Keystone XL: Build, Baby, Build

By Robert Carpenter, Editor | November 2011, Vol. 66 No. 11

The oil industry is a market full of intangibles, plenty of knee-jerk reactions from investors and a dynamic that often defies logic and clear-cut forecasts. For the U.S., there are several constants that continue to influence the industry. Perhaps the most notable is that the majority of our oil continues to be imported.

The beginning of a fundamental change is on the horizon in terms of sourcing oil and benefiting the pipeline construction/maintenance market. Part of that change is the feasibility of shale to obtain vast quantities of oil and gas. The other is the oil sands area of western Canada and the proposed Keystone XL Gulf Coast Expansion – a $7 billion pipeline project.

Canadian-based TransCanada is the pipeline owner. The Keystone Pipeline’s start date, originally planned for 2012, remains fluid due to the delay in the start of construction. The mere fact that the pipeline crosses an international border with Canada has complicated the proposed pipeline to extremes. That border crossing shifted the approval process from FERC to the U.S. Dept. of State which means more bureaucratic procedures and the final decision subject to approval by Secretary Hillary Clinton. In short, politics may very well decide the fate of an otherwise financially-sound, environmentally-friendly, economically-beneficial pipeline.

While the pipeline has long-since been cleared by Canada, in the U.S., the environmental review process for Keystone XL has been the most exhaustive and detailed review for a cross-border pipeline that has ever been undertaken by the U.S. Department of State (over three years). Three detailed and rigorous environmental impact studies had to be completed by TransCanada. The Final Environmental Impact Statement (FEIS) reached the conclusion that the Keystone XL will have no significant impact on the environment.

TransCanada claims – and the EIS reports (all three of them) agree -- that the proposed route is the shortest and would disturb the least amount of land and water bodies resulting in reduced environmental impacts. Alternative routes that were considered to avoid the Ogallala Aquifer and the Nebraska Sandhills are not preferable environmentally or otherwise. And contrary to what environmentalists would have us believe, oil sands-derived crude oil does not have unique characteristics that would suggest the potential for higher corrosion rates during pipeline transportation.