Five years have passed since TransCanada made its initial Presidential Permit application for the Keystone XL Pipeline, and yet the tedious approval process drags on. Though the contentious project is widely expected to be greenlighted in early 2014, the turtle-like pace of the process is leaving supporters frustrated.

“There is a compelling case to build the Keystone pipeline,” James Lucier, managing director of Capital Alpha, told attendees at Platts’ recent Pipeline Development and Expansion Conference. “It’s in the U.S. national interest; it’s in our economic interest.

“It’s also a national embarrassment to the United States that it’s taken them so long. I think it points to critical defects in the U.S. regulatory system. We in the States could learn a lot from Canada—not just about the proper way to do refining, but we also could learn from their National Energy Board system, where you do one environmental impact statement that the [federal and provincial governments] work from, with a time limit, to get the job done.”

Hoping to transport Alberta oil sands crude south to Steele City, Nebraska, via a 1,179-mile pipeline, TransCanada submitted its Keystone XL Presidential Permit application to the U.S. State Department on September 19, 2008. The ensuing five years have been a blur of environmental impact statements and procedural bureaucracy.

Things hit yet another snag in October 2011, when Nebraska Gov. Dave Heineman raised environmental concerns about the proposed route. As a result, the Nebraska Legislature held a special session, and the pipeline was ultimately rerouted to avoid running through Nebraska’s Sand Hills and above aquifers.

“Ultimately, the State Department said if you change the route, you have to do the whole environmental impact study again,” recalled Lucier. “It does show there was a lot of work in the Mickey Mouse process that goes on. [It is] analysis for the sake of analysis that goes on in environmental law.”

In December 2011, the U.S. Congress directed President Barack Obama to make a decision on the permit within 60 days. Obama said he was unable to do so, since the latest environmental impact study had yet to be completed. The permit was officially denied in early 2012.

In May 2012, TransCanada submitted a Presidential Permit application for the Keystone XL Pipeline from Montana’s U.S.-Canada border to Steele City, Nebraska. There is just a small portion of the project that has yet to be approved, notes a company executive.

“You might assume, like most people, that the question being debated is whether we should be able to build this project or not,” James Cormack, manager of strategy and governance for TransCanada, told the Platts conference crowd. “What’s interesting to me is we have actually built and put into service three-quarters of this pipeline. What we are debating for the permit is the last part of the pipeline, where it crosses the U.S. border between Saskatchewan and Montana.”

Anticipated approval

Though the Keystone XL has faced plenty of delays along the way, it’s expected that the project will eventually get built. However, that’s unlikely to happen this year. After all, TransCanada is still waiting on the final environmental impact statement. Upon its release, a permit will be issued within 90 days—provided, of course, that the project is finally approved. Though Lucier expected to see a decision made last Labor Day, he said he’s pleased the State Department is taking its time with the final review.

“They probably need to wait until it’s done,” he said. “In fact, I’m actually happier the longer it takes to get that environmental impact statement done, since the more defensive paperwork you do in advance, the better your chances of avoiding that ‘gotcha moment’ when the environmental groups [emerge].”

Ultimately, he expects the Keystone XL will be approved.

“I don’t think the environmental groups have the slightest chance of denying or reversing the Presidential Permit,” Lucier said. “I think President Obama more or less has to sign that permit whether he likes it or not. The worst case is not stopping the pipeline, which I don’t think will happen, but I do see some prospects for delay.”

If, for some reason, the final leg of the Keystone is delayed or denied, it won’t be game over for TransCanada.

“I personally feel somewhat agnostic to the decision on Keystone XL,” said TransCanada’s Cormack. “If the oil doesn’t move in that direction, it opens up new business opportunities for us to move it in some other direction.”

Environmental concerns

Environmental activists have expressed concerns regarding the amount of greenhouse gas emissions coming from the Alberta oil sands. However, Cormack is quick to retort that the Alberta’s emissions are no worse than those of Venezuela. He adds that if the U.S. doesn’t bring in its oil from Canada, it will be forced to import it from elsewhere.

“By saying yes or no to the Keystone XL, the world won’t consume more—or less—oil,” said Cormack. “It doesn’t actually matter.

“There’s no significant difference between the oil sands direct crudes and the other options that are available,” he added. “Oil sands crudes are more greenhouse-gas intense than other things in the world, but coal is more greenhouse- gas intense than some other things as well. Cherry picking things to compare is irrelevant.”

And there’s no doubt that if the U.S. does get its oil elsewhere, the alternative location will be further away—and, consequently more environmentally damaging—than Alberta. Meanwhile, if TransCanada can’t send crude south, it will need to find another market for Alberta oil.

“If we chose to say NIMBY [not in my back yard] to the most efficient market for oil sands crude—which right now, looks to most producers to be moving it to the Gulf Coast—you actually increase inefficiency by forcing the oil to move farther distances to a new market which is further away,” Cormack said. “That actually increases global greenhouse gas emissions.

“It’s a fascinating paradox we’re stuck in.”

Canada Needs More Infrastructure

By Michelle Thompson

More midstream build-out is needed to move production from Alberta’s oil sands—and if the necessary infrastructure isn’t added soon, the consequences could be dire for regional producers.

“Without any additional pipelines and space becoming available, we’re sitting in a situation where there’s not enough pipeline to carry crude out of western Canada,” said Dinara Millington, research director of the Canadian Energy Research Institute. “Without any further expansion, by 2015- 16, [we will be] running out of space and some of the oil sands’ production will be delayed or cancelled altogether.”

Millington was speaking about Canada’s production and infrastructure outlook during Platts’ recent Pipeline Development and Expansion Conference in Houston. Plenty of announced projects will help Alberta’s oil find homes in end-markets to the east, west and south.

This includes expansion of Enbridge’s Alberta Clipper project and conversion and expansion of the TransCanada’s Energy East Pipeline. Heading west will be Enbridge’s Northern Gateway Pipeline and the proposed expansion of Kinder Morgan’s Trans Mountain Pipeline system. And, of course, TransCanada’s Keystone XL pipeline, which would carry Alberta crude to the Gulf Coast, is still awaiting presidential approval.

Including the aforementioned projects, pipelines will be capable of taking away more than 5.5 million barrels (bbl.) per day of diluted bitumen, synthetic crude oil, as well as conventional light and heavy crude by 2021 (if all the proposed projects go ahead). But with mined bitumen production expected to increase from 900,000 bbl. per day to more than 2 million bbl. per day by 2038—and with in-situ production set to rise from 800,000 bbl. to 3.7 million by 2046— the new lines won’t be enough to carry bitumen from the oil sands projects that are currently awaiting approval or are in announcement stages.

“The increase in projected production is a result of relatively high oil prices and the availability of foreign capital investment,” said Millington. “However, some of this growth is at risk if the supporting infrastructure does not come online.”

The total initial and sustaining capital required for all oil sands projects through 2046 is expected to be $547 billion, said Millington.

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