Keystone “Wheel Still in Spin”

February 4, 2014


Climate Science Watch:

The release of the State Department’s Environmental Impact Statement on the proposed Keystone XL tar sands pipeline initiates the final stage in the permitting process: the 90-day National Interest Determination. The multiple reasons to oppose granting a construction permit include an overriding national interest in forestalling the development of a major new fossil fuel source that will exacerbate global climatic disruption and undermine the transformation of the energy system to decarbonized sources.

The Final Supplemental Environmental Impact Statement (SEIS) on the KXL project remains essentially unchanged from the earlier Draft SEIS in contending that the pipeline would not significantly alter total global emissions of greenhouse gases. The SEIS concludes that, with or without the KXL pipeline, the Canadian tar sands will be extracted and transported to market. Jeffrey Sachs, director of the Earth Institute at Columbia University, notes (Keystone: The Pipeline to Disaster) “the tragic, indeed fatal, flaw of the State Department review”:

The urgent planetary need is clear. The world has to wean itself from fossil fuel dependence in the coming 20-40 years. We simply can’t go on drilling, excavating, and burning every ton of coal, oil, and gas the fossil fuel industry finds. If we do so, the basic “carbon arithmetic” of CO2 buildup spells disaster. …

Using climate science, it is possible to calculate the tolerable limits on total future fossil fuel use. The basic idea is the need for the world to adhere to a “carbon budget,” meaning the total amount of fossil fuels that can be burned while avoiding global warming by more than 2-degrees C.

The State Department Environmental Impact Statement doesn’t even ask the right question: How do the unconventional Canadian oil sands fit or not fit within the overall carbon budget? Instead, the State Department simply assumes, without any irony or evident self-awareness, that the oil sands will be developed and used one way or another. For the State Department, the main issue therefore seems to be whether the oil will be shipped by pipeline or by rail. The State Department doesn’t even raise the possibility that the pipeline should be stopped in order to keep a lid on the total amount of unconventional fossil fuels burned around the world.

So now we come to the battle over the National Interest Determination. The SEIS is a big step in the process, but in releasing it, the State Department stressed that the wheel is still in spin on a final decision on the permit. The Washington Post reported:

[State Department] officials cautioned that they are still weighing whether the project would meet the test of President Obama’s broader climate strategy.

The report “is not a decision document,” said Kerri-Ann Jones, assistant secretary of state for oceans and international environmental and scientific affairs. “This document is only one factor that will be coming into the review process for this permit” sought by TransCanada, an energy giant based in Calgary, Alberta. …

Jones, the State Department official, said the report “presents considerable analysis, but it does not answer the broader question about how a decision on the proposed project would fit into the broader national and international efforts to address climate change or other questions of foreign policy or energy security.”

She added that the study relied on assumptions about pipeline capacity, oil prices and transportation and development costs that were “uncertain and changeable.” …

“Secretary Kerry is just really beginning his involvement in this process,” Jones said. “There is no timeline for his deliberations.”

The State Department website for the Keystone XL project outlines this procedure:

The Presidential Permit review process now focuses on whether the proposed Project serves the national interest, which involves consideration of many factors including: energy security; environmental, cultural, and economic impacts; foreign policy; and compliance with relevant federal regulations and issues. During this time, the Department will consult with, at least, the eight agencies identified in Executive Order 13337: the Departments of Defense, Justice, Interior, Commerce, Transportation, Energy, Homeland Security, and the Environmental Protection Agency.

A 30-day public comment period begins on February 5, 2014 and will close on March 7, 2014. During this period, members of the public and other interested parties are encouraged to submit comments on the national interest determination to

Natural Resources Defense Council:

In a departure from all of its previous environmental reviews, State recognized there are conditions under which Keystone XL would enable substantial tar sands expansion and associated climate emissions.  According to State, if proposed tar sands pipelines continue to be blocked and oil prices remain relatively low (both real possibilities), the approval of Keystone XL would enable more than 830,000 bpd of tar sands expansion which would bring a major climate impact. According to the State Department, at prices below $75 a barrel, the cheapest tar sands expansion projects will be vulnerable to cancelation without Keystone XL. While the State Department seems to conclude this scenario is unlikely, the facts suggest otherwise:

Lower oil prices are likely

While State believes that the low oil price scenario is unlikely (projecting WTI prices to exceed $105 by 2020), the markets are placing big bets that State is wrong.

