Why the Keystone XL Crude Oil Pipeline Deal Is Far from Done

[Editor's Note: This insider's look at the recent update regarding the Keystone XL crude oil pipeline is one of Dr. Kent Moors' Oil & Energy Investor columns from this week. Go here to learn how to access Moors' research as soon as it's released.]
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Late Friday afternoon, the Keystone XL crude oil pipeline cleared one of its biggest hurdles.

In its Final Environmental Impact Statement, the U.S. Department of State concluded that completing the pipeline's northern leg would not have a major impact on global greenhouse gas emissions.

According to the much-anticipated report, the Canadian oil sands are likely to be developed – with or without the controversial pipeline.

That makes the Keystone XL something of a non-factor in the broader environmental debate.

Yet, it is still not clear whether this project measures up to the climate priorities of the White House.

That means there is still serious some politics ahead…

Keystone XL Crude Oil Pipeline: 4,000 Miles of Heated Political Debate

Of course, politics has never been very far from this pipeline discussion. Environmental groups have argued long and hard against the Keystone XL oil pipeline from the get-go.

A major environmental problem surfaced early in the debate when the initial route took it across an aquifer in Nebraska used by a large portion of the Midwest. That brought about concerns over the impact pipeline leaks could have on millions of Americans.

That battle largely ended once the route was changed. Even the Nebraska legislature, who had been opposed to the project because of the aquifer, dropped its opposition.

But that was hardly the only roadblock to the project.

The $5.4 billion network of pipelines is designed to connect Canadian heavy oil into the primary American oil trunk line.

However, the XL portion requires State Department approval because it crosses an international boundary. The southern segments from Cushing, Okla., to the refineries on the Gulf Coast do not require such approval. They have been under construction for some time.

These southern additions are considered crucial in easing the crude oil glut at Cushing. This is the site of the largest intersection of pipeline systems in the country, and the location where the daily West Texas Intermediate (WTI) oil price is set. WTI is the benchmark crude rate upon which NYMEX future contracts are written.

This ongoing glut at Cushing has been one of the main reasons why WTI has been trading below the Brent oil benchmark set daily in London, even though WTI is a slightly better grade of oil.

Both the cross-border and Gulf State elements of the expansion (three other phases of Keystone have actually been in operation since 2010) are designed to complete a massive north-south movement of Canadian heavy crude over 4,000 miles across North America.

As the unconventional (tight and shale) oil boom has pushed U.S. production to levels not seen in decades, the prospect of energy self-sufficiency (or energy independence, as the media would have it) has emerged.

That goal is likely attainable, probably within the next 15 years. When it happens, the United States would still have to import about 30% of its daily oil requirements. But what a difference that makes from only a few years ago, when we were looking at importing 70% of our needs.

And there is an important change here as well, one that provides a distinct advantage to American national security. All of that 30% could come from Canada. "Energy independence" would encompass an entire continent.

But this project still must overcome persistent environmental objections, the more logical stemming from the type of oil being conveyed via Keystone.

Heavy oil does have a more negative impact on the areas where it is extracted, transported, and processed. So there are a range of issues here that require technological development and oversight.

Having considered the issues from both sides (environmentalist opposition and pipeline supporters), my view is that these safeguards can be put in place along with a concerted administrative presence to protect the lives and livelihoods of the folks impacted by the Keystone XL pipeline.

The "Dueling Standards" Problem

And that leads us to a possible major policy impasse…

Join the conversation. Click here to jump to comments…

About the Author

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle

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  1. Robert in Vancouver | February 5, 2014

    It seems that Obama and other left-wing-nuts prefer to get oil from countries run by dictators who hate the USA, kill gays, treat women like slaves, and have no concern about the environment whatsoever.

    Since Canada doesn't meet any of the above criteria, Keystone won't be approved.

    • Joe Duran | February 7, 2014

      Follow the Money.

      Dear Robert.

      Yes you are correct we get oil from other countries. But they don't build pipelines through the entire United States to get it to us. Canada is a wonderful country. This opposition to this pipeline is not personal vendetta to our Canadian friends.

      Sure there are safety issues, America will not get any of this oil, the oil is toxic and we can go on and on as others have on this post. These are all true but you need to follow the money. Canada could build a pipeline to the eastern ocean and have it refined there and loaded on the tankers.

      Research who will make billions off of this pipeline. You may or may not be shocked. But we true blue Americans who love our country don't want to add more billions to the party/people who want to destroy and dismantle our country as we now know it.

  2. Albert Gabel | February 6, 2014

    Facts and a solution to the apparent Keystone XL Pipeline dilemma:
    • The Tar Sands Oil is inexpensive because of the large quantity of it and its availability on the surface.
    • It is a valuable asset which will be harvested.
    • It is heavy. It sinks in water. It cannot be removed from the water.
    • It is not safe to pipe this oil because even new pipelines have weld failures.
    • It is not safe to ship it by rail or truck because tanks rupture in accidents. That can result in deaths due to explosions, or water supplies can be contaminated.
    • “The Keystone XL Pipe line would kill more jobs than it would create.” Global Labor Institute, Cornell Engineers, September 28, 2011.
    THE SOLUTION:
    Canada has built of the Keystone XL Pipeline to the U.S. border.
    The Tar Sands Oil should be refined just south of the Canadian-U.S. border. That would result in many high paying jobs being created. Gasoline, Diesel fuel and heating oil can be safely and economically piped and shipped to wherever it is needed anywhere in U.S.
    That would increase the supply of fuel in the U.S. and lower prices. Meanwhile renewable clean sources of energy, especially from wind and solar are becoming price competitive to replace fossil fuels.

    Fuel being refined from Tar Sands Oils at the Gulf Coast is being sold on the world market for much more than the price of fuel in the U.S.
    Advocate for the solution of refining the Tar Sands Oil at the border.
    Sincerely,

    Albert A. Gabel
    Professor Emeritus
    Ohio State University
    I have been doing research and writing on this issue since viewing the first hearing in the U.S. House of Representatives in December 2011 on C-Span.
    I have evidence to verify every fact in this letter .Contact those who can influence the decision on the Pipeline. Contact info is on the next page.

  3. H. Craig Bradley | February 6, 2014

    Albert,

    Could either politics (vested interests) or economics favor refining tar sands crude oil in the Gulf Refinery complex rather than constructing a new one from scratch near the Canadian Border, as your comment proposes as a solution? Something seems to be missing in your analysis of this "situation".

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