Keystone XL Pipeline: Politics and Money or The Big Picture?

This article is rather lengthy due to the background material, which is necessary to fully understand the Keystone XL issue. I will put the main points at the top of the post – the remainder of the post should be read for additional background information, which confirms the points made. Note that bpd and mbpd in this post refer to barrels per day and million barrels per day respectively.

Many questions have arisen about the Keystone XL pipeline, but three primary questions come up more than all others: (1) Will it help U.S. energy security; (2) Will it provide jobs; and (3) Are the environmental impacts of serious enough consequence to halt the pipeline?

Will Keystone XL help U.S. energy security?
Briefly, yes. Although the small scope/picture indicates that most of the Canada oil, once refined in Houston will be sold globally, the pipeline will reduce U.S. dependence on foreign crude from Mexico and the Middle East. And, if more significant conflict were to break out in either area, cutting commodity supply lines, the supply out of Canada would be relatively secure compared to supply lines reaching around the globe. Consequently, this would result in strengthening U.S. National Security. However, the XL supply will not lower overall fluid-energy prices. But the sum of the parts is more important than the individual parts, i.e., politics, money, environment, jobs, etc.

The XL pipeline should be thought of as a resource exchange (I presented this aspect and the following figures at the United States Naval Postgraduate School last year at APEX, Admiral Rose LeVitre, Assistant Director National Intelligence, and other high profile officials). In this respect, President Trump has made the correct decision, despite arguments from environmentalists. In the systems thinking approach, the potential energy balance versus population needs against environmental issues makes the population and energy the winners. Why? It is because of the large-scale balance between people, water, energy, Tribes, and resources. The BRIC nations are putting continued pressure on the U.S. in terms of trade, national security, and other issues. One example is the New Nicaragua Canal that will be controlled by China who now has a security foothold in Nicaragua while Russia has a security foothold in Venezuela (see Figure 1). This is also why I recommended renewed political relations with Cuba in January 2014 with my colleague James Burch.

Figure 1

Shortages in energy supplies, if allowed to happen, will create dire consequences for the U.S. Also, the current geopolitical situation with China and Russia is very important to U.S. national security (Figure 2).

Figure 2

Additionally, serious ramifications for Homeland and National Security also must be considered. For example, what is the future and how does it relate to water and energy and internal security? With the entire world giving the perception that preparations for large-scale war are underway, we need Mexico as both an ally and a stronghold for a buffer to National Security, especially regarding resource exchange. So, how do we need think about this? We need to be extremely multidimensional and think carefully about resource exchanges between Canada, U.S., and Mexico (Figure 3). From a systems-thinking approach and even including the border wall, the Keystone XL is a big part of that. Consequently, geopolitical relations with Mexico are important and vice versa.

Figure 3

Since President Trump has required that American steel be used in the pipeline’s construction, he also should mandate an additional requirement. That requirement is a right-of-way for a pipeline to fulfill “Wally’s Dream” that was proposed in the 1960s to transport water from Alaska to California. The drought in California is only in brief respite and will continue. Additional water resources will be required to sustain the state and its economy moving forward. Because California has built no new reservoirs since the 1960s when its population was 19 million, calamitous consequences will imperil the state with continued drought. Because the population of California has doubled to almost 40 million and no new reservoirs have been built to provide for that growth, Wally’s Dream becomes ever-more a requirement. Consequently, President Trump should demand a similar equitable right-of-way from Canada for “Wally’s Dream” pipeline as was given for Keystone XL! Also, we must look at the larger picture, at the effects on the U.S. as a whole if California sinks deeper into a drought that will affect the population, industry, and the environment – such would act as a large anchor pulling the entire country potentially into a lasting recession.

Will Keystone XL Provide Jobs?
Yes, Keystone XL will provide jobs (see table below), but they will only be about 2 years in duration, with a small number of maintenance personnel remaining after construction. However, the salaries for that two years will be substantially higher than minimum wage and should help boost the U.S. economy short term, as well as assist in, once again, ramping up steel production in the U.S., which will further grow the economy for a much longer term. Comparing Keystone XL to the Trans-Alaska Pipeline, the latter employed about 70,000 total during the construction phase (** in table was one-time peak), however, much of that number was due to very high turnover rate because of the harsh climate and also had summer peaks due to winter weather. The Keystone XL will not face that situation and, the majority of the pipe is already in place (*** in table refers to potential peak number of jobs, speculation at this point).

ParameterTrans-Alaska Pipeline (actual)Keystone XL Pipeline (proposed)
Length800 miles1,179 miles
Maximum capacity - BPD*2.1 million830,000
Pipe Diameter48 inches36 inches
Estimated Cost: pre-construction$900 million$5.3 billion
Actual Cost$8 billion--
Construction Time3 years, 2 months2 years
Full-time jobs created during construction28,000**42,000***
Full-time maintenance jobs after construction80050
Starting PointPrudhoe Bay, AlaskaHardisty, Alberta
Termination PointValdez, AlaskaHouston, Texas

Are the environmental impacts of serious enough consequence to halt the pipeline?
The environmental impacts could be severe given the nature of the crude oil being pumped through the pipeline, but it is likely that spills would be localized and quickly contained. It is not as if the entire pipeline is going to rupture along its 1,100-plus-mile length. Maintenance crews will be on top of such issues and, with the use of drones and helicopters that will constantly surveil the pipeline, response to such a spill will be rapid. Refer to ‘background’ information below for additional environmental aspects. Additionally, another problem arose in the environmental portion of the systems. The plans for pipeline construction pass through sacred land for the Standing Rock Sioux, a tribe whose reservation lies in both North and South Dakota. The Tribe filed for an injunction through federal courts, but was eventually denied because the construction area was private land and not reservation land. As a Native American, I side with the Tribe in its endeavors, but the legal system having failed them, the only other option would be to potentially persuade movement of that part of the pipeline. That is not likely.

Summary
When balancing the Keystone XL system as a whole and its potential effects on national security, the economy, the environment, resource exchange, global geopolitics, cross-border relations, and additional parameters that I will not discuss here, President Trump made the correct decision in moving forward with the finalization of construction of the Keystone XL pipeline. Why? Because all of the potential effects as a system outweigh potential detriments from a part of the system – that facts strongly support this. Further information can be gleaned from the background material below.

