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Page added on March 15, 2017
Three Reasons Why Keystone XL May Never Get Built
Almost a full decade since first applying for a presidential permit, TransCanada looks set to finally receive go-ahead in the U.S. for its massive $8-billion Keystone XL pipeline.
But here’s the thing: U.S. approval, while a great leap forward for TransCanada, doesn’t guarantee the Keystone XL pipeline will ever be built.
New U.S. President Donald Trump was elected with the explicit promise to get the 830,000 barrel per day pipeline from Alberta to Nebraska built, under the conditions that the U.S. would receive a “big, big chunk of the profits, or even ownership rights” and it would be built with American steel; his administration has already flip-flopped on the latter pledge.
On January 24, 2017, Trump signed an executive order, inviting TransCanada to reapply for a presidential permit, which the company did two days later. It’s now in the hands of the State Department, which has to issue a verdict by the end of March.
Sounds like a slam dunk, right? Not so fast. Here are three key reasons why.
1) Economics
Even Enbridge CEO Al Monaco recently stated that Canada only needs two more export pipelines.
“If you look at the supply profile and you look at our expansion replacement capacity for Line 3 and one other pipeline, that should suffice based on the current supply outlook, out to at least mid-next decade,” Monaco said on a fourth quarter earnings call last week.
Wood Mackenzie analyst Mark Oberstoetter seconded that: “There’s not an evident need to get three or four pipelines built.”
Add to that the rapidly declining long-term prospects in the oilsands.
Those include Exxon’s writing off of 3.5 billion barrels in bitumen reserves, ConocoPhillips’ cutting of 1.2 billion barrels in reserves and Shell’s forecasting of global peak oil demand in 2021.
Just last week, Shell sold off almost all of its oilsands assets to Canadian Natural Resources Limited. This follows divestitures by Statoil and Total SA in recent years.
“There will be no more greenfield projects if the price of oil stays at what it is,” says David Hughes, expert on unconventional fuels and former scientist at the Geological Survey of Canada.
Hughes adds that Western Canadian Select already sells at a discount of around $15/barrel due to transportation and quality discounts.
Pipeline companies thrive on long-term contracts with producers, with lower rates for longer terms (such as 10 or 20 years).
Such contracts are huge financial gambles, especially given uncertainty about oil prices. In a low oil price scenario, oilsands take a hit because of the high cost of production.
“The economic case is not there for the three pipelines,” says Amin Asadollahi, lead on climate change mitigation for North America at the International Institute for Sustainable Development. “And should the massive expansion happen, I don’t think the financial benefits for the sector … would be there.”
2) Landowners
We’ve already seen what lawsuits and protests can do to proposed oil pipelines, including crippling Enbridge’s Northern Gateway and seriously delaying Energy Transfer Partner’s Dakota Access Pipeline.
Same goes for Keystone XL. Lawsuits have plagued the company for years. In 2015, over 100 Nebraska landowners sued TransCanada over the proposed use of eminent domain; the company eventually withdrew from the case and its plans for eminent domain, but it appears such conflicts will reignite with the federal approval. Landowners have already started to meet to plot out how to resist the pipeline.
TransCanada requires a permit from Nebraska in order to proceed. Last week, two-thirds of Nebraska’s senators signed a letter petitioning the state’s Public Service Commission to okay the proposed route; the original route was altered in April 2012 due to public opposition.
Keith Stewart, climate and energy campaigner at Greenpeace Canada, says: “They’ll probably get the federal approval, but state-level and other legal challenges will go ahead to try to stop it.”
Adam Scott of Oil Change International notes that he expects a lot of resistance to the Keystone project on the ground in Nebraska, especially given that the project still doesn’t have a legal route through the state.
There’s also growing resistance from Indigenous people, especially in the wake of Standing Rock. Thousands of Indigenous people recently gathered in Washington, D.C. for a four-day protest against the Dakota Access Pipeline.
In 2014, the Cowboy Indian Alliance united potentially affected farmers and Indigenous people to protest against the Keystone XL project. The recently signed continent-wide Treaty Alliance Against Tar Sands Expansion specifically identified Keystone XL as a proposed pipeline to be stopped.
3) Environment and climate
Then there’s the fight north of the border over greenhouse gas emissions and climate obligations.
The Canadian government’s approvals of Kinder Morgan’s Trans Mountain and Enbridge’s Line 3 added a bit over one million barrels per day in potential capacity to the oilsands network.