The traders at the Chicago Mercantile Exchange (CME), where futures contracts for WTI are bought and sold, believe State’s “low oil price” scenario in likely. The cost of a barrel of WTI shows a consistent decline from its current price of $97.00 a barrel to reach $73.00 by December 2019. The International Energy Agency concurs with future traders, estimating that oil prices will decline by about $20 a barrel over the next five years. These oil prices, which assume c business as usual climate policies, would still put the cheapest tar sands expansion projects in jeopardy making transport by rail unprofitable.

28 Responses to “Keystone “Wheel Still in Spin””

  1. The anti-pipeline activists appear to think that refusing to build the pipeline will stop the development of Alberta tar sands.

    This belief is delusional.  Lots of tar-sands bitumen is already going to market.  Do they seriously think that not building a new pipeline will stop that flow?

    There are already pipelines (such as the one which blew in Marshall, MI a while back).  The bitumen that can’t get pipeline space will move by rail instead.  It’s already being moved by rail, which makes a lot of money for BNSF and its owner, Berkshire Hathaway (in which I own stock).

    I would not be surprised to learn that a lot of the opposition to Keystone XL is being financed by Warren Buffett.  But go ahead, make me more money even though I don’t think you should.  I’m about to start an energy survey to see what the prospects for a district heating system for the regional center of culture and commerce might be.

    • jimbills Says:

      Of course it won’t stop it. Duh. But it’s like running a tap on low or at full. The pipeline is a U.S. subsidy to allow tar sands extraction to expand. Bottom line.

      And the Canadians aren’t going to stop rail shipping if the pipeline is built. They’re going to do both.

      • A pipeline will be built to take most or all of the traffic, so long as it can continue operating as the expected flows decrease over time.  That will get rid of most of the rail transport, if not all of it.

        Rail has been fighting pipelines for ages, esp. coal slurry.  This is a battle in a very old war.

        • jimbills Says:

          No doubt it would drop the amount of rail shipping. But we have already existing pipelines crossing the States all over the place, and rail shipping of oil has never stopped in 100+ years:

          Canada and the northern U.S. have been building up rail infrastructure the past decade. They’re not going to just scrap it if the pipeline is built. They’ll use both, probably for different purposes.

          This one industry vs. the other meme is fine – I agree it exists. But it misses the point. Do more pipelines aid fossil fuel infrastructure and expansion? Do fossil fuels contribute to climate change?

        • markle2k Says:

          The pipeline will allow an increase in production volume, lowering cost, making rail shipment that much more affordable.
          Besides, there are better things they could be doing with the natural gas than using it to boil water to heat up the ground.

    • dumboldguy Says:

      Well, well, well—-E-pot owns stock in Berkshire Hathaway?. And is looking forward to making piles of money like a good greedy capitalist if the bitumen ends up going by rail rather than pipeline? How about some full disclosure, E-Pot? Is it Class A or Class B stock you own? And how many shares do you own?. I will disclose my own holdings in BH right up front. I own zero BH stock.

      What “anti-pipeline activists” seriously “think” (and I am one of them) is that there is a chance that if we can put enough roadblocks in the way of the whole tar sands fiasco, it will perhaps collapse when the economics of it become unsupportable and/or its environmental “unsoundness” becomes more recognized. Just as we hope that the Bakken and fracking bubbles will burst soon (and perhaps leave the BNSF somewhat high and dry?). Of course BH does have a lot of money in coal, so perhaps they will survive. You might want to rethink your “investments” a bit.

      I wonder at the reasoning of someone investing in BH and hoping that the BNSF will transport more tar sands “oil” while at the same time saying “I don’t think you should”. (And why does BH have so little invested in nuclear power?)

