-- Robert Campbell is a Reuters market analyst. The views
expressed are his own. --
By Robert Campbell
NEW YORK Nov 10 Despite what you may think,
the delay or even cancellation of the Keystone XL pipeline
project from Canada to the United States does not ensure that
China will become the go-to customer for Canada's vast oil
U.S. President Barack Obama has opted to avoid a tough
decision by allowing the government to take more time to study
changes to the proposed Keystone XL route to avoid
environmentally sensitive areas.
But any delays could kill the project if customers grow
impatient and seek release from their binding shipping
commitments or if the cost of the line goes up substantially.
Doubtless this theme will be dredged up by Keystone's
backer, TransCanada and other oil industry lobbyists
in Washington with an eye to fanning Americans' fears about
oil supply security should the Obama Administration opt for
further study of fresh routes for the pipeline.
But the simple fact is that this claim is at best a huge
exaggeration. If anything a pipeline from Alberta across
the mountainous province of British Colombia is likely to face
more scrutiny from environmental groups than Keystone XL.
Aboriginal groups in Canada whose lands lie across the
route have already signaled their opposition. One only has to
look at the saga of the as yet unbuilt Mackenzie Valley natural
gas pipeline to get an idea of the sort of delays that
aboriginal opposition can help to create in the Canadian
pipeline regulatory process.
But even if a new pipeline to the Pacific Coast is built
--Enbridge does not expect its latest proposal, the
500,000 barrels per day Northern Gateway pipeline, to enter
service until 2016 at the earliest.
And 500,000 bpd, while impressive, would be less than a
fifth of projected Western Canadian oil output.
Moreover, that line will not even be needed. The combined
processing capacity of Western Canada's oil refineries and
existing major export pipelines from the region will exceed oil
production forecasts until sometime early in the next decade,
according to the Canadian Association of Petroleum Producers.
So it is not the case that Canadian output will be shut
down any time soon if Keystone XL dies on a bureaucratic
The issue will remain the same as it is today: a shortage
of transportation capacity in the northern U.S. Midwest that
makes it hard to get oil from that part of the country to other
centers of demand.
Some of this could be solved by Enbridge's 400,000 bpd
Flanagan South Pipeline, that would boost take-away capacity
from the Chicago region to Cushing.
Combined with now-unused space on the nearby Spearhead
pipeline, some 450,000 bpd extra will be moved out of Chicago
to Cushing by the middle of the decade at the latest, assuming
Enbridge is successful in securing customer commitments.
Combined with the 800,000 bpd Wrangler line, it would
likely be enough in the medium term to prevent a massive
imbalance in the region.
Of course what Keystone XL would have provide would be up
to 700,000 bpd in capacity that would bypass the Midwest and
alleviate a number of bottlenecks.
But given the relatively short time to build pipelines,
there is still plenty of time for alternative solutions to come
to fruition should Keystone XL die.
The major bottleneck at Cushing has already shown the
appetite of North American pipeline companies to find a
Mothballed proposals to expand Chicago-to-Cushing capacity,
such as BP's ill-fated plan to reverse its No. 1 pipeline would
be easy to resurrect, for instance.
The larger issue is whether or not the delay and possible
defeat of the proposal represents a turning point for the
environmental movement in its fight against oil sands taking a
greater share of the U.S. oil market.