NBC report: If Keystone Pipeline is not built: more oil by rail

Repost from NBC News

What Happens if the Keystone XL Pipeline Isn’t Built?

By Lisa Riordan Seville

After five years, it appears the Obama administration will soon issue a decision on whether to build the long-delayed and controversial Keystone XL oil pipeline, which would cross an environmentally sensitive area of the Great Plains and move nearly a million barrels of oil a day to Gulf Coast refineries.

Backers of the project say it would stimulate the U.S. economy and enhance energy security, stressing that a new pipeline is the cheapest, safest way to transport dirty tar-sands crude from Canada’s booming oil fields to U.S. refineries.

Environmentalists, who earlier this month chained themselves to the White House fence in protest, counter that it would endanger the water supply in several states and exacerbate climate change. They want to stop or slow the exploitation of an energy source the Sierra Club calls “the most toxic fossil fuel on the planet.”

Graphic: TransCanada's Keystone pipelines  

But what happens if, after all the shouting, the pipeline isn’t built? NBC News consulted with experts on both sides of the debate to provide some possible answers about the impact on the environment, the economy and the global oil supply.

“We don’t think there’s any way that the oil will stay in the ground,” said Matt Letourneau, a spokesperson for the U.S. Chamber of Commerce’s Institute for 21st Century Energy. “Certainly the market will find a way.”

More oil moves by rail. Will more spill?

As oil production has surged in North Dakota’s Bakken region and Alberta’s oil patch, the volume of oil moved by rail has increased exponentially. With the rapid growth of “crude by rail” has come a series of derailments, some involving explosions and one, in Lac Megantic, Que., resulting in nearly 50 fatalities.

The crude from Canada, far less flammable than that from the Bakken, is unlikely to explode. But the tar-like oil does present major cleanup problems if it spills, particularly in water.

Without Keystone XL, more crude will likely move by rail both to Canada’s Atlantic and Pacific coasts and down into the U.S.

Last month the State Department released an environmental impact statement predicting three possible scenarios if the President decides to block the pipeline. All three point to more crude by rail. The oil would either 1) move to Oklahoma by train before being shipped by existing pipelines, 2) ship by rail to British Columbia before being loaded on tankers, or 3) travel directly by rail from Alberta to the Gulf.

In addition to the potential for derailments, shipping oil by rail is more expensive than moving it via pipeline, which could add to the end cost for consumers. Regardless, some companies are already moving forward with rail transport expansion, independent of Keystone’s fate. About 16 different rail terminal projects have been announced in Canada and the U.S., with the potential to move about 1.5 times as much oil as the projected volume for Keystone XL.

So far, rail shipment of Canadian crude isn’t expanding as quickly as expected. A recent analysis by Reuters found rail shipments of Canadian crude to the Gulf Coast were 40,000 barrels per day in 2013, far below industry projections of 200,000 barrels per day by the end of 2013. Statistics obtained by Reuters from Canada’s National Energy Board indicated deliveries to the Gulf Coast may have now reached 57,000 barrels per day, still short of projections.

Image: The proposed termination point for the Enbridge Northern Gateway Project  
Darryl Dyck / AP file 
The Douglas Channel, the proposed termination point for an oil pipeline in the Enbridge Northern Gateway Project at Kitamaat, British Columbia, Canada, Jan. 2012. The fear of oil spills is especially acute in this pristine corner of northwest British Columbia, with its snowcapped mountains and deep ocean inlets.

New Pipelines – But Not in the U.S.

As the Keystone XL project has languished, pipeline companies have proposed a number of other projects to move oil out of Alberta, most of them entirely on Canadian soil.

TransCanada, the company that wants to build Keystone XL, recently took the first step in the approval process for a different pipeline, a massive project that would snake nearly 2,800 miles from Alberta to Eastern Canada. “Energy East” would transport a whopping 1.1 million barrels of crude a day to refineries in Quebec and terminals on the Atlantic coast.