Background
The Keystone XL pipeline has been controversial since its inception. TransCanada’s proposed Keystone XL Pipeline would transport oil-sands crude from Canada and shale oil produced in North Dakota and Montana to a market hub in Nebraska for further delivery to Gulf Coast refineries. The pipeline would consist of 875 miles of 36-inch pipe with the capacity to transport 830,000 barrels per day (BPD). Because it would cross the Canadian-U.S. border, construction of Keystone XL requires a Presidential Permit from the State Department. A decision to issue or deny a Presidential Permit is based on a determination that a project would serve the national interest, considering potential impacts on the environment, the economy, energy security, foreign policy, and other factors. Environmental impacts are evaluated and documented in an Environmental Impact Statement (EIS) under the National Environmental Policy Act (NEPA).

Currently, there is contentious debate on whether President Trump should have approved construction of this pipeline, from environmentalists to power brokers in congress, the President has received pressure from both sides. Often, it seems the reports in the media are far from the truth in terms of the numbers of jobs the pipeline would produce, the amount of revenue it would generate, the independence the U.S. would gain from other oil exporting countries in the Middle East and related parameters regarding this infrastructure. The topic has become so mired by opposition from both sides that the truth about the pipeline and facts of its construction are blurred. The intent of this article is to present the facts that can be garnered about this controversy and to do a comparative analysis of the Keystone XL pipeline to the Trans-Alaska pipeline that was completed in May 1977.

TransCanada originally applied for a Presidential Permit for the Keystone XL Pipeline in 2008 and since then, the application has run into continual delays. An example includes issues regarding environmental impacts within Nebraska in its Sand Hills region, which led the state to enact new construction requirements for the pipeline that would alter the proposed route through the state, as well as the Dakota branch of the pipeline. This delayed the State Department decision, which would necessarily include more information on the proposed route and the permit for TransCanada was denied.

TransCanada reapplied in May 2012 to the State Department for a Presidential Permit to build the northern, cross-border segment of Keystone XL, which initiated a new NEPA process. The development of the Keystone XL Pipeline received sharp criticism from many groups and has been extremely controversial.

Proponents focus their arguments in support of the pipeline on two areas: (1) increasing diversity of the U.S. petroleum supply and (2) potential economic benefits with new jobs a primary focus in this area.

In many articles surrounding the issue facts about jobs created, economic benefits, environmental issues, etc. are lacking. At its initiation, the Act to approve the pipeline, i.e., the Energy Production and Project Delivery Act of 2013 (S. 17), the Keystone for a Secure Tomorrow Act (H.R. 334), a bill to approve the Keystone XL Pipeline (S. 582), and the Northern Route Approval Act (H.R. 3) could all effectively approve the Keystone XL Pipeline. Further, the Strategic Petroleum Supplies Act (S. 167) would suspend sales of petroleum products from the Strategic Petroleum Reserve until the pipeline is approved. On March 22, 2013, the Senate passed an amendment to the Fiscal 2015 Senate Budget Resolution (S.Con.Res. 8) that would provide for the approval and construction of the Keystone XL Pipeline (S.Amdt. 494). All a moot point since President Trump gave final approval in January 2017.

For Canada, there is an extreme tradeoff for tremendous amounts of water for energy that could have a very significant impact on climate in the Northwest U.S. and Alberta. The effects could be like what recently happened to cause significant drought in Brazil. And, trading water for energy is always an extremely bad idea. This issue requires close monitoring and potentially legislation.

TransCanada – the Company

The Keystone and Keystone XL Pipeline Systems
In 2005, TransCanada announced its plan to address expected increases in Western Canadian Sedimentary Basin production by constructing the Keystone Pipeline System. When complete, the system would transport crude oil from Hardisty, Alberta, to U.S markets in the Midwest and Gulf Coast. The pipeline system was proposed as two distinct phases—the Keystone Pipeline (complete and in service) and Keystone XL Pipeline.

The Keystone Pipeline was completed in two segments—the Keystone Mainline and the Cushing Extension. The Mainline is 1,353 miles of 30-inch pipeline from Hardisty, Alberta, to the United States refineries in Wood River and Patoka, Illinois. The U.S. portion of the pipeline runs 1,086 miles and begins at the international border in Cavalier County, ND, and has been in service since June 2010. The Cushing Extension is 298 miles of 36-inch pipeline and associated facilities that run from Steele City, NE (near the Kansas border), to existing crude oil terminals and tanks farms in Cushing, OK. The Cushing Extension has been in service since February 2011.

The Keystone XL Pipeline is also being proposed in two project segments, as follows:

• The Gulf Coast pipeline project, 485 miles of 36-inch pipeline and associated facilities linking the Cushing, OK, tank farms to refineries in Houston and Port Arthur, TX. This segment includes the Cushing Marketlink project that will provide receipt facilities to transport U.S. crude oil to the Gulf Coast.
TransCanada anticipates this segment to be in service mid-to-late 2013.

• The Keystone XL pipeline project, 875 miles of 36-inch pipeline and associated facilities linking Hardisty, Alberta to Steele City, NE. This segment also includes the Bakken Marketlink in Baker, MT—receipt facilities that can transport crude oil from the Williston Basin producing region for delivery to Steele City then Gulf Coast refineries. Of the Keystone Pipeline’s 830,000 bpd capacity, 100,000 bpd has been set aside to transport Bakken crude oil.

In the 2008 Presidential Permit application, the “Keystone XL Project” referred to both pipeline segments. For the 2012 Presidential Permit application, the “Keystone XL Project” refers to only the northern pipeline segment.

The existing Keystone Pipeline has the capacity to deliver up to 590,000 bpd of Canadian crude oil to U.S. refineries and export terminals. The Keystone XL Pipeline project (both the Keystone XL and Gulf Coast pipeline segments) would have a capacity of 830,000 bpd. Thus, the entire Keystone Pipeline System may ultimately have the capacity to deliver up to 1.3 million bpd of crude oil. The existing Keystone Pipeline and proposed expansions are illustrated in Figure 4. The proposed Keystone XL Project and associated pipeline segments are illustrated in Figure 5.