      • I knew you’d get your panties in a bunch over that one.  YHBT.  YHL.  HAND.

        I carefully wrote that I own some Berkshire Hathaway.  I didn’t say I bought any, and I haven’t; my ownership does not reflect any personal liking for the company.  For that matter, the purchase pre-dates BH’s acquisition of BNSF.

        We do have a choice in the matter:  we can ship Alberta bitumen to Louisiana and Texas, or the Canadians will ship it to Vancouver.  The Vancouver route goes directly to China, which has shown that it cares not a whit about the global climate.  Routes to the Gulf coast leave us considerable influence.

        • jimbills Says:

          Another bogus pro-industry argument. First off, as you’ve said, the bitumen oil is already being produced, and it is already making its way to the Gulf.

          Secondly, the argument that it’s China or us is deception (a fear tactic to ensure compliance). The tar sands producers have every reason to send their product to every market they can (and like you indicated, they already are). They will continue to do so – pipeline or not.

          The Canadians have consistently refused a Pacific pipeline themselves. Building a pipeline here first would only increase the pressure on the Canadians to build their own Pacific pipeline. So, in all likelihood, both would get done. The same is likely if the reverse situation happens.

          Being the first in this case is just having the honor of being the most craven.

          • First off, as you’ve said, the bitumen oil is already being produced, and it is already making its way to the Gulf.

            It is, but with much greater dangers to the public (spillage and otherwise) than with a pipeline.  (I would not be surprised if light Bakken oil is used to dilute Athabasca bitumen for transport to Venzuelan-heavy-tuned Gulf refineries through the US portion of Keystone XL, which will be built regardless.)

            Secondly, the argument that it’s China or us is deception (a fear tactic to ensure compliance). The tar sands producers have every reason to send their product to every market they can

            Venezuela has every reason to send its heavy crude ditto, but in practice the bulk of it goes to the US Gulf coast because that is where it gets the best net price to Caracas.  Transportation costs matter.  Infrastructure changes transportation costs.

            The Canadians have consistently refused a Pacific pipeline themselves.

            That’s good, then.  They’d rather have closer relations with Washington than Beijing.  I like this.

            So, in all likelihood, both would get done.

            There you are wrong.  Once one (sufficiently large) pipeline was built, there would be no gain to be had by expending the resources to build another unless the price differential at the new export terminal was large enougy to pay off the investment.  There is a first-mover advantage in this case.  Keystone XL will go close to Canada, so a link will be faster to complete than a trans-Rockies pipeline to Vancouver… IF Washington does not rule it out.  (BNSF appears to be betting on that, to the tune of $5 billion.)

            The way to make Keystone XL un-buildable is to make it unprofitable even if built.  Nothing will keep the bitumen in the ground like not having anyone willing to pay enough to get it.  In pursuit of that goal, let’s liquefy all the gas being flared in the Dakotas and carry it to truck stops across the Midwest for LNG-powered semis.  Let’s electrify everything we can.  Maybe the UC Davis levulinic-acid process can generate enough bio-based liquid fuel for the rest.

            Sitting around with protest signs is a fool’s game.

        • dumboldguy Says:

          My panties aren’t in a bunch at all over your admitting that you are a greedy capitalist—you know, one of those run amok free-marketers that are ruining the planet. I can live with that if you can.

          “I carefully wrote that I own some Berkshire Hathaway. I didn’t say I bought any, and I haven’t; my ownership does not reflect any personal liking for the company. For that matter, the purchase pre-dates BH’s acquisition of BNSF”.

          AHA! There’s at least some partial disclosure! E-Pot “carefully” inherited the stock, so perhaps he is a member of that new American aristocracy? Those who did nothing to earn their riches? Like nearly half of the 20 richest billionaires? So tell us, is it Class A or Class B stock?

          To get serious, yes, we do have a choice about the tar sands bitumen. Our choice should be to do everything we can to keep it outside the borders of the U.S. Let the idiot Canadians who have let the extraction disaster happen bear all the burden, since they will be the ones to profit. Spend all that money in Canada to develop the infrastructure so that you can ship it to Vancouver or Nova Scotia and refine it on Canadian soil and ship it off to wherever. And hopefully go broke doing so.

