One of the new Congress’s priorities is to pass a Bill to approve the Keystone XL pipeline. President Obama has indicated his intent to veto any such Congressional action. The justifications for opposing the pipeline project are claims that the U.S. economic benefits will be minimal and the environmental or carbon emission increase impacts will be very significant. Based on my multi-year monitoring and analyzing this pipeline project’s development I believe it’s time to critically review the major Keystone XL pipeline Opposition’s claims, the relevant facts and the most probable impacts.
Claim No.1: “Blocking Oil Sands consumption will significantly reduce future World carbon emissions” Or, the petroleum oil alternatives to Oil Sands crudes have substantially lower full-lifecycle carbon emissions.
Facts: After 6 years of studies the Federal Government has estimated the Keystone XL (KXL) pipeline’s full-lifecycle carbon emission increase would be 1.3 up to 27.4 million metric tons per year (MMT/yr.); for an average of 14.3 MMT/yr. Refer to the State Department’s ‘Keystone XL Project Executive Summary’, section ES.4.1.2 – Lifecycle Analysis. Based on my 30+ years Oil-Refining and major projects experience and expertise, I completed a similar analysis two years ago. Refer the ‘Climate Change Impacts’ section of a past TEC Post. I determined the impact of displacing average quality U.S. crude oils with Oil Sands crudes would increase full-lifecycle carbon emissions by 7.4 MMT/yr. (830 thousand barrels per day (KBD) basis). The difference between mine and the Government’s estimate is largely due to errors I found in the GREET model; which is used by most Federal Agencies. The major error is caused by using primarily international oil refining data in developing the GREET model, which significantly under estimate’s average U.S. Refinery efficiencies or over estimates the energy consumption/carbon intensity of refining crude oils into finished petroleum products. The increased 27.4 MMT/yr. carbon emission estimate indicates that refining of Oil Sands crudes would at least double total processing energy consumption, which would lead to a huge operating expense increase. This level of increased energy consumption-expense would make most refineries operation’s highly uneconomic, and rapidly lead to unsustainable-negative profit margins and eventual shutdown.
Another factor towards actual lower carbon emission impacts is that Oil Sands ‘dilbit/synbit’ crudes have lower gravities (oAPI) than average lighter crudes refined within the U.S.; WTI for example. Oil Refineries are designed to process limited ranges of crude oil gravities and other physical qualities, such as sulfur content. This means that heavier Oil Sands crudes generally can only directly displace similar gravity/quality crude oils. The obvious recent substitution or displacement has been reducing Venezuela syncrude imports by 390 KBD since 2008; with Oil Sands type crudes. Another advantage or synergy has been due to the increased production of domestic ‘Tight Oil’, which has very light gravities. Blending heavier gravity Oil Sands with domestic light-Tight Oil has also enabled replacing increasing volumes of medium or average gravity crudes; primarily from OPEC countries.
Impacts: Those who strongly oppose the KXL pipeline often only reference the ‘maximum range’ carbon impact data estimate of 27.4 MMT/yr. (a recent NRDC example). This can be very misleading. Most often the accuracy or ‘confidence level’ of the referenced data is rarely included. Based on my past analysis of the full-lifecycle impacts of the KXL pipeline, the confidence level or probability of the Oil Sands imports increasing U.S. carbon emissions up to 27.4 MMT/yr. is essentially zero. Even the 7.4 MMT/yr. (my highest probability increased carbon estimate) is relatively insignificant since these added emissions only represent a ‘0.1% increase’ in total U.S. carbon emissions currently, and only 3% of the total actual increased U.S. annual carbon emissions since 2012. Yes, total U.S. carbon emissions have actually increased by about 225 MMT/yr. since 2012. Due to a combination of growing population and a recovering economy over the past two years, all End-use Sectors’ total fossil fuels consumption and associated carbon emissions have increased by about 30-times the most likely impacts of the KXL pipeline. On a Global basis the KXL pipeline attributed carbon emissions are even less significant. Since 2008 China’s total carbon emissions have increased an average of about 500 MMT/yr. A one-time 7.4 MMT/yr. increase of U.S. carbon emissions is only equivalent to the average ‘weekly’ increase in China’s carbon emissions over the past 6 years.
