March 4, 2013 / 3:11 PM / 5 years ago

COLUMN-Keystone XL oil pipe circus set to drag into 2016: Campbell

By Robert Campbell
    NEW YORK, March 4 (Reuters) - The glacial pace of the U.S.
government's review of the Keystone XL pipeline has advanced
making the pipeline more likely but the slow pace of the process
means a startup before 2016 looks impossible.
    That's bad news for Alberta oil producers, who will probably
find themselves fighting for pipeline space by then if current
projections for production growth are correct.
    It's also hardly great news for the environmental lobby. At
best what has been won is a Pyrrhic victory. Keystone XL has
been successfully delayed for years but not stopped. Meanwhile,
oil sands crude flows unimpeded through other pipelines in
ever-growing volumes and is set to take to the rails, an
inherently more dangerous and more polluting way to move oil
about the North American continent.
    So far backer TransCanada is keeping quiet about
timetables. But clearly, a company that has seen the completion
date for this project slip from 2012 to 2015 and now likely
later must be frustrated.
    The root of the problem lies in President Barack Obama's
desire to have it both ways on climate change policy. He wants
to do something to drag America forward on tackling this issue.
But he is unwilling to force a dramatic change in policy when it
comes to oil consumption. He is ready to gradually regulate coal
out of existence through myriad of new rules but he will not
take a stand to put climate change at the heart of all
regulatory decisions.
    This is why Keystone XL has been bogged down. Obama,
ultimately, is unwilling to embrace the lifecycle approach to
climate change regulation on oil and gas that the environmental
lobby wants.
    Thus the State Department seeks to weigh the merits of
Keystone XL as a pipeline: it can be expected to cause a certain
amount of pollution but any spill along its route would be an
acceptable risk and the alternative means of moving oil, such as
rail, not only emit more greenhouse gases but are more risky.
    The opponents of Keystone XL would probably concede all
these points but want a bigger picture review of the pipeline as
an "enabler" of oil sands production. By approving the pipeline
does the U.S. allow oil sands development to proceed? 
    An analogy might be a railway line to a coal mine. The rail
link itself could pose no significant threat to the environment
but by making coal production possible it becomes something
    Obama has been helped in avoiding a firm stance on this
issue by the fact that Keystone XL has simply not caught on with
the electorate. Despite the ludicrous suggestions of some
backers that it would somehow overturn the laws of the market
and lower Americans' fuel prices, voters simply have not got
fired up to see Keystone built.
    Yet should it ever see the light of day, Keystone XL now on
track to match or surpass the Trans-Alaska pipeline, a far more
challenging project both in terms of environmental risk as well
as engineering, for the slowest pace in pipeline construction.
    Under the current timetable a final U.S. government decision
on Keystone XL is unlikely until the fourth quarter of this
year. That means no shovels in the ground until 2014 and a slim
chance the line goes into service before 2016.
    And, of course, the foregoing assumes there are no legal
battles. The Trans-Alaska pipeline was delayed for three years
by court battles, which only ended with the 1973 Arab Oil
Embargo that prompted Congress to give legal sanction to the
pipeline route. 
    Keystone XL has not even got to the point where its
opponents might challenge the pipeline in court. Indeed, all it
would take for Keystone XL to be further delayed would be a
sympathetic judge granting an injunction against construction
pending judicial review of the State Department's decision.
    In the meantime Canadian oil producers may be forced to
scale back their expansion plans. With the latest forecasts for
Western Canadian oil output still penciling in 150,000 to
200,000 barrels per day of annual increases in output, pipeline
constraints will become a significant problem.
    Here Canada will pay the price for complacently assuming the
United States would buy all its oil. For all the bullish bluster
from Canadian politicians they have no "Plan B." Pipelines to
the Pacific and Atlantic Oceans may be feasible but they are a
long way off and unlikely to have the takeaway capacity needed
to provide a meaningful uplift to pricing for Canadian crude
    Even Canadian producers late embrace of rail is unlikely to
be a big help. As late comers to the crude-by-rail party they
are fighting for a place in the market, both for offloading
capacity at the Gulf Coast as well as for tank cars.
    But ultimately that will not stop the oil from getting to
market. Crude oil has a nasty habit of finding its way out of
the most difficult places and getting into consumers' tanks. 
    What it does mean, however, is that a pause in Alberta's oil
sands development looks more likely as well as a more aggressive
approach to marketing.
    As such, even those who care about climate change ought to
be disappointed. The environmental lobby has shot its bolt but
only delayed Keystone. At the same time it has energized those
who would ram through developments without an adequate review. 
    Oil sands crude will continue to flow across the U.S. border
on existing pipelines now being quietly expanded and on
diesel-fueled trains. And a meaningful discussion about the
costs of climate change and how to tackle this issue will be as
far away as ever.

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