UPDATE 2-In Keystone boost, U.S. study sees no added risk from Canada oil

Tue Jun 25, 2013 4:50pm EDT

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By Timothy Gardner

WASHINGTON, June 25 (Reuters) - The Keystone XL pipeline got a boost on Tuesday as a landmark U.S.-mandated report said heavy Canadian oil is no more likely to cause pipeline leaks than other crudes, knocking back one of the biggest objections to the project.

Following a series of high-profile pipeline leaks over the past three years, environmental groups raised the alarm over the prospect that Canada's growing stream of heavy bitumen crude, which is diluted with light fuel to flow through pipelines, could corrode the lines due to its acid and mineral content.

But the National Research Council report, an eagerly awaited study that U.S. regulators were ordered to conduct by a 2011 pipeline safety law, said the oil mix flowing through U.S. pipelines for 30 years was no different in wear and tear on pipelines than other crude oils.

"There's nothing extraordinary about pipeline shipments of diluted bitumen to make them more likely than other crude oils to cause releases," said Mark Barteau, a chemical engineering professor at the University of Michigan. Barteau is the chairman of the committee that wrote the report, which confirmed earlier reports sponsored by industry.

The report reviewed pipeline leak statistics and consulted experts on pipeline failure mechanisms, and solicited comments from the public. The NRS is part of the National Academies, a group of private non-profit institutions that advise government on science, technology and health policy.

While the report might not put to rest debate over the safety and impact of importing more Canadian crude, it added to growing signs President Barack Obama is likely to finally approve construction of the line after a more than four year wait that has frustrated Canadian politicians and operator TransCanada Corp.

"I think it's harder to come up with reasons not to approve it than to approve it," said Sarah Emerson, director at Energy Security Analysis Inc in Boston. "Most people in the industry expect it to be a foregone conclusion."

Separately on Tuesday, Obama unveiled his most extensive initiatives yet aimed at combating climate change.

He offered no new insight on the outlook for Keystone XL, saying only that it must not "significantly exacerbate the problem of carbon pollution." He essentially repeated the findings of a preliminary State Department report in March that said the construction of Keystone would not drive more development of Canada's oil sands.

MUCH CRITICIZED

TransCanada Corp's Keystone XL pipeline, which would carry up to 830,000 barrels per day of Canadian and domestic oil to refineries along the U.S. Gulf Coast, was first proposed in 2008, but approval has been delayed several times due to a groundswell of criticism.

Tuesday's NRC report found no physical or chemical properties outside the range of other crude oils and no evidence that pipeline operators manage their systems any differently when transporting diluted bitumen, compared with other heavy crude, such as that from Mexico.

An analyst said the report likely obviates one of the objections to the pipeline, but stopped short of saying it was now more likely the Obama administration would ultimately approve the project. The main opposition to the Keystone pipeline has centered on carbon emissions from the energy intensive production of oil sands.

"No matter what the administration decides on Keystone they are going to be in for a lot of criticism," said Adele Morris, policy director of the climate and energy economics program at the Brookings Institution.

The State Department is reviewing more than 1 million public comments on a review of the Keystone pipeline before it issues a final environmental assessment of the project.

After the final report is issued, the State Department will determine whether Keystone is in the national interest, taking into account its impact on the economy. A final decision by the Obama administration is expected later this year or early next.

Industry groups said the report could push forward other projects as well.

"Clearly it will help ... not just Keystone, but any further pipeline expansions," said Greg Stringham, vice president of the Canadian Association of Petroleum Producers, which lobbies for the country's biggest oil companies.

TransCanada Corp shares closed nearly 1 percent higher at $45.20 on Tuesday.

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