          You are kidding yourself if you believe that having it cross U.S. territory will confer any real “influence” on us. It will just make it easier for the Kochs et al to profit from it. And that’s what it’s all about, isn’t it?

        • rayduray Says:

          Re: “YHBT. YHL. HAND.”

          Good thing I’ve got AF handy! YOS

          • dumboldguy Says:

            You are saying that those letters mean something? I was sure E-Pot was just suffering from an attack of mental and metacarpal-phalangeal diarrhea. It’s too bad that someone who sometimes appears to be at least minimally bright has to be so self-indulgent that he “speaks in tongues” rather than in plain English.

            SBAN, E-Pot!

          • Good thing I’ve got AF handy!

            I’m surprised that the fraction of even old hands who used and remember Slashdot is so small and shrinking.


            Thanks for the chuckle!  73, OM!

          • What happened to English? Does YBT stand for young black talent or yoga biological trust?

      • andrewfez Says:

        I take a contrarian position on equities investing when it comes to the subject of divestment:

        Sure it’s true that if you divest from the bond market, that increases the probability that the cost of borrowing money for a company may go up (until one of the mega investors like Buffet notices at least; in which case they’d sell off another asset to capitalize on such a high %, investment rated (i.e. low risk) bond, pushing the cost of borrowing back down).

        But owning equities doesn’t really influence the health or lack of such of a business. And it doesn’t matter if 1 investor owns 100% of the shares or 100 investors own 1% of the equity each. That won’t hurt or help the company any. Buying $1000 worth of Exxon every year doesn’t help Exxon any; you’re just trading shares with somebody else that already owned them.

        The only way buying shares actually benefits a company is when they want to raise capital with a share offering (diluting their shares); that’s probably the business’s only concern about share price. But then how often does Berkshire or Exxon do that? Probably not that often; in fact they’re more concerned with using revenue to buy back shares to help individuals associated with the company (CEO, directors, etc.) that happen to own shares, because the buy-backs put pressure on the price to go upward.

        Dividends are another matter. [Berkshire doesn’t do dividends for tax reasons]. When Exxon issues a dividend, the shareholders are actually directly benefiting from business operations. However what that shareholder does with that money is up to them. One can indeed use a company like Exxon’s dividends against them, by using the dividend money to buy an electric vehicle, solar panels to charge that vehicle, a monthly bus pass, or a bike. This is what I call the vampire approach. You’re using their money to reduce long term demand for their product. It hurts them more than not investing in their shares.

        But the other feature of dividends is it puts a ceiling on the share price. If demand for Exxon shares momentarily went so low that the div/price ratio was 10% (because the price dropped, just to be clear), Buffet and every other hedge fund would gorge on that bargain, pushing the price back up. That’s why equities divesting campaigning is poor allocation of environmental groups’ resources (discounting the bond market).

        So to summarize, putting $2000 of gas in your car per year helps Exxon infinity more than buying $2000 shares of stock per year. In the former case you’re actively creating demand to pull oil out of the ground, in the latter you’re passively hoping the company’s equity is somehow increased (could be by increased demand; could be by reduced cost of operation; could be getting a good deal on a capital expenditure; could be by an investor sentiment change; etc.). The only credible divestment from Exxon is when you buy an electric car (but even that uses oil in its making and shipping (for now)).

  2. jimbills Says:

    The government is focusing on the carbon footprint of the pipeline by itself, which is intentionally sidestepping the main goal of pipelines – to facilitate fossil fuel extraction and production. If the question is phrased, will the Keystone itself significantly impact climate change, then the answer comes up ‘no’. If the question is asked, will the pipeline aid in increasing tar sands extraction and production, then the answer can only be ‘yes’. And if that’s the case, do tar sands extraction and production significantly affect climate change, then the answer can only be ‘yes’. But the preferred answer is ‘no’, so the question is phrased in the preferred way.

