The State Department’s Final Supplemental Environmental Impact Statement (FSEIS) on the Keystone XL Pipeline vexes environmentalists. While acknowledging that petroleum made from Canadian oil sands emits 17% more CO2 than other types of heavy crude (FSEIS, ES-15), State concluded that U.S. refiners would obtain roughly the same amount of Canadian crude whether permission to build the pipeline is granted or denied.
If denied, the oil would just come by alternate modes of delivery, principally trains but also incremental pipelines and barges. Those other routes are not only more costly but also less energy efficient than transport via the proposed KXL. Thus, State concluded, compared to the KXL, transport by rail would emit 28% to 42% more CO2. [FEIS, ES-34] Implication: If you’re really worried about global warming, then you should support the Keystone XL Pipeline. Beautiful!
In a letter sent Monday Feb. 2, EPA Assistant Administrator for Enforcement and Compliance Assurance Cynthia Giles asked State to revisit that assessment. State estimated that as long as crude oil sells for $75 per barrel or higher, “revenues to oil sands producers are likely to remain above the long-run supply costs of most projects responsible for expected levels of oil sands production growth.” [FEIS, ES-12]. Producers would still earn profits notwithstanding the extra cost – roughly $8 per barrel — to ship the oil by rail rather than through a big new pipeline.
Times have changed, Giles argues. State published its FSEIS in January 2014, when West Texas Intermediate (WTI) crude sold at about $94 per barrel. In recent weeks, WTI crude has been selling below $50 per barrel.
Giles quotes State’s conclusion that if oil prices decline to $65-$75 per barrel, the higher transport costs of shipment by rail “could have a substantial impact on oil sands production levels — possibly in excess of the capacity of the proposed project.” Indeed, State goes on to say, “Prices below this [$65-$75] range would challenge the supply costs of many projects, regardless of pipeline constraints, but higher transport costs could further curtail production.” [FSEIS, ES-12]
Giles concludes: “In other words, the Final SEIS found that at sustained oil prices within this range, construction of the pipeline is projected to change the economics of oil sands development and result in increased oil sands production, and the accompanying greenhouse gas emissions, over what would otherwise occur.” She advises State to give “additional weight” to the “low price scenario” in the FSEIS “due to the potential implications of lower oil prices on project impacts, especially greenhouse gas emissions.”
Allow me to translate. The future of Canada’s oil sands industry may have looked bright a year ago. Today that future is clouded by falling prices and profit margins. A long period of low prices could force a large contraction and throw tens of thousands of people out of work. So let’s kick ‘em while they’re down! Let’s deny oil companies the option to invest their own money to cut operating expenses, protect their capital investment, or just plain survive.
To opponents, the Keystone XL Pipeline is objectionable precisely because it will increase the economic efficiency of an industry they believe should not exist. [click to continue…]