Figure 4

Figure 5

TransCanada has estimated the capital cost of the U.S. portion of the 2012 Keystone XL Project, from the U.S. border to Steele City, NE, would be $5.3 billion. This figure is higher than the cost estimate when the 2008 permit application was filed, reportedly due to currency swings, changing regulatory requirements, and permitting delays.

Infrastructure to transport oil produced from the Bakken Formation has not kept up with the increased production. Bakken shale crude oil is transported to refineries by rail and truck, in addition to more economical transport by pipeline. (For more analysis, see CRS Report R42032, The Bakken Formation: Leading Unconventional Oil Development, by Michael Ratner et al.).

The proposed Keystone XL Project would include receipt facilities to transport crude produced from the Williston Basin in North Dakota and Montana to Gulf Coast refineries. That project, the Bakken Marketlink, would include facilities to provide crude oil transportation service from Baker, MT, to Cushing, OK, via the proposed Keystone XL pipeline and from Cushing to delivery points in Texas, via the proposed Gulf Coast Project. Keystone Marketlink estimates that the project will cost $140 million and can deliver approximately 100,000 bpd of crude oil to the proposed Keystone XL pipeline. Keystone Marketlink currently has firm, long-term contracts to transport 65,000 bpd of the 100,000 bpd.

The Bakken contracts improve the economics for Keystone XL Pipeline, raising the amount of oil slated to flow through the pipeline. Lower transportation costs and access to new markets may support further investment in the Bakken. Furthermore, TransCanada is not the only company adding pipeline capacity in the region. Notably, Enbridge, another Canadian pipeline company, has proposed the Bakken Pipeline Project, which would add 120,000 bpd of transport capacity to move Bakken oil to Midwest markets. Per Enbridge, sufficient pipeline capacity has been slow to emerge in the region because they’re smaller players in the Bakken. They are not able to make the 20-year commitments and it’s been a lot of work to get them to commit to the level that [is] required to underwrite a major project out of the Bakken. Rail transport capacity is also expanding.

Arguments for and Against the Pipeline
Proponents of the Keystone XL Project, including Canadian agencies and U.S. and Canadian petroleum industry stakeholders, base their arguments supporting the pipeline primarily on increasing the security and diversity of the U.S. petroleum supply and economic benefits, especially jobs. Pipeline opponents are generally environmental organizations and community groups. Their concerns stem from issues that can be broadly categorized as the pipeline’s global or community impacts. “Global” impacts stem primarily from concern regarding the lifecycle greenhouse gas (GHG) emissions associated with the development of Canadian oil sands, compared to conventional oil or renewable fuels. Although the concern regarding GHG emissions is focused primarily on the extraction process, opponents also argue that use of the oil sands crude promotes continued U.S. dependency on fossil fuels. Concern over adverse community impacts of the pipeline stems primarily from impacts associated with the pipeline’s construction and long-term use on private land—particularly its potential to affect agricultural uses and cattle grazing. Communities along the pipeline route are also concerned about the risk of a potential release of heavy crude and the operators’ ability to respond to a release, particularly in remote areas.

Impact on U.S. Energy Security
In its Presidential Permit application, TransCanada asserts that constructing the proposed Keystone XL pipeline is in the U.S national interest to maintain adequate crude oil supplies for U.S. refineries. The application argues that the pipeline will allow U.S. refiners to substitute Canadian supply for other foreign crude supply and to obtain direct pipeline access to secure and growing Canadian crude output. The application asserts that the pipeline would allow the United States to decrease its dependence on foreign crude oil supplies from Mexico and Venezuela, the two largest oil exporters into the U.S. Gulf Coast. Consistent with this argument, H.R. 3900 would seek to ensure that any crude oil and bitumen transported by the Keystone XL pipeline, or any resulting refined products, would have to remain in U.S. markets subject to a presidential waiver allowing foreign export. Depending upon the circumstances, however, such restrictions could raise concerns with respect to international trade agreements, among other considerations.

Energy security arguments have taken on additional weight considering the recent geopolitical tensions in the Middle East and North Africa. However, it is worth noting that even if Keystone XL is built, prices for the crude oil it carries as well as for domestically produced oil from elsewhere will continue to be affected by international events. The oil market is globally integrated and events in major producer and consumer countries can affect prices everywhere.

Canadian Oil Imports in the Overall U.S. Supply Context
Gross U.S. imports of crude oil and petroleum products averaged 11.4 million bpd (Mbpd) in 2011. U.S. oil exports averaged 2.9 Mbpd (almost entirely petroleum products), leaving net imports at 8.4 Mbpd. U.S. net imports have fallen by 4.1 Mbpd or 33% since they peaked in 2005 because of lower total oil consumption and higher domestic production. Some of this decline could be mitigated in the near term as oil demand recovers from the recession. However, there is increasing sentiment among forecasters that U.S. oil imports have passed their high-water mark already and may remain relatively flat or fall soon.

Among the largest sources of U.S. gross oil imports are Canada (2.7 Mbpd), the Persian Gulf (1.9 Mbpd), Mexico (1.2 Mbpd), and Venezuela (0.9 Mbpd). Imports from the latter two sources have decreased in recent years in part due to lower need for imports described above and in part due to developments in those countries. Mexican production has been falling since 2004 because new oil developments have not been able to offset depletion at Mexico’s giant Cantarell field. Imports from Venezuela, another key source of U.S. imports, have also fallen. Venezuelan production never fully recovered after a strike at its national oil company, Petróleos de Venezuela, in 2002- 2003. Venezuelan production today is nearly 1 Mbpd less than that achieved in 2001. In recent years, Venezuela has also been trying to diversify business away from the United States, for example, by increasing exports to China.