The next largest project, Kinder Morgan’s proposed TransMountain pipeline, would carry about 890,000 barrels a day in the other direction to the coast of British Columbia.

Enbridge, another major Canadian pipeline company, has two projects in the works — the Northern Gateway, which would send 520,000 barrels a day to the coast of British Columbia, and its Line 3 replacement, which could move 760,000 barrels a day from Canada into Wisconsin. Because Line 3 would replace an existing cross-border pipeline, the company argues it would not need the presidential permit that has held up Keystone XL.

If all the projects are approved, more than 4.1 million barrels of oil could flow through Canada by 2018. But the projects could be delayed by opposition from some of Canada’s aboriginal “First Nation” communities. Several proposed routes would cross aboriginal land. Canadian law gives them the leverage to block or redirect the projects, and some groups have already said they intend to fight.

Click here to see a map with all proposed pipelines to the Atlantic, Pacific, Gulf Coast and Great Lakes.

Oil Goes to China

If approved, the alternative pipelines could provide slower, more circuitous routes to America’s Gulf Coast refineries. They could also provide more direct routes to other markets, like those burgeoning in China and India.

Much of the crude that would have been refined in Gulf Coast refineries would have then been shipped to end users in Asia. But cutting out the U.S. middleman could mean more crude going straight to Asia – and new refineries in Asian countries to process it.

The threat of cheap crude slipping through America’s fingers to China has become a key talking point for pipeline advocates. Bill Day, a spokesman for the oil company Valero, which operates a Port Arthur, Tex. refinery that would receive oil via Keystone XL said that this could mean costs to the environment as well as the American economy.

“It’s going to come out of the ground, it’s going to get processed,” said Day. “We think it would probably be better to be processed here under our environmental rules rather than China.”

China’s state-owned companies have already invested heavily in Alberta’s oil sands. In 2012, Asian firms sunk nearly $30 billion in the area. Investments slowed last year after Canada changed some rules governing foreign investment, and after the Chinese companies already on the ground encountered roadblocks building pipelines. But investments are expect to climb again this year.

Image: A protest against the proposed Keystone XL oil pipeline  
Manuel Balce Ceneta / AP file 
Demonstrators lie down along Pennsylvania Ave. in front of the White House during a protest against the proposed Keystone XL oil pipeline, March 2. The protestors say the pipeline would contribute to global warming.

The Environmentalists Get What They Want – Sort of

Environmentalists want to delay or prevent the pipeline because doing so, they believe, will delay or prevent the extraction of Canadian tar-sands oil, estimated to be the world’s third-largest oil reserve. They’d prefer that the U.S. focus on alternative energies instead of searching for new sources of fossil fuel.

They also have a particular dislike for tar-sands oil, which is dirtier and heavier than other crude. When it spills it sinks in water and is hard to clean up. The Keystone XL pipeline would ship this dirty, heavy oil over one of the largest supplies of underground fresh water in America, Nebraska’s Ogallala Aquifer.

Opponents of Keystone are right, in part, to think that blocking it will slow down production. Without the pipeline, the supply of oil has so far exceeded the oil companies’ capacity to ship it out of land-locked Alberta to its largest market — the U.S.

The glut has driven down prices, making development in the region less attractive. A pipeline would not only make shipping faster and easier, it would lower the cost of transport, making the product still more attractive to customers.

“Industry plans to triple tar sands production over the next 20 years, and they simply will not be able to do it without pipeline capacity,” said Anthony Swift, an attorney with the National Resources Defense Council, a vocal opponent of the project. “We’re seeing projects begin to get cancelled as it becomes apparent that pipelines aren’t coming in as quickly as industry expected.”

But even without the pipeline, and with the cancelled projects, production is rising. A market assessment by Canada’s National Energy Board released in November estimated that Canadian crude production is on track to soar to nearly 6 million barrels per day — thanks in large part to oil coming from the sticky sands that have become the symbol of the debate over the energy future of North America.