As previously discussed on this blog, the EPA recently challenged a key conclusion of the State Department’s Final Supplemental Environmental Impact Assessment (FSEIS) on the Keystone XL Pipeline (KXL).
State concluded that denying approval of the KXL would actually increase net greenhouse gas (GHG) emissions. Canadian crude would still reach U.S. refiners, it would just come by alternate modes of delivery (principally rail transport) that are more carbon-intensive than the proposed pipeline. The alternate routes would emit 28% to 42% more carbon dioxide (CO2) per barrel of oil delivered (FSEIS, ES-34).
That assessment was intolerable to Keystone haters, and last week EPA came riding to their rescue.
EPA argued that State’s GHG impact assessment assumes crude oil prices remain at $75 per barrel or higher. When oil prices fall into the $65-$75 range, State acknowledged, the additional cost incurred to transport crude by rail could make new oil sands development projects uneconomical. Thus, EPA reasoned, with crude prices now hovering around $50 per barrel, building the KXL could make uneconomic oil sands projects commercially viable, increasing oil sands development and the associated emissions beyond what would otherwise occur.
As noted in my previous post, EPA did not accurately describe State’s analysis. State did not opine that blocking the KXL by itself would render oil sands development uneconomical in a period of low oil prices. Rather, State opined that the higher cost of rail transport would constrain oil sands development if “all new and expanded Canadian and cross-border pipeline capacity, beyond just the proposed Project, is not constructed” (FSEIS, ES-12, emphasis added).
Yesterday, TransCanada, the corporation seeking to build the KXL, sent a letter to State rebutting EPA’s critique. In a nutshell, TransCanada argues, quoting the FSEIS, that the “dominant drivers of oil sands development are more global than any single infrastructure project,” pointing out that both Canadian and U.S. Bakken crude production increased since late 2008, despite crude oil prices falling below $75 per barrel during most of December 2008-December 2009.
From TransCanada’s letter (footnotes removed):
In updating the market assessment and related conclusions . . . the Department should take note that history has demonstrated short- and medium-term fluctuations in oil prices do not significantly impact whether the oil sands resource will be developed. When TransCanada applied for approval of the Project in late 2008, the price of oil closed around $41 per barrel. Today the price is approximately $50 per barrel and over that period of time the price of oil has ranged between $110 per barrel and $39 per barrel. Over that same period of time, Canadian oil sands production has grown from 1.2 million barrels per day to 2.1 million barrels per day, an increase of 0.9 million barrels per day or 1.2 times the capacity of the Project. In addition, over that period of time, US Bakken crude oil production has grown from 0.25 million barrels per day to 1.1 million barrels per day, an increase of 0.9 million barrels per day or nine times the capacity of TransCanada’s Bakken Marketlink Project. It is clear that building or not building the Project will not cause crude oil production to go up or down.
Looking forward, based on the Canadian Association of Petroleum Producers’ recent estimates, oil sands production will continue to increase 0.1 million barrels per day in 2015, 0.2 million barrels per day in 2016, and 0.1 million barrels per day in 20177 for a total of 0.4 million barrels per day or half the capacity of the Project. As a result of increased production in both Canada and the United States and the delay in the building of pipeline infrastructure, rail loading capacity in western Canada has increased from 0.2 million barrels per day in 2013 to a projected 1.0 million barrels per day by the end of this year; this equates to 1.4 times the capacity of the Project. In the US, Bakken rail movement of crude oil has increased from 0.2 million barrels per day in 2008 to 0.8 million barrels per day in 20149, almost eight times the capacity of the Bakken Marketlink Project.
As noted above, it is clear that the Department’s conclusion that “the proposed Project is unlikely to significantly affect the rate of extraction in oil sands areas . . .” is accurate and the further conclusion that, in the absence of the Project, other pipelines or rail transportation would be developed or expanded to transport increasing oil sands production. Importantly, the Department further concluded that not building the Project would lead to increased GHG emissions ranging from 28 to 42 per cent, potentially an additional 49 accidents, and six fatalities, on an annual basis, as a result of these alternative forms of transportation.