Meanwhile, Canadian production and exports to the United States have increased, primarily due to growing output from the oil sands in western Canada. Energy markets in the United States and Canada are well integrated by pipeline infrastructure; nearly all Canadian energy exports go to the United States.65 Canadian oil production has increased about 0.2 Mbpd since 2005 and exports to the United States have increased by 0.5 Mbpd (see Figure 3). Some expect Canadian oil production to grow by nearly 2 Mbpd by 2025 due to increased output from the oil sands.

Oil Sands, Keystone XL, and the U.S. Oil Market
Oil sands (also referred to as tar sands) are a mixture of clay, sand, water, and heavy black viscous oil known as bitumen. Oil sands require more processing than conventional crude oil. Oil sands are processed to extract the bitumen, which can then be sent to refineries in one of two forms. Bitumen can be upgraded into “syncrude,” a light crude that is suitable for pipeline transport and is relatively easy to refine. Alternatively, bitumen can be blended with lighter hydrocarbons to form a heavy crude (diluted bitumen or “dilbit”) that can be transported by pipeline. The bulk of oil sands supply growth is expected to be in the form of the latter.

Most oil sands imports into the United States currently go to the Midwest, where refineries have been investing in complex refining capacity to process growing volumes of heavy Canadian crude. The U.S. Gulf Coast region already has a large amount of complex refining capacity and is well suited for processing Canadian heavy crude oil. Gulf Coast refiners currently process heavy crudes from Venezuela, Mexico, and elsewhere. Complex refineries in the Gulf Coast may be best equipped to handle a large increase of heavy oil sands crude, though they may still need to adjust processes and make new capital investments in equipment to accommodate crudes’ characteristics, especially if the new Canadian crudes will be used in large amounts. There are 58 refineries in the Gulf Coast region (potentially served by the proposed Gulf Coast Project) that could process heavy crude oil similar in composition to the oil that Keystone XL pipeline would carry.

Oil production from the oil sands is increasing, as is production from the Bakken and other areas of the U.S. Midwest. Transport options to carry crude from the Midwest to the Gulf Coast are limited. (In the past, crude oil had been shipped up from the Gulf Coast to Midwestern refineries.) The resulting abundance of crude oil in the Midwest has driven down crude oil prices in that region relative to Gulf Coast and international crude markets. Midwestern refiners benefit from the lower cost of crude, but it does not translate to substantially lower consumer prices for gasoline or other products in the region. The Midwest still brings in refined products from the Gulf Coast, which keeps refined products prices in line with national and international levels.

Oil sands producers are interested in Keystone XL because it would expand their market reach into the Gulf Coast. The Gulf Coast region holds half of U.S. refining capacity, including a substantial amount of technologically advanced capacity capable of processing heavy sour crudes in large volumes. Reaching a larger market and one with more advanced refining capacity could increase the price these producers receive for their crude. For their part, Gulf Coast refiners are interested in the Keystone XL pipeline because it increases the supply of heavy sour crude in the Gulf Coast region, potentially bringing down their input costs relative to the options they currently have available. Canadian Natural Resources Limited, an oil sands producer, and Valero Energy Corporation, a large U.S. refiner, are among those that contracted for shipping capacity on the Keystone XL pipeline.

With expanded pipeline capacity extending to the U.S. Gulf Coast, Canadian oil sands crude may compete with other heavy crudes such as those from Mexico, Venezuela, and elsewhere. It is difficult to predict precisely how this competition will play out, but it may take place through shifting discounts or premiums on crude oils from various sources. It may be possible for Canadian oil supplies to effectively “push out” waterborne shipments from other countries, although this depends on a wide range of market conditions. Waterborne crudes may more easily go to other destinations than Canadian crudes, though like Canadian crudes they can be tied to specialized refining capacity, as is true for Venezuelan heavy crudes.

There is concern that increased supply of crude to the Gulf Coast may result in larger petroleum product exports rather than contributing to lower domestic fuel cost. Although the United States is a net importer of oil and petroleum products, it does export some petroleum products. U.S. petroleum product exports rose when domestic demand declined in the wake of the recession while foreign demand for certain fuels, such as diesel, remained relatively robust. Issues around potential export of Canadian crude oil carried on Keystone XL or export of products made from that crude oil are addressed in CRS Report R42465, U.S. Oil Imports and Exports, by Robert Pirog.

If Keystone XL secures growing oil sands output for the United States, it could push out seaborne crudes from elsewhere, regardless of where the product is ultimately sold. If the absence of the pipeline encourages Canadian oil sands producers and pipeline companies to find an alternate export route through the Canadian West Coast, Canadian supplies may displace heavy oil supplies in other markets and potentially allow relatively more overseas imports coming into the Gulf Coast. This possibility is discussed further below.

It should be noted that Keystone XL aims to alleviate two potential bottlenecks in the pipeline transportation system: Between Western Canada and the United States, and between the U.S. Midwest and the Gulf Coast. Existing pipelines between Canada and the United States have spare capacity to carry rising Canadian production for the time being. According to some estimates, additional capacity, such as Keystone XL, may not be needed until 2019. The latter bottleneck, between the Midwest and the Gulf Coast, is already at capacity and, as described above, has resulted in a discount for crude oil in the Midwest (though not for petroleum products). The Gulf Coast Pipeline Project, the lower leg of originally proposed Keystone XL pipeline, would address this second bottleneck and help alleviate the discount for Midwestern crudes.

Other Pipeline Projects
Apart from Keystone XL, several other pipeline proposals could help carry growing Canadian crude oil supplies to the U.S. Gulf Coast. On October 16, 2011, Enbridge announced it would purchase ConocoPhillips’ share of the Seaway pipeline and reverse its direction to bring crude oil from the Midwest to the Gulf Coast. ConocoPhillips had kept the pipeline running northward to serve its refinery in Ponca City, OK. However, the glut of oil in the Midwest had resulted in the pipeline running at low volumes. Nonetheless, ConocoPhillips had been uninterested in reversing the pipeline. ConocoPhillips, which is spinning off its refining business, sold its share of Seaway to Enbridge. Enbridge and Seaway shareholder Enterprise Products Partners L.P. reversed the direction of crude oil flows on the Seaway pipeline to enable it to transport oil from Cushing, OK, to the U.S. Gulf Coast. The pipeline began running southward at an initial capacity of 150,000 bpd in 2012, with capacity expected to increase to 400,000 bpd in 2013. The reversal and expansion are expected to reduce the glut of crude oil in the Midwest and reconnect Midwestern crude prices to global prices (driving the U.S. Benchmark West Texas Intermediate crude higher).

