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Keystone XL Looking Like Pipeline to Nowhere

Four and a half years of studies and five failed votes in the House of Representatives later, what's happening with the Keystone XL pipeline? Nothing.

Alberta Oil Sands
Photo by: Rodrigo Sala
Alberta Oil Sands

It is stuck at the US-Canadian border, where it is likely to remain until mid-2013, despite the issuance of one of three permits to begin construction in Texas for the smaller and much less controversial portion of the pipeline.

On 26 June, the US Army Corps of Engineers granted TransCanada Corp. a permit to begin construction on the $2.3 billion southern section of the massive pipeline, running from Cushing, Okla. to the Gulf of Mexico in Texas. The permit covers construction across the wetlands and waterways of Texas’ Galveston district.

TransCanada still needs one permit each from Tulsa, Okla. and Forth Worth, Texas, to complete this southern Gulf portion of the Keystone. Tulsa is set to rule on the permit in a month and a half.

This southern section will initially carry 700,000 barrels a day of crude oil. Construction is set to begin this summer. The southern line, permits pending, could be functional by mid-to-late 2013. Pres. Obama, despite his objections to other parts of the pipeline, has pledged to speed up the approval process.

Approval for other aspects of the pipeline looks far more complicated. Because the northern section crosses an international border, it requires presidential approval, in accordance with an executive order from Pres. George W. Bush in 2004.

The “greater” Keystone project would extend the existing pipeline from Hardisty in Alberta, Canada eastward until heading south into the US through North Dakota, South Dakota, Nebraska, Kansas and Oklahoma, ending at Cushing. There is also an eastern branch spiking off at Steele City, Neb. and running to Patoka, Ill.

The proposed extension would run from Hardisty across the border through Phillips Country, Montana, and meet up with the existing pipeline at Steele City. This would represent 1,179 miles of new pipeline that would carry Canadian tar sands crude eventually to the Gulf of Mexico, with an initial capacity of 830,000 barrels per day.

In an effort to speed up the project after Obama's initial rejection in January, TransCanada split into the northern and southern sections, pursuing the southern one independently.

A comment period began Jun. 15 and runs through July 30, but the State Department has said it would not be able to complete its review until the first quarter of 2013. Approval is contingent upon whether the project is demonstratively in the country’s national interest.

Republicans had tried an end run by slipping Keystone XL into a two-year transportation bill, but Obama threatened to veto the legislation, if necessary. (House and Senate negotiators Wednesday reached a tentative agreement over the bill which overhauls federal highway and transit programs.)

The fate of Keystone rests with the answers to two key questions: Is it in the Obama administration’s interests, specifically in the run-up to presidential election; and is the pipeline also in the national interest.

Based on environmental and jobs issues, Keystone is not in the Obama administration’s interests. Organized labor is not as interested in the jobs as it might because the administration has been fairly successful at creating energy jobs elsewhere. On the environmental front, the Obama administration’s hesitancy over the project is the stuff of heroism to that voting bloc.

The Republicans had hoped to deal Obama a lethal campaign blow by setting a two-month deadline for the administration to approve Keystone XL in January, knowing it wasn't enough time to evaluate the project and hoping the administration would have to reject the project. The idea was to force the administration into publicly denouncing massive job creation and working against US energy independence ahead of the elections.

The GOP strategy, however, was undercut by a sober response from organized labor. In addition, the President has been able to capitalize on his push for green-clean tech jobs as well as his support for oil and natural gas fracking.

In terms of the oil and gas industry, here, too, the Obama administration doesn’t have much to gain by approving Keystone XL ahead of the elections. It would not be the end-all for the oil lobby’s harassment of the administration.

The pipeline's broader impact is just as clear, although more debatable.

Construction of a pipeline that size will certainly create plenty of jobs — hardly a contested point — but again energy jobs are coming from other ventures and sources. Environmentally, the project brings the risk of oil spills and the certainty of higher greenhouse gas emissions as a result of increased tar sands (dirty oil) extraction.

In terms of economics, there is some solid research showing that Keystone XL is more likely to result in higher prices at the pump. Canadian tar-sand crude pumped into the Midwest and intended for domestic gas consumption would be diverted to the Gulf Coast where it would be used in diesel production and for global exports. It could very well mean reduced gas supplies and higher gas prices in the end.

The issuance of the first Texas permit for the southern extension is but a Democratic bone to big oil and a job-hungry public. It has little marrow. Keystone supporters lost this battle when TransCanada split the project in half, allowing the Obama administration to score points by supporting the smaller version while avoiding a decision on the larger project. Nothing will happen on the greater Keystone XL this year.

—This story originally appeared on Oilprice.com.

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