Keystone (XL) Cops, Part XLVIII: Pipeline Gets State Department’s Green Light


by Brad Wieners and Matthew Philips / Business Week

Even the timing is too much: 3 P.M. on a Friday. And not just any Friday—the one just before the Super Bowl.

That is when—moments ago! go Seahawks!!!—the U.S. Department of State decided to release its hotly anticipated report on the environmental safety of Keystone XL, the $5.4-billion, 875-mile final leg of a network of pipelines carrying Alberta crude to refineries and tankers in Port Arthur, Texas. It’s genius, you can almost hear a State Department bureaucrat telling her colleagues: We’ll bury this thing late on Super Friday. By Monday everyone will be too busy tweeting Super Bowl ads and deconstructing Richard Sherman’s post-game rant to notice how compromised we look on this.

Over recent months, those in favor and opposed to the Keystone XL have been pestering President Obama to quit stalling and go ahead—approve or nix the damn thing. The pipeline crosses an international border, so it falls to him to decide. It’s an executive order: just the sort of power he implied he’d wield in last week’s State of the Union. It fell to the State Department, meanwhile, to determine if the pipeline is safe for, among others, the Montana, South Dakota, and Nebraska property owners who will have the three-foot-in-diameter pipe driven through their fields and across their water supplies.

When pressed on which way he was leaning, Obama has said he’s not going to pre-empt due process; he would instead wait for today’s enviro assessment (the long-ish acronym is FSEIS, for Final Supplemental Environmental Impact Statement). He would be the voice of reason, not a difficult position to stake out here. What the president did volunteer was that climate—the impact of Alberta’s tar sands being excavated and burned as fuel on the earth’s atmosphere—would factor in his final decision.

So what does today’s FSEIS have to say about tar sands and climate change? Well, at first it seems to take a great deal into account: the [greenhouse gas] emissions associated with the construction and operation of the pipeline; some complicated math known as the “wells-to-wheels” lifecycle of emissions; the cumulative effect of emissions, etc., etc. But the pivotal assumption of the report—which is consistent with the pipeline’s biggest boosters—is that the Keystone XL is kind of moot. The scientists and authors behind the FSEIS conclude that the tar sands will be carved out of the ground with or without the pipeline, ergo the pipe itself is irrelevant. Indeed, the report indicates the pipeline would likely reduce carbon emissions by reducing reliance on trains, trucks, and barges. Not building the pipeline could result in 28 to 42% higher greenhouse gas emissions.

Now, hold on. No serious person in the tar sands industry—or citizen of Alberta—will tell you with a straight face that the tar sands will develop at the same rate without the Keystone XL. It’s not as if production will stop if Keystone never happens. But it will certainly slow down. In 2012, production in the region was running at about 1.9 million barrels per day. With Keystone XL, that number rises to nearly 5 million barrels per day by 2025, according to estimates by Bloomberg New Energy Finance. Without the pipeline, production barely gets to 4 million barrels per day.

Without Keystone XL, tar sands production will grow much slower Data: Bloomberg New Energy FinanceWithout Keystone XL, tar sands production will grow much slower

Of course, a lot of this expected development—Keystone or not—depends on the price of oil. Last year, a report written by two former Deutsche Bank analysts calculated that producers in Western Canada will need to fetch at least $65 a barrel to attract new investments and ensure that current projects remain profitable. That looked iffy not long ago. The price of Western Canadian Select, the main benchmark used to price Canada’s heavy oil, fell all the way to $51 a barrel in November. The price has since shot back up to more than $79 a barrel over the past two months.

The price of heavy oil in Western Canada has shot back up recentlyData: BloombergThe price of heavy oil in Western Canada has shot back up recently

While it’s not the $120 that WCS was fetching back in 2008, it’s enough for producers to still make money and maybe even enough to attract future investment. But that’s why TransCanada, Alberta, and Canadian Prime Minister Stephen Harper have hung in there for five-plus years on Keystone rather than hypothetical alternatives like a trans-Canadian line to the St. Lawrence: They want to strike while the price is right.

But the real motive to bury this report on Super Friday isn’t, finally, the questionable assumption that the tar sands will inevitably burn, with or without the Keystone. It’s that the State Department has ignored one warning sign after another about the subcontractor, ERM, that carried out the fieldwork for the FSEIS. In fact, today’s report has beaten another hotly anticipated report to the punch, this one from the Office of the Inspector General to determine if ERM lied to the U.S. government to secure the contract.

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