Unless there are significant breakthroughs in technology to cut per-barrel emissions, those two pipelines alone will allow for oilsands production and associated greenhouse gases to hit Alberta’s 100 megatonne (Mt) cap; Stewart says companies have been talking about the possibility of emissions-cutting technologies such as solvents since 2007, but they still haven’t materialized in a commercial setting.
Unconventional fuels expert David Hughes has calculated that if the 100 Mt cap is reached and a single LNG export terminal is built, Canada will need to cut non-oil and gas emissions by 47 per cent cut in order to meet the 2030 target, which will be impossible “barring an economic collapse.”
Adding an additional 830,000 bpd of export potential via the Keystone XL — allowing for the kind of expansion hoped for by the National Energy Board and Canadian Association of Petroleum Producers — could result in the breaching of Alberta’s emissions cap and the country’s climate targets.
Stewart points to Chevron’s recent submission to the Securities and Exchange Commission, which acknowledged the increasing likelihood of climate-related litigation as a related sign of looming danger for companies.
It’s a rapidly growing trend. Climate-based litigations are grounding fossil fuel projects around the world. A lawsuit based on constitutional rights to a healthy environment filed on behalf of 21 children during the Obama administration threatens to bring a similar precedent to the U.S.
“We’re actually looking at a variety of ways to put pressure — including possible legal challenges — on companies that are basing their business model on the failure of the Paris Agreement,” Stewart says. “If you’re telling your investors, ‘We’ll make money because the world will not act on climate change’ are you actually engaging politically to try to produce that outcome? Are you lobbying against climate policy?’ ”
9 Comments on "Three Reasons Why Keystone XL May Never Get Built"
rockman on Wed, 15th Mar 2017 4:17 pm
I wonder if they intentionally ignored a critical component that was used to justify the original investment KXLPL.: hauling Bakken oil. But looking at the map that seems impossible:
http://www.keystone-xl.com/kxl-101/maps/
KXLPL wouldn’t run thru the Bakken region. But look at the brown pipeline…the Keystone Pipeline. It runs right thru the Bakken play. But there’s a problem: KPL is full of Canadian oil sands production being transported under long term contracts. Thus hundreds of thousands of railroad tankers will have to carry the Bakken oil to market. A more dangerous process then pipelining oil.
But if the KXLPL were built it could haul oil sands production more economically then the KPL given the shorter length. And using KXLPL would open up capacity on the KPL. Which is why no one could justify building a pipeline from N Dakota to haul the Bakken: not enough production to justify two pipelines…KPL and a second pipeline we’ll call DAPL.
Yes: the economic justification for building the new Dakota Access Pipe Line was the lack of the KXLPL. Look at the route of DAPL:
https://natgeoeducationblog.files.wordpress.com/2016/09/bakken_pipeline_map.jpg
Look at both linked maps: the DAPL and the KPL actually cross each other in S Dakota. IOW had the KXLPL been built the DAPL would not have been built since the Bakken oil could have been hauled by then available capacity of the KPL. Essentially the two lines parallel each other thru the Dakotas..
But why build DAPL to Illinois if the goal is to get the Bakken oil to Gulf coast refineries? Well, oddly enough, for the same reason: the KXLPL not being built. What??? OK, gotta look at another map:
https://insideclimatenews.org/news/20120430/exclusive-map-tar-sands-pipeline-boom
Look at the green pipeline…the Alberta Clipper. Since it was already built across the border no permit was required for a new line here. But the Obama administration did give a permit to expand its capacity. But how does that get more oil sands production to the Texas. Now look at the Flanagan South Pipe Line. It was built to haul the additional oil coming thru the ACPL. What isn’t shown is Pipe Line 61 (?) that connects the ACPL to the FSPL. And guess what helped justify building the FSPL? The DAPL will connect up with it. Otherwise why the hell would anyone build a pipeline from N Dakota to Illinois? They want to get that oil to Texas. LOL. The Canadians were getting heavily discounted by the Midwest refineries as a result of the chokepoint at Cushing, OK.
Bottom line: with hundreds of $billions at stake it was ridiculous for anyone to think methods of getting Canadian to more lucrative export markets would not be developed. With the completion of the DAPL and the effects of lower oil prices on Canadian oil development I estimate there’s at least 10% excess pipeline capacity (and as much as 20%)today which will likely grow as new oil sands projects stall and existing ones deplete.
Again I suspect there are “politically correct” reasons to point out that the “KXLPL” has actually been built and will allow more profitable export of the oil sands to US refineries. It just exists in a different place and is called the KPL. BTW KXL began hauling oil during President Obama’s term.
