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Five takeaways from State Department’s review of the Keystone XL pipeline

The State Department has finished its massive environmental review of the controversial Keystone XL pipeline, which would carry oil from the tar sands of Alberta, Canada, down to Steele City, Nebraska, where it would move on to refineries on the Gulf Coast.

(The Washington Post)

Bottom line: The report concludes that blocking or approving the northern leg of the Keystone XL pipeline would not have a "significant" impact on overall greenhouse-gas emissions and future tar-sands expansion. That's because, it argues, most of Alberta's oil will likely find a way to get to the market anyway — if not by pipeline, then by rail.

More specifically: The 830,000 barrels of oil that the pipeline would transport each day would add an extra 1.3 million to 27.4 million metric tons of carbon dioxide to the atmosphere each year. That's a whole lot of carbon — it's like putting an extra 250,000 to 5.5 million cars on the road. But the key question is how much of that oil would get burned anyway, even if the pipeline is blocked. And the State Department believes most of it will get produced regardless.

"Approval or denial of any one crude oil transport project, including the proposed [Keystone XL pipeline], remains unlikely to significantly impact the rate of extraction in the oil sands, or the continued demand for heavy crude oil at refineries in the U.S.," the report says.

Now, this report is not the final okay for TransCanada's $5.4 billion pipeline. Think of it as the beginning of a new lobbying blitz. The State Department will allow a 30-day comment period. And other federal agencies have 90 days to weigh in with their own considerations. Then President Obama will have to determine whether the pipeline is in America's national interest. (The federal government gets a say here because the pipeline crosses international borders.)

But today's report is a major step in the process. Here are five key takeaways:

1) Oil from Alberta's tar sands produces 17 percent more greenhouse-gas emissions over its life-cycle than regular oil. Crude from Alberta’s oil sands is heavier, more viscous, and contains more impurities than other types of oil. So it takes more energy to extract and process.

When you consider that entire life cycle — from extracting the stuff out of the ground to burning it in your tank — then using oil from tar sands leads to 17 percent more greenhouse-gas emissions than using the average barrel of oil refined in the United States. (Although tar sands oil is only 2 to 10 percent dirtier than the heavy crude oil used in many Gulf Coast refineries, which is what it would mainly displace.)

Opponents of the pipeline have long argued that producing tar sands oil would increase overall greenhouse-gas emissions and worsen global warming. And these numbers do back them up. The harder question, however, is whether the Keystone XL pipeline itself is crucial to that production. Which brings us to...

2) The State Department thinks blocking the Keystone XL pipeline would have only a small impact on tar-sands production and climate change. So what happens if Keystone XL gets blocked? Here the State Department seems pretty confident that the oil will find its way to market anyway — especially by rail.

"While short-term physical transportation constraints introduce uncertainty to industry outlooks over the next decade, new data and analysis... indicate that rail will likely be able to accommodate new production if new pipelines are delayed or not constructed," the report's says. (Note that analysts at the EPA have been skeptical of this argument.)

Some caveats in that analysis: If lots of pipelines besides Keystone XL get blocked, Canadian oil production could well fall. Likewise, if the price of oil drops between $65 and $75 per barrel, then the marginally higher cost of rail shipping could make some tar-sands oil unprofitable and force producers to leave it in the ground. (And if the price drops below $65, then a very large swath of tar sands production will be unprofitable, pipeline or no.) But these scenarios are deemed less probable.

3) Transporting oil by rail carries more environmental risks than by pipeline. The report adds that, if the pipeline gets blocked and producers are forced to ship by rail or truck instead, overall transportation emissions for the oil in question could even increase by 28 to 42 percent (see p. 34 here)That's because there would be more trains and trucks burning diesel fuel and more rail terminals using electricity.

The report also concludes that shipping oil by rail instead of via pipeline would likely result in additional accidents. Some of the rail routes studied by the State Department could result in three to eight times the volume of oil spilled, according to the models.

4) A pipeline spill is "unlikely" to harm the key Ogallala Aquifer. The Ogallala Aquifer in the Midwest is one of the key freshwater sources for the Great Plains. So there's plenty of justifiable worry about running the Keystone pipeline through this area, given the potential for leaks.

The report suggests that pipeline spills are inevitable, particularly smaller ones (it estimates the Keystone XL pipeline will leak an average of 518 barrels of oil per year). That's despite the fact that TransCanada is putting monitoring systems and other leak-prevention technology in place.

But the State Department's report thinks that even if a spill did happen near the Ogallala, the impact would be relatively limited: "Modeling indicates that aquifer characteristics would inhibit the spread of released oil, and impacts from a release on water quality would be limited." On the flip side, there are some 39 smaller public wells along the pipeline's route that could potentially be affected by spills.

5) The Keystone XL project, if built, would support 42,000 jobs over its two-year construction period. The report notes that building the pipeline would support approximately 42,100 direct and indirect jobs and contribute roughly $3.4 billion to the economy (that's about 0.02 percent of GDP).

About 3,900 of those jobs would be temporary construction jobs. After two years, once built, the pipeline would support 50 jobs.

Further reading:

--Many press accounts have implied that the State Department review just gave the Keystone XL pipeline better odds of approval. But the White House has said that it is still weighing the various impacts and hasn't made a final decision yet.

--Environmental groups have also argued that the contractor conducting the environmental review for the State Department has conflicts of interest and is biased towards TransCanada, which is building the pipeline. The agency's inspector general has yet to issue its report on this question.

--Note that the southern leg of Keystone, which stretches from Nebraska down to Texas and the Gulf Coast, is about to start shipping crude. The big remaining question here is this northern leg that crosses the U.S.-Canadian border.

--Here's a good in-depth piece by the New Yorker's Ryan Lizza on President Obama and the Keystone Pipeline.



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Zachary A. Goldfarb · January 31, 2014

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