The Ultimate Fate of the Keystone Pipeline

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The Obama Administration last week decided not to approve the Keystone XL pipeline.

This has introduced another political firestorm into an already uncertain market.

If there is one subject that is likely to stimulate more angst over economic recovery prospects, it is the availability of energy.

Energy is central in everything that happens in the U.S. market.

And Keystone is designed to transport up to 700,000 barrels of oil a day from Alberta to refineries on the U.S. Gulf coast. It represents a new North American-centered initiative to lessen reliance on Middle Eastern imports and would create thousands of new jobs.

It also would create new opportunities for investors.

But the pipeline has had its detractors from the beginning.

Environmentalist Concerns Reign

Environmental concerns have been raised over the greenhouse gas emissions and passage of the pipeline through ecologically sensitive areas.

It is also opposed by those who view the current condition of virtually guaranteed crude oil price increases as an opportunity to invest in alternative and renewable energy technologies.

Some of the environmental issues can be resolved by simply moving the pipeline route.

But others are more difficult to counter.

The crude involved is very heavy oil, primarily from the Athabasca oil sands and similar deposits in Alberta and Saskatchewan. That raw material requires upgrading to synthetic oil and that is far more environmentally invasive than processing lightweight crude.

Therefore, proponents of the pipeline can't resolve environmental concerns simply by changing the route.

And then there is the added problem of a current U.S. statute, namely, §526 of the Energy Independence and Security Act (EISA) of 2007. This prohibits federal agencies from procuring (which includes importing) synthetic fuel unless its life-cycle greenhouse gas emissions are less than those for conventional petroleum sources.

The "life-cycle" considers the GHG emissions throughout the extraction and processing of the oil – that is, from the time it is taken out of the ground, through its transport and upgrading, to its delivery to a refinery (and its emissions there).

When originally passed, this section was designed to benefit domestic American producers over the import of heavier and higher sulfur content foreign oil. It was never intended to create a problem with our neighbors to the north.

Unfortunately, we sure have a problem now.

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The Ultimate Fate of the Keystone Pipeline
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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. Observer | January 23, 2012

    Of all the absurd, silly and spotted owl type things going on with Obama this one takes the cake. We need energy, especialy domestic energy and we have one of the largest oil strike in American history in North Dakota, Wyoming and Southern Canada and we need to get the oil from there to the Texas refineries. They used the same line to delay the Alaskan Pipeline for better than a decade. With an Iranian war looming and the cutting off of so much middle eastern oil, we all might be facing some real problems.
    But at the same time, I am all for the electric car. We had a perfectly good one in 99 but Bush and his oil buddies killed it. It was called the EV-1 and cost 12k. Now we are being offered the volt and others that cost 40k that can go 0 to 60 in a few seconds. We don't need a electric sports car we need a simple car like the EV-1 that the average Joe like myself can afford!

  2. Jeff Pluim | January 23, 2012

    The United States will lose out BIG TIME because of the turn-down of the XL pipeline. Because of the decision to turn it down, it has given a huge boost for Canada to excellerate the pipeline to Kitimat on the west coast. China is happy to buy all of the oil that Canada will sell it, and the new pipeline to Kitimat will enable that to happen. What a huge, strategic blunder by American politicians. America had a chance to secure all of its oil needs for the next century, from a friendly neighbor, and it totally skrewed up. So now the Americans will sadly see their greatest potential source of energy supply, sent by tanker from Kitimat to China. It also benefits Canada because Canada will no longer have to rely on the fading economy of the United States, and will get a better price for the oil because it won't be base on WTI pricing, but rather Brent Crude pricing.

  3. Bernard Durey | January 23, 2012

    As previously mentioned some have thought that by combing the crude from the Alberta tar sands with the crude from the Bakken formation would help the Canadian crude go through the pipes easier. Does it change the environmental numberrs though? Would it be in compliance with those numbers if combined? If not how far off would they be? Has it actually plugged or clogged the first keystone? They did go to a bigger diameter pipe for some reason(s). So many things to try to straithen out. If it ever gets approved will the president that signs the approval be in hot water so tospeak if it is operating beyond the legal requirements? It has sounded like a one sided argument that the current president refused to sign it. However,in that case you are or could be in the catch 22 or damned if you do and damned if you don't on partisan politics anyway.

  4. Bernard Durey | January 23, 2012

    So,namely the U.S. statute,law526 in the Energy Independence and Security Act has caused the Keystone XL problems. It cannot be done. So what then is the issue(s) with the current Keystone that was built in or after 2007 and has run for over year or so already. Do you not have the same violation if they are still operating Keystone? Going from a 30 inch to a 36 inch diameter pipe wouldn't change that factor. So who gets in hot water? Of course Canada defected,as you told us because they had cited issues with the U.S. and India and China. Also ratification was an issue in the U.S. Senate. So in thoery if it is operating today then Keystone is in violation of the Energy Independence and Security Act of 2007. Sure it will take time to work that oneout as well.

  5. eric taylor | January 23, 2012

    Doctor Moors,
    doesn't it seem that Canadian grungy heavy oil would better be shipped organic to Europe or China
    to be processed there to avoid a more dangerous oil spill in transit that would have more
    significant negative economic impact on the environment from slow breaking-down synthetic?

  6. Bernard Durey | January 23, 2012

    I tried earlier one that didn't register or record. I don't know for sure the reasons. However,there were other issues involved or questions,concerns,etc. Of course,as previously stated,you have the first pipeline,the Keystone,it has to be out of compliance with The Energy Independence and Security Act,I believe that is the name. I would imagine it also had to be signed. However,it went through with not much fight,arguements,debates,and maybe even checking of other acts,etc. So politically we know for sure almost that the Keystone XL will not be approved until after the election. Does that mean whomever gets in as president will have to sign it and approve it. Regardless the problems or are they going to go through a lot of red tape or changing the laws,rules,statues,etc. to get it into compliance as well as the first TransCanadian Pipeline,The Keystone? At least you have something to compare it too. I suspect it could become a catch 22 in politics. In some cases people involved may not be directly effected immediately but they may. I guess we will just have to wait and see what gets worked out and what happens. Perhaps,it still goes across Canada,like British Columbia. Once again thanks and have a nice day and a better tomorrow.

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