Prior to the Seaway sale, Enbridge had reported significant commitments for two new pipeline projects: Flanagan South, which would carry oil from Illinois to Oklahoma, and Wrangler, which would carry oil from Oklahoma to Texas. According to Enbridge, the project would duplicate existing routes and would not cross an international border, so it would not require a Presidential Permit. Enbridge already has cross border pipeline capacity connecting Alberta to Illinois. However, according to press reports, Wrangler has been canceled in light of the Seaway purchase and reversal. Enbridge is moving forward with the Flanagan South project, which will have an initial capacity of about 600,000 bpd and run alongside Enbridge’s existing Spearhead pipeline (see Figure 4). Like Keystone XL/Gulf Coast Project, Flanagan South and a southbound Seaway may facilitate increased flow of Canadian crude to the U.S. Gulf Coast. In February 2013, Enbridge also announced a proposal to convert segments of existing natural gas pipeline owned by Trunkline Gas Company to carry crude oil from western Canada and North Dakota to refineries in the eastern Gulf of Mexico. The pipeline conversion could potentially carry up to 660,000 bpd from the market hub at Patoka, IL, more than 700 miles to St. James, LA.

Economic Impact of the Pipeline
In addition to supply diversity arguments, some Keystone XL pipeline proponents support the project based on economic benefits associated with expanding U.S. pipeline infrastructure. A recent study by the Energy Policy Research Foundation, for example, concludes that “the Keystone expansion would provide net economic benefits from improved efficiencies in both the transportation and processing of crude oil of $100 million-$600 million annually, in addition to an immediate boost in construction employment.” A 2009 report from the Canadian Energy Research Institute (CERI) commissioned by the American Petroleum Institute similarly concludes that:

As investment and production in oil sands ramps up in Canada, the pace of economic activity quickens and demand for US goods and services increase rapidly, resulting in an estimated 343 thousand new US jobs between 2011 and 2015. Demand for U.S. goods and services continues to climb throughout the period, adding an estimated $34 billion to US GDP in 2015, $40.4 billion in 2020, and $42.2 billion in 2025.

These CERI estimates apply to the entire oil sands industry, however, not only the Keystone XL project, and they are derived from a proprietary economic analysis which has not been subject to external review. Some stakeholders point to State Department and other studies reporting much lower anticipated economic benefits.101 With the separation of the Gulf Coast Project from the northern segment of the original proposal, the potential economic impact of the reconfigured Keystone XL project has clearly changed. Consequently, it is difficult to determine what specific economic and employment impacts may ultimately be attributable to the Keystone XL pipeline. Nonetheless, given the physical scale of the project, it could be expected to increase employment and investment at least during construction.

Lifecycle Greenhouse Gas Emissions
Oil production from oil sands is controversial because it has significant environmental impacts, including emissions of greenhouse gases during extraction and processing, disturbance of mined land, and impacts on wildlife and water quality. Because bitumen in oil sands cannot be pumped from a conventional well, it must be mined, usually using strip mining or open pit techniques, or the oil can be extracted with underground heating methods. Large amounts of water and natural gas are also required (for heating) during the extraction process. The magnitude of the environmental impacts of oil sands production, in absolute terms and compared to conventional oil production, has been the subject of numerous, and sometimes conflicting, studies and policy papers. Some stakeholders who object to oil sands projects oppose the Keystone XL pipeline because it expands access to new markets for the oil produced by those projects, thereby encouraging what they consider to be further environmentally destructive oil sands development. As discussed earlier, however, if oil sands production can be diverted to other markets (e.g., Asia), preventing the Keystone XL project may not necessarily limit oil sands development.

Some stakeholders object to the Keystone XL pipeline because it would not increase U.S. supplies of oil, and thereby perpetuate the nation’s dependence on imported fossil fuels and increase carbon emissions from the transportation sector. Acknowledging this concern, in a public forum on October 20, 2010, Secretary of State Clinton reportedly remarked that “we’re either going to be dependent on dirty oil from the [Persian] Gulf or dirty oil from Canada … until we can get our act together as a country and figure out that clean, renewable energy is in both our economic interests and the interests of our planet.” Critics of the State Department’s draft and supplemental draft EIS assert that the environmental review overlooks the pipeline project’s overall impact on greenhouse gas emissions, for example, from the extraction and refining processes. To address those potential emissions, EPA recommended that the final EIS include discussion of mitigation approaches for greenhouse gas emissions from extraction activities that are either currently used or could be employed to help lower lifecycle greenhouse gas emissions. However, others have argued that whether the Keystone XL Pipeline is constructed would have little bearing on greenhouse gas emissions as there are likely to be other export routes available for Canadian oil sands crude, and therefore, the same crude oils would still be transported and refined, albeit in different locations. For further analysis of greenhouse gas emissions associated with the Canadian oil sands, see CRS Report R42537, Canadian Oil Sands: Life-Cycle Assessments of Greenhouse Gas Emissions, by Richard K. Lattanzio.

Private Land Use and Oil Spill Impacts
For the proposed Keystone XL Project, approximately 88% of the land affected by pipeline construction and operation would be privately owned, with the remaining 12% primarily state and federal land. Private land uses along the proposed pipeline routes are primarily agricultural— farmers and cattle ranchers.

The pipeline’s construction and continued operation would involve a 50-foot-wide permanent right-of-way along the length of the pipeline. Keystone agreed to compensate landowners for losses on a case-by-case basis. However, a concern among landowners and communities along the route is the potential for their land or water (used for drinking, irrigation, or recreation) to be contaminated by an accidental release (spill) of oil. That concern is heightened in areas where the pipeline will be located near or would cross water or is in a remote location.