    On the symbolic front, we’re unlikely to have a more receptive Presidential administration to climate change any time soon. In 2016, we’re likely to have Hillary Clinton, whose statements about addressing climate change have been lukewarm at best, or a Republican. If the Obama administration approves the Keystone, it will send a huge signal that business as usual is both preferred now and into the future, and the energy industry will react accordingly.

    • If the question is asked, will the pipeline aid in increasing tar sands extraction and production, then the answer can only be ‘yes’.

      That only matters if failing to increase tar sands extraction will substantially cut fossil fuel extraction worldwide.  If the answer to that is “no”—if the Orinoco belt or some Petrobras project in the Amazon will generate anything like as much emissions—there is no reason to oppose it.

      The way to kill tar sands, and Orinoco heavy, and the rest is to make them irrelevant.  Nobody cares what spermaceti and whale oil cost, because nobody lights with them anymore; electricity is cheaper, cleaner and far more convenient almost regardless of the source.  So put LNG-in-a-box at every Bakken well with a flare, and take it out in tankers to supply the LNG pumps at truck stops from Illinois to Idaho.  Develop all the metal-molten-air batteries to the point where we have just one that works in a vehicle, because even the worst is good enough to kill petroleum anywhere you have enough civilization for paved roads.  Get that non-fermentation biofuel thing out there, because corn stalks and tree trimmings are better used to eliminate oil than just to compost.

      Someone who plugs his car in doesn’t care what Athabasca bitumen is good for, unless he needs his driveway re-paved.

    • With Obama even considering the pipeline, and given his previous “all of the above” position, one wonders. That and the timing of the announcement leaves one watching actions rather than words. In the meantime, the background to all this is a switch from Saudi Arabia to Canada, with the worlds’s own Mr. Burns twins, Koch and Koch, cornering the market and becoming the new Saudi Arabian princes. I am sure they would if they could.

  3. jimbills Says:

    “Lower oil prices are likely”

    Wishful thinking at its best. The belief that oil will drop lower than $75 by 2019 reflects a complete misunderstanding about the mechanics of the oil industry. Most to all of the new sources of oil the past 5-8 years have been the direct result of $100+ oil. If oil falls below $75, investment and profit from those new sources becomes threatened.

    Here’s why the pipeline becomes incredibly important to the North American oil industry, too. The concern is that tar sands and shale oil production will increase while the rest of the world’s oil production stays flat or declines, which we’re starting to see. That sounds good to those who want cheap oil, of course, but to the ‘new oil’ industry itself it spells disaster. Investment in the new sources requires over $75 oil to maintain healthy profits. If there is a glut of oil in North America, and if transport to the coasts is too expensive, then they will be forced to sell a lot of that oil at very thin profit margins (or even worse, at a loss).

    The EXACT same thing is seen right now in the natural gas market, which by its nature is very hard to transport overseas.

    Pipelines aren’t about reducing costs to the U.S. consumer – they’re about increasing profits to the producers.

    The ONLY legitimate argument from a U.S. consumer standpoint for the pipeline is whether or not they want to maintain the existing oil infrastructure for another few years or decades. Expansion of the newer sources aids that, and pipelines aid that expansion.

  4. rayduray Says:

    I first came across John Wathen when he was reporting on the BP Macondo disaster. He lives in Alabama near Hurricane Creek and over the years I’ve followed his videos on YouTube and gotten the impression that he lives in a sacrifice zone. It’s called the South. This is adjacent to America’s other sacrifice zone, the North.

    John seems to be the responsible person for a blog about the Bakken Shale and its widespread discontents:

    Here’s the latest on crude train wrecks outside of Im-Mobile, Alabama:

  5. Kiwiiano Says:

    The silly thing is that eventually the pipeline will be built, not for shipping tar south, but to move Canadian water to the regions that are already suffering from droughts that have a climate-change component. Water is going to be far more valuable than oil.

  6. […] 2014/02/04: PSinclair: Keystone “Wheel Still in Spin” […]

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