BTW none of these sneaky backdoor maneuvers were done secretly: everything was posted somewhere on line if anyone bothered to study the situation instead of just reading the MSM headlines. Which is what the Rockman did and which allowed him to predict more then two years ago exactly what has happened. Some may recall the continuous debate the Rockman had with our buddy Graham back then. He was adamant that the lack of the KXLPL border crossing permit was a great success story for the environment. He might want to ask the Standing Rock tribe what they think of this success that resulted in the DAPL being built. Or the folks who saw their property taken under eminent domain to build the FSPL. He might also how Greenpeace et al feel about all the efforts to max the import of oil sands production to the US including President Obama’s public support of the southern leg of they Keystone Pipeline system. An expansion that eliminated the primary roadblock of the Canadian imports…Cushing, OK. It’s this section of pipeline along with the Seaway pipelines that will allow all the oil carried by the DAPL, ACPL, FSPL, KPL, PL6, etc. to reach Texas refineries.
penury on Wed, 15th Mar 2017 4:18 pm
4, How about “not needed, will not be econemically viable.
Bloomer on Wed, 15th Mar 2017 9:19 pm
It will get build and its going to be beautiful. A great pipeline build by great people.
makati1 on Wed, 15th Mar 2017 9:44 pm
Bloomer, deep into the oily bullshit aren’t you? Career? Investments? Can’t be common sense. I hope it never sees a drop of oil.
Sissyfuss on Thu, 16th Mar 2017 12:24 am
I think Bloomers was channeling Herr Meister Trump, Mak.
tita on Thu, 16th Mar 2017 1:23 am
In short, it won’t be build because it was already built through other pipelines projects that satisfied the needs of the KXLPL project.
KXLPL is just a red herring for MSM and some environmentalists.
rockman on Thu, 16th Mar 2017 9:04 am
tita – “KXLPL is just a red herring for MSM and some environmentalists”. I’ve long suspected that part of the reason Graham left us was his inability to maintain such red herrings in the face of the growing facts. As noted you hear nothing about the great “success” of the greenies “beating the KXLPL to death” nor halting the production of the “dirtiest oil on the planet” compared what was being reported by the MSM a few years ago.
IOW $50/bbl oil did more then the combined efforts of the entire environmental movement. Which isn’t to say many of those positions weren’t justified. But it does highlight exactly who the greenies real “enemy” is. And it’s not the oil companies, the pipeline companies, the refineries, etc. It is the fossil fuel consuming public. It was their unwillingness/inability to continue paying record high oil prices that is stalling new oil production as well as many infrastructure projects such as pipelines. Consider the possibility: had prices fallen sooner the DAPL might not have been built.
And this dynamic also proves that as the public increases the price of oil it will pay such developments will begin ramping up. Of course, until that time, look for the greenies trying to take credit for delays. We would be hearing more BS like that today had not the low prices pushed producers to increase the global rate to max their revenue. IOW, at least in the short term, instead of the lower oil price decreasing GHG production it actually brought about an increase.
That damn POD thingy again. LOL
Nony on Thu, 16th Mar 2017 7:53 pm
If it doesn’t make technical or business sense to put the pipeline in, then why does someone want to do it? Maybe they have looked at it a little closer than small timer semi retired production managers at niche Houston drillers.
Also, if it doesn’t make economic sense, why are you greenies so up in arms over it. No danger. won’t carry any oil.
Scott on Wed, 29th Mar 2017 1:06 pm
KXL won’t be built due to changing economics.
The problem is that at current oil prices Canadian oil sands are too expensive. The break-even point for oil sands is $45-70 dollars depending on the type of extraction. Shale oil is generally in the money at $40-50 and costs are expected to decline further. So, shale oil being cheaper, why buy stuff from Canada? The only reason is that most of our refineries are designed to handle heavier crude oil like that produced by Canada. So, the question will be, is it cheaper to reconfigure a refinery vs. build a pipeline and pay more for suitable crude oil?
Time will tell. However, it is notable that three major oil companies have written off their oil sand investments and one has sold its entire holdings. Oil companies don’t typically do that if they expect to be increasing production and making money.
I would also note that many very smart people are predicting global peak oil demand to occur around 2020 – meaning the world simply won’t need as much oil. China has a goal to put 1 million electric vehicles on the road and BNEF forecasts that 1 in 4 vehicles sold in 2030 will be electric. Layer on top of all of this the fact that Alberta now has a carbon tax, and the US is looking at a border adjustment tax of 20%, that will further erode the economics of the project