A primary environmental concern of any oil pipeline is the risk of a release, leak, or spill of oil. A release is a loss of integrity of a pipeline (from the mainline or other components); a leak is a release over time; and a spill is the liquid volume of a leak that escapes any containment system and enters the environment. In estimating potential environmental impacts, several factors will be important—including the size and location of the release, leak, or spill, and how quickly it is remediated.

A release of oil on land would not necessarily result in surface or groundwater contamination. The potential for a spill to reach water would depend on factors such its proximity to a water source (e.g., on or near a creek or stream or located on land where the groundwater table is close to the surface) and the characteristics of the environment into which the crude oil is released (e.g., porous underlying soils), and the volume of the spill, the duration of the release, and the viscosity and density of the crude oil.

The size of potential spills and the type of oil that would likely be released from the Keystone XL pipeline have been issues of concern to opponents of the project. In its July 16, 2010, comments on the draft EIS for the Keystone XL Project, EPA expressed concern over the potential adverse impacts to surface and ground water from pipeline leaks or spills. That concern stemmed from two areas—the toxicity of chemical diluents that may be used to allow bitumen to be transported by pipeline and the lack of risk assessment for potential serious or significant spills, including an evaluation of spill response procedures in the wake of such a spill.

Concerns reflected in EPA’s letter were realized 10 days later when the Enbridge Energy Partners’ Alberta Pipeline ruptured near Marshall, MI. The resulting spill released dilbit crude into a tributary creek of the Kalamazoo River and traveled approximately 40 miles downstream in the Kalamazoo River. Initially estimated by Enbridge as a release of approximately 800,000 gallons of crude, EPA subsequently estimated that over 1.1 million gallons were released. The spill resulted in over 220 areas of moderate-to-heavy contamination, including over 200 acres of submerged oil on the river bottom and over 300 solidified oil deposits.113 Enbridge estimates that cleanup will cost approximately $700 million.

The Enbridge spill highlighted several issues of concern among environmental groups and communities along the pipeline route—in particular, the nature of the dilbit crude likely carried by the Keystone XL pipeline. The dilbit crude in the Enbridge spill had been diluted with benzene and other hazardous constituents. Following the spill, high levels of benzene in the air prompted the issuance of voluntary evacuation of residents in the area. Concern over the presence of similarly toxic constituents, particularly the degree to which the level of toxic constituents may be unknown at the time of a release, has been an ongoing concern among environmental and community groups.

The Enbridge spill was considered a “very large spill” and not necessarily one that would likely occur along the Keystone XL pipeline route. However, in its first year of operation, TransCanada’s Keystone pipeline experienced 14 spills. Although mostly minor spills, one spill at the Ludden, ND, pump station resulted in the release of 21,000 gallons of oil. Like the Enbridge release, that local citizens first reported, not as a result of the Keystone’s release detection equipment. A March 29, 2013, release of oil sands crude from an Exxon Mobil pipeline in Mayflower, AR, has continued to draw attention to the risk of potential spills from crude oil pipelines. These incidents have made pipeline opponents concerned that such spills may be significant and that, absent a witness to a spill, a leak in a remote area could potentially go undetected for a long period.

Also, as illustrated in the aftermath of the Enbridge spill, cleanup of bitumen crude presents certain challenges. Dilbit is a relatively heavy crude oil mixture compared to other crude oils. In general, heavier oils are more persistent and present greater technical challenges in removal after a spill compared to lighter oils. Almost two years after the Enbridge spill, cleanup efforts continue. Since the spill, public access to 39 miles of the river system was banned to protect public health and safety. The first three-mile segment of river reopened to the public on April 27, 2012. Elements of the cleanup are expected to last until 2015.

Regardless of design, construction, and safety measures, the Keystone XL pipeline will likely have some number of spills over the course of its operating life. The unique oil spill response efforts necessary for dilbit crude make an accurate assessment of potential oil spill risk particularly relevant when addressing concerns expressed by opponents to the Keystone XL pipeline. The need for more conclusive analysis of potential risks associated with the transport of dilbit crude was addressed, in part, in the Pipeline Safety, Regulatory Certainty, and Job Creation Act of 2011 (P.L. 112-90, enacted January 16, 2012). Under Section 16, “Study of transportation of diluted bitumen,” the Secretary of Transportation is required to conduct an analysis to determine whether there is any increased risk of a release for pipeline facilities transporting diluted bitumen. In response to that directive, the PHMSA contracted with the National Academy of Sciences to conduct a full and independent study of this topic, which is not yet completed.

Issues with the Original Pipeline Route Across the Sand Hills
In the process of examining factors necessary to determine whether the Presidential Permit for the original Keystone XL Project was in the national interest, the State Department decided that it needed to assess potential alternative pipeline routes that would avoid the Sand Hills region of Nebraska. Unique characteristics of the Sand Hills—including its high concentration of wetlands, extensive areas of very shallow groundwater, and its sensitive ecosystem—were identified as factors that resulted in increasing public concern over the proposed pipeline location. For these reasons, TransCanada announced it would work with the Nebraska DEQ to identify a potential pipeline route that would avoid the Sand Hills. New pipeline routes through Nebraska, identified in the 2013 draft EIS, reflect the work between TransCanada and Nebraska DEQ.

To understand concerns about the potential environmental impacts of a pipeline crossing the Sand Hills (also referred to as the Sandhills), an understanding of the unique size and structure of the region is useful. The Sand Hills region is a 19,600-square mile sand dune formation stabilized by native grasslands that cover 95% of its surface. The surface is highly susceptible to wind erosion if the grassland is disturbed. Below its surface lie hundreds of feet of coarse sand and gravel. Essentially, the porous soil acts like a giant sponge that quickly absorbs precipitation, allowing very little to run off. In some areas, the water table reaches the land surface—a characteristic that creates lakes that dot the region as well as 1.3 million acres of wetlands. The loose, porous soil and sensitivity to wind erosion have been factors contributing to a lack of development on the Sand Hills. Thus, the region contains the most intact natural habitat of the Great Plains of the United States. The porosity of the soil is also relevant because the Sand Hills sits atop the Ogallala Aquifer—one of the largest freshwater aquifer systems in the world.