Claim No.2: “Blocking the Keystone XL pipeline will stop further Oil Sands development” Or, constraining Canada’s access to U.S. markets will prevent future increased Oil Sands production.
Facts: The design capacity of the KXL pipeline is 830 KBD. Over the past six years U.S. Canadian imports, largely from Oil Sands production, have increased by about 880 KBD. Increased Canadian imports have been transported cross-border to U.S. Refineries via existing pipelines and rail infrastructures. This increase of Canadian imported crude oil represents almost half of the total increased Oil Sands production since 2008. The Canadian Association of Petroleum Producers projects that total Oil Sands production should double or increase up to 3,000 KBD over the next 15 years. Chronic delays or blocking the KXL pipeline will encourage Canadian Producers to maximize utilization of all existing crude oil transport infrastructures, and increasingly consider other options.
Impacts: Without the KXL pipeline, the Oil Industry will debottleneck and expand existing pipeline and rail infrastructure capacities where feasible. The next option will be eventually to build new pipeline capacity around the U.S. This alternative crude oil logistics option is currently less economically attractive compared to the KXL pipeline. Without the KXL pipeline the alternative projects of routing new and expanding existing Canadian pipelines to the east or west coasts will become increasingly an attractive investment opportunity; particularly if the U.S. does not approve the cross-border KXL pipeline project permit in the near future.
Claim No.3: “The Keystone XL risks major pollution of U.S. waterways and air qualities” Or, the leaks and other pollution risks are substantially greater than alternative modes of transportation.
Facts: The U.S. has over 190,000 miles of pipelines that transports primarily hydrocarbons around the country. About 90% of all crude and petroleum oils are transported within the U.S. by pipelines. Pipelines are clearly the most dominate transportation and distribution infrastructure for petroleum oils due to the fact that this mode of transport is most efficient (lowest energy consumption/lower carbon than alternatives), safer (lowest risk of accidents, injuries and fire incidents compared to all alternatives), and cleaner (lowest risk of leaks; both liquid and fugitive emissions). The risks of polluting environmentally sensitive areas such as the Ogallala Aquifer are very small for new pipelines compared to alternative crude oil transport modes; rail and truck. During the permitting process, the concerns of future, aging pipeline leaks are normally addressed, which has resulted in modifying the original proposed routing of the KXL pipeline in order to minimize these risks. What is rarely discussed concerning Ogallala Aquifer risks is the fact that the KXL pipeline’s routing has been relocated to the eastern Nebraska region, where other major pipelines already exist. The Nebraska court recently approved the KXL pipeline, so this issue has apparently been resolved. As far as air quality, the U.S. and Canada have the most strict environmental air emission regulations within the world; thus minimizing this potential concern.
Impacts: The KXL pipeline will provide the safest, cleanest and most cost effective mode of future Oil Sands imports compared to current rail, marine and truck alternatives. If the KXL pipeline is not built, Canada will most likely build new pipeline infrastructure around the U.S. to export future increased Oil Sands crudes production to the growing demand, such as Asian markets. Due to the relatively lower efficiencies of most Asian Refineries and substantially weaker environmental regulations, net world emissions of carbon and other pollutants (VOC’s, PM, SOX, and NOX) will increase substantially. This will increasingly and adversely impact the U.S. West Coast air qualities.
Claim No.4: “The Keystone XL will not create significant U.S. jobs or economic benefits” Or, multi- $Billion Free Market infrastructure investments are insignificant to the economy.
Facts: The Federal Government estimates the KXL project will create up to 42,000 (direct + indirect) jobs nationwide. Refer to State Department’s report: section ES.4.3.1 – Economic Activity Overview. A recent Industrial KXL pipeline analysis estimates the project should create well over 10,000 (high paying & union) construction jobs. Based on my major project design & management experience I performed a brief analysis of the estimated project jobs required to build the new pipeline system. The latest project budget cost is $5.3 Billion and is projected to create 9,000 construction and 7,000 manufacturing jobs. Based on typical major project cost breakdowns the construction + manufacturing labor costs will normally make up to about 40% of total project expenses. Assuming an estimated 2-year project construction schedule means these added U.S. jobs pay about (($5.4 Billion x 0.4)/(16,000 jobs/yr. x 2 yrs.) =) $68K/yr. per job. This pay level is reasonable for current average construction & manufacturing jobs. In addition 50+ permanent operations and maintenance jobs will be created by the KXL pipeline and should have similar $50K-$90K/yr. pay levels. In addition, the multi- $Billion new KXL pipeline asset will generate up to almost $100 million/yr. in Local and State annual tax revenues.
