe Oliver, the Canadian natural resources minister, told reporters in Toronto.

Industry Comment

“No matter how many times KXL is reviewed, the result is the same: no significant environmental impact,” said Marty Durbin, executive vice president for the American Petroleum Institute, a Washington-based group whose members include Exxon Mobil Corp. “The latest impact statement from the State Department puts this important, job-creating project one step closer to reality.”

Bill Day, a San Antonio-based spokesman for Valero Energy Corp., the world’s largest independent refinery by capacity, predicted that the pipeline would be approved.

“Nothing that has come out in this report or any of the others would be reason for even this delay, let alone a denial,” Day said in an interview. Valero’s plants would stand to gain work refining the tar sands if the pipeline is built.

A final decision won’t come until after agencies including the Environmental Protection Agency get to comment. The EPA found a previous draft environmental analysis for the original Keystone route was “unduly narrow.”

Alternative Modes

The State Department concluded that without the Keystone XL pipeline, alternative modes of transporting Canadian crude would emerge.

One scenario assumes the construction of new rail-loading terminals in Lloydminster, Saskatchewan, and Epping, North Dakota, that would send oil on existing rail lines to new terminals in Stroud, Oklahoma.

Another option would see oil taken by rail to Port Rupert, British Columbia, loaded onto tankers shipped down the Pacific Coast, through the Panama Canal, and up through the Gulf of Mexico.

Environmentalists said Keystone is critical to the development of Alberta’s oil sands.

“They call it Keystone for a reason,” Bill McKibbon, who heads, which has been leading the opposition to the pipeline, told reporters. “If they don’t have it, they aren’t going to be able to develop the tar sands.”

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