The highly porous soil of the Sand Hills makes it a significant recharge zone in the northern Ogallala Aquifer. That is, the sandy, porous soil of the Sand Hills allows a significant amount of surface water to enter (recharge) the aquifer system. Water from the aquifer also accounts for a significant amount of water use—78% of the region’s public water, 83% of irrigation water in Nebraska, and 30% of water used in the United States for irrigation and agriculture.

Potential impacts to the Ogallala Aquifer and the Sand Hills identified in the final EIS for TransCanada’s original permit application included groundwater contamination after an accidental spill or leak of crude oil during the construction or operation of the proposed pipeline. Along the preferred route of the originally proposed pipeline configuration, areas in the Sand Hills region were identified as locations where the water table may be close to the surface. The depth to groundwater was less than 10 feet for approximately 65 miles of the preferred pipeline route in Nebraska. Both the soil porosity and the proximity of groundwater to the surface increase the potential that a release of oil from the pipeline could contaminate groundwater in the region.

A barrel of oil:

One barrel contains 42 gallons of crude oil. The total volume of products made from crude oil based origins is 48.43 gallons on average – 6.43 gallons greater than the original 42 gallons of crude oil. This represents a “processing gain” due to the additional other petroleum products such as alkylates that are added to the refining process to create the final products. Additionally, California gasoline contains approximately 5.7 percent by volume of ethanol, a non-petroleum-based additive that brings the total processing gain to 7.59 gallons (or 49.59 total gallons). Source: California Energy Commission, Fuels Office, PIIRA database.

