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EPA: Cheap oil weakens the case for the Keystone XL pipeline

A depot used to store pipes for Transcanada Corp’s planned Keystone XL oil pipeline is seen in Gascoyne, N.D. (Andrew Cullen/Reuters)

Plummeting oil prices have undermined one of the primary arguments for building the Keystone XL pipeline, the Environmental Protection Agency has told the State Department in a letter that implicitly urges a White House rejection of the controversial project.

The EPA letter to the State Department’s special envoy on the issue also cites new analysis suggesting that the 1,100-mile pipeline would be more harmful to the environment than earlier studies had predicted. The note was released less than a week before the Republican-controlled House is expected to cast a vote that could put the pipeline’s fate squarely in the hands of President Obama.

Earlier analyses by the State Department had suggested that the pipeline would ultimately have little impact on the environment, since the oil extracted from TransCanada Corp.’s Alberta tar-sands mines would likely find its way to refineries and markets, even if it had to be shipped over costlier rail lines. But the recent drop in oil prices changes that calculus, wrote Cynthia Giles, the EPA’s assistant administrator for enforcement and compliance.

[RELATED: The Keystone XL Pipeline and its politics, explained]

If prices stay below $65 to $75 a barrel, Canadian producers won’t be able to sell oil at a profit unless the pipeline is built — and perhaps not even then, the letter said. Brent crude sold for under $54 a barrel in Monday’s oil trading.

“At sustained oil prices within this range, construction of the pipeline is projected to change the economics of oil sands development, and result in increased oil sands production, and the accompanying greenhouse gas emissions, over what would otherwise occur,” Giles said.

The EPA has estimated that extracting oil from tar sands produces 17 percent more greenhouse gases per barrel of oil compared to traditional pumping and drilling operations.

TransCanada disputed the letter’s conclusions, saying the EPA was wrong, both in its estimates of additional emissions from tar-sands oil, and in its attempts to project the company’s response to depressed oil markets.

“The oil that Keystone XL will deliver is getting to market today — that is a fact,” the company statement said.

The letter is the latest in a series of EPA attempts to persuade the State Department to take a harder look at the proposed pipeline, which would deliver oil from Keystone’s Hardisty Terminal across three U.S. states to a distribution facility in Steele City, Neb. In 2010, the agency called State’s draft environmental impact statement “inadequate,” in part because of faulty analysis of potential climate impacts. The State Department, then headed by Secretary of State Hillary Rodham Clinton, agreed to extend its environmental review.

White House officials have said Obama will veto the Keystone bill approved by the Senate last month if it clear the House and makes it to his desk, on the grounds that it interferes with the State Department review process. Opponents of the pipeline argue that the project would create relatively few American jobs in return for the increased environmental risks.

Still, House Republican leaders repeated their vow to bring the measure up for a vote next week.

“We will know if the president will side with American jobs and North American energy security or not,” House Majority Leader Kevin McCarthy (R-Calif.) said. “I hope that the president will look at how Republicans and Democrats worked together to pass this bill and will reconsider his veto threat.”

The EPA’s letter echoed an argument voiced by environmental groups and other Keystone opponents in recent weeks. Tiernan Sittenfeld of the League of Conservation Voters said Tuesday that the agency’s comments show that the pipeline “fails the president’s climate test,” making a veto even more likely.

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