Impacts: The Administration has surprisingly estimated the $5.3 Billion project will only create 1,950 (direct) construction jobs, over a 2 year schedule. This estimate grossly underestimates the labor required to build the new pipeline. Building the 1,179 mile, 36” diameter KXL pipeline, and 41 pump stations with only 1,950 construction workers would take up to 10 years to complete. And, if the 1,950 jobs over two years claim/estimate was feasibly accurate that would mean these jobs paid on average about ($5.3 Billion x 0.4)/(1,950 jobs/yr. x 2 yrs.) =) $544K/yr. per job. The 16,000 jobs creation estimate and $68K/yr. per year average pay level is clearly a more reasonable estimate. Overall, the KXL pipeline is estimated to add $3.4 B/yr. (Government estimate) up to $7.8 B/yr. (Industrial estimate) to the U.S. GDP. While this contribution represents only about a +0.05% growth to the total U.S. GDP, its indirect impacts (i.e. lower overall oil market prices and increased indirect jobs) should be substantially larger.
Claim No.5: “All the Keystone XL Oil Sands will be exported from the U.S. Gulf Coast” Or, there is no market demand for added heavy Oil Sands crudes within the U.S.
Facts: U.S. crude oil exports have increased by about 100 KBD or equivalent to (100 KBD/880 KBD =) 11% of increased Canadian imports 2008-14. However, 99% of these U.S. exports were shipped to Canada. This means only a net maximum of 1.0 KBD (primarily Tight Oil condensates) was exported from the U.S. into world markets since 2008.
Impacts: Despite Canadian (mostly Oil Sands) crude imports increasing by 880 KBD over the past 6 years, none of this crude oil has been exported outside North America. As discussed above, the heavy Oil Sands crudes have been processed in U.S. Refineries by displacing Venezuela syncrudes and other OPEC imports. Despite these facts, the Administration still apparently claims or believes that this trend will somehow change substantially if the KXL pipeline is built. Even though the probability of exporting KXL pipeline shipped Oil Sands crude appears to be insignificant, there is an export mitigation action that the Administration has apparently failed to consider: ‘request that the pending Congressional Bill to approve the KXL project include restrictions on exporting Canadian Oil Sands crudes from the Continental U.S.’.
In Conclusion: The claim that overall Keystone XL pipeline risks are substantially greater than the economic benefits is not supported by the ‘facts’. The increase of carbon emissions is very small-to-insignificant compared to recent year U.S. total carbon emission increases and to China’s weekly-annual growth since 2008. The Keystone XL pipeline project construction will generate many thousands of high paying jobs and substantial tax revenues for many States. Added benefits to those documented above include the fact that this project will be 100% financed by the Free Markets, without any new Federal Government financial support. Besides supporting lower crude and petroleum oil market prices that have substantially benefited the overall economy, the Keystone XL pipeline project will help further increase U.S. Energy Security by reducing the need for higher risk OPEC imports.
The President’s decision to delay and block the Keystone XL pipeline appears to be based overwhelmingly on politics and overlooks the more credible technical and project economic facts, and the most probable benefits. Unfortunately, this decision is also inconsistent with supporting the economy’s increased growth and creating thousands of new-higher wage Middle Class jobs. Coincidentally, President Obama has recently developed and proposed a large ‘transportation’ infrastructure program that would cost taxpayers up to $300 Billion over 4 years. A large part of this proposal involves repairing and replacing worn road systems, most of which are made of asphalt. By the way, asphalt is produced from heavy petroleum oil, a major component of Oil Sands crudes.
Your thoughts and questions?