References:
1. TransCanada Keystone Pipeline, L.P., “Application of TransCanada Keystone Pipeline L.P. for a Presidential Permit Authorizing the Construction, Operation, and Maintenance of Pipeline Facilities for the Importation of Crude Oil to be Located at the United States-Canada Border,” submitted to the U.S. Department of State, May 4, 2012, p. 39, available at http://keystonepipeline-xl.state.gov/proj_docs/permitapplication/index.htm.
2. “TransCanada Expects $1-Billion Cost Escalation for Keystone XL Pipeline,” Canadian Press, February 17, 2011.
3. North Dakota Department of Mineral Resources, “North Dakota Monthly Oil Production Statistics,” Bismarck, ND, 2011, p. 14, https://www.dmr.nd.gov/oilgas/stats/historicaloilprodstats.pdf.
4. James Mason, Oil and Gas Journal, “Bakken’s Maximum Potential Oil Production Rate Explored,” April 2, 2012.
5. For additional analysis of greenhouse gas issues associated with Canadian oil sands crudes, see CRS Report R42537, Canadian Oil Sands: Life-Cycle Assessments of Greenhouse Gas Emissions, by Richard K. Lattanzio.
6. TransCanada Keystone Pipeline, L.P., September 19, 2008, pp. 6-8.
7. On February 7, 2012, the House Energy and Committee rejected an amendment to H.R. 3548 offered by Representative Edward Markey containing similar export restrictions.
8. This is the case unless the oil is stranded due to transport bottlenecks. Ironically, the bottleneck for crude oil flowing south from the Midwest to the Gulf Coast—which Keystone XL would help alleviate—helped insulate Midwestern crude oil prices from the impacts of unrest in the Middle East and North Africa.
9. For more about this, see CRS Report R41683, Middle East and North Africa Unrest: Implications for Oil and Natural Gas Markets, by Michael Ratner.
10. For a primer on the oil market, see CRS Video Brief Introduction to the Oil Market, at http://www.crs.gov/analysis/ Pages/WVB00002.aspx.
11. All data in this section are from the U.S. Energy Information Administration’s (EIA’s) Petroleum & Other Liquids (http://www.eia.gov/petroleum/data.cfm), International Energy Statistics (http://tonto.eia.doe.gov/cfapps/ipdbproject/ IEDIndex3.cfm), and the Short Term Energy Outlook (http://www.eia.gov/forecasts/steo/).
12. For context, the United States consumed 18.8 Mbpd in 2011, more than 20% of the world’s oil market. Net imports are gross or total imports less total exports. This section will focus on gross imports, though it should be noted that among U.S. petroleum exports about 0.2 Mbpd of petroleum products go to Canada and 0.4 Mbpd to Mexico.
13. For more analysis, see CRS Report R42465, U.S. Oil Imports and Exports, by Robert Pirog.
14. U.S. Energy Information Administration, “Country Analysis Brief: Venezuela,” February 2010, http://www.eia.doe.gov/emeu/cabs/Venezuela/Oil.html.
15. For further analysis of U.S.-Canada energy trade, see CRS Report R41875, The U.S.-Canada Energy Relationship: Joined at the Well, by Paul W. Parfomak and Michael Ratner.
16. As in the United States, Canadian consumption fell due to economic downturn. This allowed the increment in exports to be higher than the increment in production.
17. Canadian Association of Petroleum Producers (CAPP), Crude Oil: Forecast, Markets, and Pipelines, June 2011, p. 2, http://www.capp.ca/forecast/Pages/default.aspx.
18. CAPP, 2011, p. 7.
19. CAPP, 2011, p. 13. According to CAPP, refineries adding capacity to process more heavy oil in the Midwest include those in Roxana, IL; Whiting, IN, and Detroit, MI.
20. Baker Hughes, Planning Ahead for Effective Canadian Crude Processing, Baker Petrolite White Paper, 2010, http://www.bakerhughes.com/assets/media/whitepapers/4c2a3c8ffa7e1c3c7400001d/file/28271- canadian_crudeoil_update_whitepaper_06-10.pdf.pdf&fs=1497549.
21. For a description of which units refineries may need to add (or have added) to be able to process more Canadian oil sands supply, see Praveen Gunaseelan and Christopher Buehler, “Changing US Crude Imports Are Driving Refinery Upgrades,” Oil and Gas Journal, August 10, 2009.
22. TransCanada Keystone Pipeline, L.P., May 2012 Presidential Permit application submitted to the U.S. Department of State (see footnote 13), p. 14.
23. See increased U.S. crude oil production in the Midwest under the PADD2 heading at the following source: Energy Information Administration, U.S. Department of Energy, Crude Oil Production (by PADD), Petroleum & Other Liquids, http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm.
24. Adjusted for transport costs and other regional differences.
25. Center for Energy Economics and Bureau of Economic Geology, Overview of the Alberta Oil Sands, University of Texas at Austin, 2006, p. 16, http://www.beg.utexas.edu/energyecon/documents/overview_of_alberta_oil_sands.pdf.
26. For more about the U.S. refining system, see CRS Report R41478, The U.S. Oil Refining Industry: Background in Changing Markets and Fuel Policies, by Anthony Andrews et al.
27. Testimony of Jim Burkhard, U.S. Congress, Senate Committee on Energy and Natural Resources, US and Global Energy Outlook for 2012, 112th Cong., 2nd sess., January 31, 2012.
28. ConocoPhillips, “ConocoPhillips Pursuing Plan to Separate into Two Stand-Alone, Publicly Traded Companies,” press release, July 14, 2011, http://www.conocophillips.com/EN/newsroom/news_releases/2011news/Pages/07-14- 2011.aspx.
29. Jenny Gross, “NYMEX Oil Gets Boost From Pipeline Reversal,” Wall Street Journal, April 22, 2012.
30. Bradley Olson, “Enbridge Pursuing Alternative to Transcanada’s Keystone XL,” Bloomberg, November 9, 2011.
31. Ben Lefebvre, “Enterprise Products Cancels Wrangler Pipeline,” Dow Jones Newswires, November 16, 011.
32. Enbridge, “Flanagan South Project Fact Sheet,” April 1, 2012, http://www.enbridge.com/ FlanaganSouthPipeline.aspx.
33. Enbridge, “Enbridge and Energy Transfer Join to Provide Crude Oil Pipeline Access to Eastern Gulf Coast Market,” press release, February 15, 2013.
34. EnSys Energy & Systems, Inc., Keystone XL Assessment: Final Report, Prepared for the U.S. Department of Energy, Office of Policy & International Affairs, December 23, 2010, p. 118.
35. Energy Policy Research Foundation, Inc., The Value of the Canadian Oil Sands (….to the United States): An Assessment of the Keystone Proposal to Expand Oil Sands Shipments to Gulf Coast Refiners, Washington, DC, November 29, 2010, p. 2, http://www.eprinc.org/pdf/oilsandsvalue.pdf.
36. Canadian Energy Research Institute, The Impacts of Canadian Oil Sands Development on the United States’ Economy, Final Report, Calgary, Alberta, October 2009, p. vii.
37. See, for example, Cornell University Global Labor Institute, Pipe Dreams? Jobs Gained, Jobs Lost by the Construction of Keystone XL, September 28, 2011; National Wildlife Federation, “TransCanada Exaggerating Jobs Claims for Keystone XL,” November 9, 2010, http://www.dirtyoilsands.org/files/Keystone_XL_Jobs_11-09-10.pdf.
38. For more analysis of oil sands and their environmental impacts, see CRS Report RL34258, North American Oil (continued…)
39. Sands: History of Development, Prospects for the Future, by Marc Humphries.
40. U.S. Bureau of Land Management, “About Tar Sands,” web page, January 11, 2011, http://ostseis.anl.gov/guide/ tarsands/index.cfm.
41. Cecilia Jamasmie, “The Challenges and Potential of Canada’s Oil Sands,” Mining, September-October 2010, pp. 7-8.
42. For an example of contrasting views, see IHS CERA Inc., Oil Sands, Greenhouse Gases, and US Oil Supply, Getting the Numbers Right, 2010; and Natural Resources Defense Council, “Setting the Record Straight: Lifecycle Emissions of Tar Sands,” November 2010.
43. For more analysis of oil sands, including the environmental effects of its extraction, see CRS Report RL34258, North American Oil Sands: History of Development, Prospects for the Future, by Marc Humphries.
44. See, for example: Natural Resources Defense Council, Tar Sands Invasion: How Dirty and Expensive Oil from Canada Threatens America’s New Energy Economy, May 2010.
45. See Secretary of State Hillary Clinton’s “Remarks on Innovation and American Leadership to the Commonwealth Club,” San Francisco, CA, October 15, 2010, available at http://www.state.gov/secretary/rm/2010/10/149542.htm.
46. See EPA’s July 16, 2010, letter to the U.S. Department of State rating the supplemental EIS for the Keystone XL pipeline project, available at http://yosemite.epa.gov/oeca/webeis.nsf/%28PDFView%29/20100126/$file/ 20100126.PDF. Discussion of the analysis of GHG emissions is included on pp. 3-4.
47. EnSys Energy & Systems 2010, p. 116.
48. U.S. Department of State, March 2013, Draft EIS: “Section 4.9, Land Use, Recreation, and Visual Resources,” p. 4.9-2.
49. U.S. Department of State, March 2013, Draft EIS: “Executive Summary,” p. ES-16.
50. For more information see EPA’s regarding the response to the Enbridge oil spill at http://www.epa.gov/ (continued…)
51. Arkansas Department of Environmental Quality, “Mayflower Oil Spill Response,” fact sheet, March 30, 2013,
52. http://www.adeq.state.ar.us/hazwaste/mayflower_oil_spill_2013/files/mayflower_pipeline-_fact_sheet.pdf.
53. For more information, see the Department of the Interior’s U.S. Fish and Wildlife Service web page on the Sand Hills at http://www.fws.gov/mountain-prairie/pfw/ne/ne4.htm.
54. The entire Ogallala Aquifer system stretches across eight states generally from north to south to include South Dakota, Nebraska, Wyoming, Colorado, Kansas, Oklahoma, New Mexico, and Texas and underlies about 174,000 square miles.
55. Generally, a release of crude oil to land would not necessarily result in groundwater contamination. In addition to the depth from the land surface to groundwater and the characteristics of the environment into which the crude oil is released (e.g., characteristics of the underlying soils), the potential for crude oil to reach groundwater would depend on factors such as the volume of the spill, the duration of the release, and the viscosity and density of the crude oil.