Has the Keystone XL Pipeline Project Become a Zombie?

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Is the proposed Keystone XL pipeline project now an industrial zombie, an entity that's dead but doesn't know it is dead? That's what industry insiders and the news media are asking in light of the Obama administration's decision April 18 to postpone indefinitely a decision on the crude-oil pipeline that is slated to bring up to 830,000 barrels per day (BBL/d) of Canadian oil-sands oil from Hardisty, Alberta, to Cushing, Oklahoma. And in a measure of how charged the $5.3 billion pipeline project is within Washington, this month senators tried to push the pipeline forward by adding an amendment to a bill increasing the energy efficiency of buildings. But that amendment helped kill the efficiency bill, which had drawn broad bipartisan support from conservative Republicans and liberal Democrats.

Senator Rob Portman (R-Ohio.), a sponsor of the energy efficiency bill, said its death was a "disappointing example of Washington's dysfunction." James Dillon, spokesman for Sen. Lisa Murkowski (R-Alaska), told The New York Times: "It's embarrassing that even an energy-efficiency bill can't get past the floor. It's all politics all the time. It's all rhetoric. It's frustrating to Republicans, and it's frustrating to Democrats. There's a lot of pent-up demand to have a real debate on energy."

Russ Girling, president and chief executive of TransCanada Corporation (NYSE:TRP) (Calgary, Alberta), probably shares Portman's and Dillon's anger and disgust with the U.S. political process that has stymied his company's project. But he has not been as blunt as the disappointed pipeline supporters who have castigated the Obama administration for continuing to delay a decision on the proposed pipeline.

What Girling did say after the Department of State decided to postpone its decision was this: "We are extremely disappointed and frustrated with yet another delay. American men and women will miss out on another construction season where they could have worked to build Keystone XL and provided for their families. We feel for them. ... It is unfortunate that interest groups and paid activists are blocking energy security, saying no to jobs, and creating a situation that actually leads to higher (greenhouse gas emissions) and greater public risk. Canadian oil will make its way to market with or without Keystone XL. It is in everyone's best interests that this project move forward."

Keystone XL is a proposed 1,179-mile pipeline that would extend from Hardisty, Alberta, to Steele City, Nebraska, terminating in Cushing, Oklahoma. It would complement the existing Keystone pipeline.

Click on the image at right to see a route map for the proposed Keystone XL pipeline.

In its April 18 decision, the U.S. State Department said it would postpone indefinitely its decision on the Keystone XL pipeline until the Nebraska Supreme Court ruled on the legality of Nebraska Governor Dave Heineman's decision to allow the pipeline to be built in his state. There is no specific date by which the court must rule, and observers agreed the State Department decision effectively put off a final decision until after the November mid-term elections.

Last summer, in a major address on climate change, President Obama said he would not approve the Keystone XL pipeline if it "significantly exacerbate(s) the problem of carbon pollution." For more on that address, see June 27, 2013, article - President Obama Unveils Ambitious Climate Action Plan. Earlier this year, in its Final Environmental Impact Statement, the State Department concluded that construction of the Keystone XL pipeline would not meaningfully contribute to climate change, as that Canadian oil likely would be brought to market by other means, including competing pipelines, rail cars or ships. For more on that issue, see February 3, 2014, article - State Department: Keystone XL Unlikely to Affect Canadian Oil Sand Extraction.

Democratic lawmakers and fundraisers have furiously opposed the project, saying it is a line in the sand for an administration that has pledged to reduce America's carbon footprint. Republican lawmakers and fundraisers have similarly crusaded in support of the pipeline, citing its ability to reduce oil imports, create jobs and foster closer relations with Canada, America's largest trading partner.

The Democrats hold a six-seat majority in the Senate, but Democratic Senators from Louisiana, Alaska, North Carolina and Arkansas are considered vulnerable in the November elections. These pro-Keystone XL senators have distanced themselves from the Obama administration over the proposed pipeline. Paradoxically, by postponing a decision on Keystone XL, the Obama administration may seal the fate of these vulnerable Democratic senators. Although these four senators support the pipeline, they share the same party affiliation as the president who seems to oppose it.

TransCanada's Girling and other industry experts say that stopping Keystone XL will not keep Canadian oil sands crude off the market. For more on this, see December 2, 2013, article -- Stopping Keystone XL May Not Keep Canadian Oil Sands from Reaching Gulf Coast. Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries, has long believed Canadian heavy crude will get to the U.S., if not by Keystone XL, then by another pipeline or by railcar. Failing that, Canada will find a way to export the crude. For more on that, see January 11, 2012, article - Delays in Pipeline Projects Won't Halt Development of Canadian Oil Sands, a "Navigating the Currents of Change" Webcast on Industrialinfo.com.

While the controversy over the pipeline is often cast as a brawl between "pro-environment" Democrats and "pro-business" Republicans, a recent article in The New York Times Magazine revealed an additional level of complexity to the issue. The article describer liberal organizer Jane Kleeb's work with conservative Nebraska ranchers and farmers who are concerned over potential risks posed by the pipeline and by TransCanada's tactics in the Cornhusker state. Although TransCanada denies the allegations, the Times' article, "Jane Kleeb vs. the Keystone Pipeline," contains quotes from Nebraskans who are angry over what they describe as the high-handed manner with which the Canadian company has conducted business in their state. One Nebraska landowner said of TransCanada: "They came out here with this great sense of entitlement, and we were just supposed to get out of the road. These guys just treat you like bugs they can squash."

Back to Washington, this month Senator John Hoeven (R-North Dakota) predicted the Keystone XL project will go forward, if not this year, then next year. "If we don't get Keystone XL ... and some of these key energy measures now, we're going to get them next year," he said at an event hosted by the news organization Politico. "Even if Republicans don't take the Senate--and then of course it'll be harder--I think we're going to pick up enough pro-energy votes that we're going to move the legislation we're talking about. The administration has shown that [it] truly wants to push energy development away from fossil fuels. You cannot delay the Keystone XL pipeline project into the sixth year and tell me that you want to approve it."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.