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Published January 31, 2014, 02:34 PM

Keystone pipeline will not affect Canada oil sands growth

WASHINGTON - The proposed Keystone XL oil pipeline is unlikely to increase the pace of Canadian oil sands development, a U.S. State Department study said on Friday, raising pressure on President Barack Obama to approve a project environmentalists see as a major climate change problem.

By: INFORUM, Reuters

WASHINGTON - The proposed Keystone XL oil pipeline is unlikely to increase the pace of Canadian oil sands development, a U.S. State Department study said on Friday, raising pressure on President Barack Obama to approve a project environmentalists see as a major climate change problem.

The massive 11-volume environmental impact study released on Friday did not recommend whether President Barack Obama should grant or deny an application by TransCanada Corp to build the $5.4 billion line, which would transport crude from Alberta's oil sands to U.S. refineries.

But a State Department official who briefed reporters ahead of the report's release said that blocking Keystone - or any pipeline - would do little to slow the expansion of Canada's vast oil patch, maintaining the central finding of the State Department's preliminary study issued last year.

The report's publication opened a new and potentially final stage of an approval process that has dragged for more than five years, taking on enormous symbolic political significance, potentially helping define Obama's legacy.

With another three-month review process ahead and no firm deadline for a decision on the 1,179-mile line, the issue threatens to drag into the 2014 congressional elections in November. Obama is under pressure from several vulnerable Democratic senators who favor the pipeline and face re-election at a time when Democrats are scrambling to hang on to control of the U.S. Senate.

The report reaffirmed the idea that Canada's heavy, bituminous oil sands reserves require more energy to produce and process - and therefore result in higher greenhouse gas emissions - than conventional oil fields.

But after extensive economic modeling, it also found that the line itself would not slow or accelerate the development of billions of barrels of reserves that environmentalists say would exacerbate global warming. That finding is largely in line with what oil industry executives have long argued.

"The approval or denial of any single project is unlikely to significantly affect the rate of extraction of the oil and the oil sands, or the refining of heavy crude on the U.S. Gulf Coast," a State official told reporters ahead of the release.

Secretary of State John Kerry will consult with eight government agencies over the next three months about the broader national security, economic and environmental impacts of the project before deciding whether he thinks it should go ahead. There is no deadline, and the report does not seek to address some of the larger strategic questions involved.

"While we have a lot of deeper and broader analysis in this supplemental (report), it does not answer the broader question about how a decision on this potential pipeline fits in with broader national and international efforts to address climate change," the State official said.

LIMBO

The pipeline has been in political limbo during the review, a long-stalled process that complicated relations with allies in Ottawa and annoyed advocates on both sides of the issue. The line would carry as much as 830,000 barrels of crude per day from Hardisty, Alberta, to Steele City, Nebraska, where it would meet the project's already complete southern leg to take the crude to the refining hub on the Texas Gulf coast.

Polls show a majority of Americans support the project, although environmentalists have fiercely opposed it.

Republicans, supported by business leaders and the Canadian government, want Obama to approve the project because of its potential to create jobs and boost U.S. energy security.

The State Department's study found that oil from the Canadian oil sands is about 17 percent more "greenhouse gas intensive" than average oil used in the United States because of the energy required to extract and process it, the State Department official said. It is 2 to 10 percent more greenhouse gas intensive than the heavy grades of oil it replaces.

But the study found oil sands development could be curbed in

a scenario where pipeline capacity was constrained, oil prices were low, and rail shipping costs soared, the official said, noting the uncertainty involved in modeling the impacts.

The study also examines data from a 2010 pipeline spill in Michigan, where more than 20,000 barrels gushed into the Kalamazoo River system. Pipeline operator Enbridge Energy Partners was ordered last summer to do more to dredge up oil from the bottom of the river.

TransCanada shares rose more than 1 percent on Friday as previous reports suggested a favorable review.

OBAMA'S CHOICE

Eight other government agencies ranging from the Pentagon to the Energy Department to the Environmental Protection Agency will now have the opportunity to weigh in on the pipeline during the next 90 days, and the public will have 30 days to comment, beginning next week.

A previous comment period in March yielded more than 1.5 million comments.

The White House will be kept informed about the process, but does not have a formal role within the government's process for reviewing pipelines, unless departments cannot agree on whether the project should go ahead, the State official said.

"I can't project into the future," the official said when asked whether Obama would have input.

Obama signaled in a major climate speech in June that he was closely watching the review, and said that he believed the pipeline should go ahead "only if this project does not significantly exacerbate the problem of carbon pollution."

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