“This is oil that’s Canadian oil, the dirtiest and the way that it’s bought, extracted, causes incredible damage to the environment–and it’s for the international community. The interesting point is that Canada doesn’t want to transport it through Canada. They want to transport it through the United States, which obviously makes no sense.”
–Sen. Ben Cardin (D-Md.), interview on MSNBC, Jan. 6, 2015
Earlier this week, we took a look at frequent Republican claims that the Keystone XL pipeline will create 42,000 “new” jobs. (Not really.) Now let’s examine the Democratic side of the argument—that the pipeline will hurt the environment and the oil it carries will simply be sent overseas.
The key document in the Keystone debate is the State Department voluminous final environmental assessment, released in January of 2014. Both sides like to cherry-pick parts of the report that support their position. For instance, Democrats love to cite the fact that State concluded the pipeline would result in 35 permanent jobs, which is a very minor aspect of the report. But they ignore the bottom line conclusion of the State Department analysis—the environment impact would be minimal because “the proposed project is unlikely to significantly affect the rate of extraction in oil sands areas.”
So let’s look at Cardin’s main points.
Even the nomenclature of the material under discussion is in dispute, with the State Department using an industry term, “oil sands,” and foes calling it “tar sands.” Basically it is a hard material known as bitumen, mixed in with sand and clay, which must be extracted, often through open-pit mining, and then refined into crude. (This Pennsylvania State University Web page explains the process; it takes about two tons of oil sands and some barrels of water to yield one barrel of oil.)
That’s difficult work which results in more greenhouse gas emissions than other transportation fuels, on average. The State Department pegged it at 17 percent difference over the life of the fuel (ie, “well-to-wheels”); the Congressional Research Service looked at a range of scientific studies and concluded it was between 14 to 20 percent. (Opponents often cite a much higher figure that looks only at the difference of getting the fuel to the tank.)
Cardin’s staff pointed to news articles and reports by environmental think tanks to make the case that oil sands extraction is harmful to the environment–and that there are potential concerns about the building of the pipeline itself. But the key question before Congress is whether the Keystone pipeline would make a difference in Canada’s extraction of oil sands; the Department concluded it would not.
Indeed, while the pipeline project has been stalled, the Canadian crude increasingly has been shipped by rail. In the second quarter of 2014, crude exports by rail were approximately 163,000 barrels a day, more than 10 times the level in the first quarter of 2012. (By reference, a supertanker holds about 2 million barrels.)
Now, to be fair, the State Department anticipated market conditions of at least $75 a barrel; the price of oil recently dropped below $50 a barrel. Under the State Department calculations, it would cost $10 a barrel to move the crude on the pipeline, compared to $15 per barrel by using tanker cars.
That does not sound like much of a gap, but the State Department said prices below $65 “would challenge the supply costs of many projects, regardless of pipeline constraints, but higher transport costs could further curtail production.” State also said that “higher transportation costs could have a substantial impact on oil sands production levels—possibly in excess of the capacity of the proposed project.”
Those sentences may sound contradictory, but essentially higher transportation costs, when crude prices are below $50 a barrel, would result in oil being left in the ground. But the pipeline would lower transportation costs for the companies that bid for the pipeline space, so some producers would take advantage of that and possibly expand production. Even if production levels remain the same, the industry would consider the pipeline a worthwhile project because it would siphon oil away from more expensive railroads.
It is worth recalling that when the Keystone pipeline was first in its infancy, oil prices were as low as $40 or so a barrel. So one cannot focus too much on gyrations in the oil markets.
The State Department noted that “the dominant drivers of oil sands development are more global than any single infrastructural project” and so “the potential effects of those factors on the industry’s rate of expansion should not be conflated with the more limited effects of individual pipelines.” In other words, the oil industry takes a long view, over 30 to 40 years, and one should not overemphasize the impact of a single project.
‘It’s for the international community’
Foes of the pipeline frequently suggest that Canada should build its own pipelines, rather than traverse the United States, which Cardin said “makes no sense.” He further said the oil was “for the international community.”
Yet two Canadian pipeline projects have been proposed to carry crude to the Pacific, for shipment mostly to Asia, while TransCanada, the backer of Keystone, is seeking approval for a $12-billion pipeline to New Brunswick, for exports to Europe. Cardin’s comment at first appeared to suggest there were no such proposals.
Cardin spokeswoman Sue Walitsky said that Cardin was referring to growing Canadian domestic opposition to these proposals, especially over environmental concerns, not that there were no pipeline projects on the books. That opposition has raised questions about whether the alternative routes are viable.
“Senator Cardin understands that there are other pipelines out there under consideration,” she said. “To him, it makes no sense that the United States would take such risks for 50 permanent jobs and a final product that, for the most part, won’t stay in our country.”
We’ve previously fact checked President Obama’s claim that the pipeline was designed to take Canadian crude oil to the world markets. The president earned Three Pinocchios for suggesting that all of the Canadian crude would be exported. First of all, most of the oil would almost certainly stop on the Gulf Coast to be refined into products. On top of that, current trends suggest that only about half of that refined product would be exported.
Cardin falls into the same trap, claiming that it “makes no sense” to have the oil traverse the United States if it is for “the international community.”
But the fact remains the reason for the pipeline is because it is taking the crude oil to the refiners on the Gulf Coast, where it would be refined into products such as motor gasoline and diesel fuel. The State Department report disputed claims that the oil “would pass through the United States and be loaded onto vessels for ultimate sale in markets such as Asia,” saying it was not economically justified. The State Department noted that the traditional sources of crude for the Gulf Coast, such as Mexico and Venezuela, are declining, and so refineries would have “significant incentive to obtain heavy crude from the oil sands.”
Obviously, market conditions could change—there are currently about 200,000 barrels a day of unrefined crude exports from the Gulf Coast—but U.S. refineries are now the key destination for the Keystone pipeline.
We should note that The Fact Checker has previously assessed two major claims by Keystone backers–that the pipeline would lower oil prices and that it would enhance the U.S. domestic oil supply–and found both assertions worthy of Pinocchios.
The Pinocchio Test
Just as Republicans oversell Keystone as a jobs project, Democrats oversell the environmental impact of the Keystone project—as well as mislead on the destination of the crude.
Oil sands extraction certainly has higher levels of greenhouse emissions than other sources of crude, but the State Department concluded the impact of building the pipeline would be minimal; the material is going to be extracted anyway. Critics of the project say the State Department report is already outdated, given the decrease in oil prices, but the impact on production remains unclear. While the pipeline might offer some cost advantage over rail, if the price of oil keeps dropping, the incentive to mine oil sands will diminish as well.
Meanwhile, it is misleading to suggest that Keystone would only be a conveyor belt for crude that would be shipped around the world.
Overall, Cardin earns Two Pinocchios.
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