Keystone XL Pipeline Pros and Cons

We asked our Zintro experts about the pros and cons of the proposed TransCanada Keystone XL Pipeline. What are the risk factors for the environment? What kind of benefits does the pipeline offer? Here are their responses.

Foboni, an expert in risk and crisis management and risk-based decision making, says that he is participating in the review and risk assessment of a large, long-term project in Northern Canada (Arctic). “Long-term projects around the world, and in particular in the Arctic region, are exposed to a large number of hazards deriving from extreme conditions, and in particular climate change. Warming and the resulting loss of permafrost (the permanently frozen layer of soil and rock) are causing trouble and will bring havoc in the future to the natural environment, and of course, to any permanent structure,” says Foboni. “If proper risk-based decision making has not been performed from inception, with well balanced and sustainable mitigative programs, the hazards will have unpleasant consequences.”

Nigel, an environmental consultant with a blue chip oil and gas background, says the challenges of the Keystone XL Pipeline have been largely met in many locations, including the Alaskan/Canada corridor and many parts of Russia and other cold temperate and arctic zones. “The primary concern should be for the Tundra, in that a buried pipe may not only threaten the delicate balance of temperature, but interfere with fauna associated with these zones,” he says. “Vibration and the potential heat associated with the passing crude may have an impact. Pipeline integrity from the point of view of corrosion monitoring and regular pigging would be an essential provision. Pipeline integrity from the point of view of damage from collision or sabotage is equally important.”

Nigel points out that pumping stations are required throughout the route, with consequential infrastructure associated with the servicing of these stations and way leave examination. Provision for migration routes is needed and a route avoiding areas of special sensitivity should be considered. “Depending upon population density, some economic value may be available for isolated communities in supporting the pipeline construction and consequential supervision,” says Nigel. “However, the case is more likely to be made around the cost-benefit case of accessing the tar sands and generating refined product. The energy costs and environmental impacts, such as energy consumption (fossil or non-fossil), carbon dioxide emissions, and hazardous waste, from production have a cost”.

Dr. Kilpatrick, an economic policy consultant, says that liquid petroleum products made from refined crude oil are primarily used in transportation and manufacturing with a small amount used for home heating, mainly in the Northeast. They cannot be entirely replaced by more environmentally friendly fuels, such as solar and wind, unless and until vehicles are powered by electricity. “At this point, who knows what the law of unintended consequences of that path might be? Meanwhile, the demand for this oil exists, and it will be supplied from somewhere,” says Kilpatrick. “Gas and oil pipelines are built all over the US, usually with little opposition. While human error and corrosion do cause some amount of environmental damage, pipelines are the safest, most environmentally friendly means of transporting hydrocarbons. The root of the opposition to the Keystone XL Pipeline seems to be the production of oil from tar sands in Alberta, CA.”

Kilpatrick says that it is hard to get a handle on how many jobs the pipeline will create. “Most of the numbers are produced by sources with a stake in the outcome, and thus not reliable. I would argue that it will primarily create temporary construction jobs and provide a short term boost to motels, restaurants, and shops in towns along the pipeline route. But, the number of people needed to actually operate the pipeline, including inspection and maintenance, will not be large.”

Alan Herbst, an energy consultant, says that after years of planning, regulatory and environmental review, on August 26, 2011, the US State Department released the Final Environmental Impact Statement for TransCanada’s Keystone XL pipeline project. This review stated there were no environmental obstacles present to prohibit the pipeline’s development and is expected to result in US State Department approval of the project, the last significant hurdle necessary for its permitting and construction.

“The XL project is an expansion of the existing 600k b/d Keystone pipeline that runs from Alberta, Canada to refineries in Illinois and storage facilities in Cushing, Oklahoma. The XL expansion will provide an additional 700k b/d of pipeline capacity and enable crude oil from Canada and North Dakota’s Bakken field to reach refineries in Houston and Port Arthur, Texas,” explains Herbst.

“Proponents of Keystone XL cite the economic benefits (direct and indirect job creation, greater tax revenue and potentially lower oil prices) resulting from the multi-billion dollar project. Opponents have expressed concerns over potential pipeline leaks that could pollute surface water and area aquifers,” says Herbst. “Some pipeline opponents are looking to hinder the further development of Alberta oil sands sector by attempting to limit further construction of regional pipeline takeaway and export capacity.”

While safety and the environment are legitimate concerns, the XL expansion project will meet or exceed all US pipeline safety regulations, will be constructed from high strength steel, and have a fusion bonded epoxy coating along with active cathodic protection to prevent corrosion. “The pipeline will be remotely monitored 24-hours a day and buried at depths from 4 to 25+ feet depending on location. These features permit the safe construction and operation of the Keystone XL pipeline,” says Herbst.

Herbst says that the pipeline, which is expected to enter service in 2013, will provide an outlet for the increasing amounts of crude oil entering Cushing, which has created a supply glut (currently 31 million barrels are in storage) and depressed prices at the NYMEX delivery point. “This abundance of supply has inverted and widened the Brent/WTI spread, which at times has Brent trading at a $25 premium to WTI. Brent, a slightly lower quality crude, was traditionally valued at a $1.25-$1.75 discount to WTI,” he says. “Once the Keystone XL pipeline and one or two other pipelines are built to increase crude oil transport capacity to the US Gulf, the Brent/WTI spread will begin to narrow and possibly revert back to its traditional pricing relationship. This pipeline development will also provide US Gulf refiners with access to growing amounts of high quality Canadian and US crude, lessening their reliance on oil imports from Europe, Africa, Mexico and South America.”

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