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The Never-Ending Saga Of The Keystone Pipeline

Category: Energy & Environment,Finance

The TransCanada pipelines head office in Calgary on November 29, 2017. TransCanada recently gained approval by the state of Nebraska for its Keystone XL pipeline.Getty

Owned by TransCanada, the Keystone pipeline system consists of the original Keystone, a crude oil pipeline commissioned into service in 2010 carries 860,000 barrels of oil per day along a 2,147 mile route from Hardisty, Alberta to Steel City, Nebraska and to refineries in southern Illinois. The line was extended southward to Cushing, Oklahoma a year later which allowed crude oil to be more widely distributed. In 2014 the original Keystone pipeline was extended further, and now reaches Gulf Coast refineries in Texas.

A look back

While the original Keystone pipeline went into service with little notice, a second line, inartfully named “Keystone XL” became the poster child for anti-fossil fuel advocates. Originally proposed in 2008, this line has already received more scrutiny than any other pipeline project in U.S. history. In 2010 the Environmental Protection Agency stated that the environmental review of the proposed pipeline was inadequate. In 2011, the final assessment indicated the pipeline would pose “no significant [environmental] impacts.” Later in 2011 the State Department postponed a final decision saying that additional information concerning alternative routes should be studied. The State Department remains responsible for coordinating cross-border transportation projects, due to an executive order signed by President George W. Bush which ironically, was issued to expedite cross border decisions.

In response to Republican congressional moves requiring President Obama to approve deny the project, President Obama denied the project in January of 2012, indicating that more time was needed. Just three months later however, Mr. Obama approved the southern half of the project running from Oklahoma to Texas. Known known as the Gulf Coast extension, the southern half of Keystone XL was placed into service in early 2014.

The following January the U.S. House voted 266–153 in favor of the pipeline, and on the same day, the Nebraska Supreme Court cleared the way for construction following two years of legal challenges. In late 2015 however, Secretary of State John Kerry issued a determination that the project was not in the public interest, although the decision did not articulate specific findings for the decision. Three days later, the Obama Administration officially rejected the pipeline. Widely seen as a partisan issue, the pipeline became a rallying cry for Democrats and Republicans alike, albeit for different reasons. During his campaign, then presidential candidate Donald Trump vowed to immediately approve the line if he were elected and on March 24, 2017, President Trump signed a presidential permit to move the project ahead.

The Ruling

Judge Morris’ ruling in the lawsuit that commenced following President Trump’s permit will result in further delay for the project, one that is already running years behind schedule, and billions over budget for a pipeline initially designed to add merely 500,000 barrels per day capacity to domestic markets. By contrast, the U.S. used approximately 19.69 million barrels of oil per day in 2016, and that number increased slightly in 2017 to 19.88 million barrels per day according to the Department of Energy.

Next steps

Judge Morris also ruled that the analysis failed to review the effects of current oil prices and did not fully consider potential oil spills. Despite being studied more than any other project, TransCanada must feel like Bill Murry from Groundhog Day, a 1993 movie in which Murry’s character relived the same day, over and over again.

While likely to be overturned as judicial overreach, the path for TransCanada and the Trump administration has certainly become more problematic as any appeal of the judge’s decision would go next to the 9thCircuit Court of Appeals in San Francisco, California, a court considered more liberal than most.

Used as a political football for over a decade, frustration among analysts was clear as Zachary Rogers, a refining and oil markets research analyst at Wood Mackenzie summed up the current controversy saying, “This is the world's longest tug of war, with Western Canadian oil prices as the rope. While definitely a major setback in terms of timing, this is unlikely to be the nail in the coffin for Keystone XL.” 

While Keystone XL remains on ice, oil will still make it to market, as rail capacity remains more than adequate to move the oil after the opening of rail terminals and the addition of rail fleets to handle crude oil were made necessary while the Dakota Access Pipeline was delayed by similar protests. Now open, those assets are now available to transport Canadian crude, but only if oil prices are high enough to make the extra costs of transportation by rail competitive.

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Just as oil and gas companies have been expressing concern over the ability to move oil and gas from new production fields to market due to insufficiency midstream pipeline capacity, a federal judge in Montana may have just added to those concerns.

Appointed by President Barack Obama, Judge Brian Morris ruled on Thursday that the federal government had only given lip service to Keystone XL’s impact on climate change saying that the federal government’s analysis “fell short of a hard look.”

The TransCanada pipelines head office in Calgary on November 29, 2017. TransCanada recently gained approval by the state of Nebraska for its Keystone XL pipeline.Getty

Owned by TransCanada, the Keystone pipeline system consists of the original Keystone, a crude oil pipeline commissioned into service in 2010 carries 860,000 barrels of oil per day along a 2,147 mile route from Hardisty, Alberta to Steel City, Nebraska and to refineries in southern Illinois. The line was extended southward to Cushing, Oklahoma a year later which allowed crude oil to be more widely distributed. In 2014 the original Keystone pipeline was extended further, and now reaches Gulf Coast refineries in Texas.

A look back

While the original Keystone pipeline went into service with little notice, a second line, inartfully named “Keystone XL” became the poster child for anti-fossil fuel advocates. Originally proposed in 2008, this line has already received more scrutiny than any other pipeline project in U.S. history. In 2010 the Environmental Protection Agency stated that the environmental review of the proposed pipeline was inadequate. In 2011, the final assessment indicated the pipeline would pose “no significant [environmental] impacts.” Later in 2011 the State Department postponed a final decision saying that additional information concerning alternative routes should be studied. The State Department remains responsible for coordinating cross-border transportation projects, due to an executive order signed by President George W. Bush which ironically, was issued to expedite cross border decisions.

In response to Republican congressional moves requiring President Obama to approve deny the project, President Obama denied the project in January of 2012, indicating that more time was needed. Just three months later however, Mr. Obama approved the southern half of the project running from Oklahoma to Texas. Known known as the Gulf Coast extension, the southern half of Keystone XL was placed into service in early 2014.

The following January the U.S. House voted 266–153 in favor of the pipeline, and on the same day, the Nebraska Supreme Court cleared the way for construction following two years of legal challenges. In late 2015 however, Secretary of State John Kerry issued a determination that the project was not in the public interest, although the decision did not articulate specific findings for the decision. Three days later, the Obama Administration officially rejected the pipeline. Widely seen as a partisan issue, the pipeline became a rallying cry for Democrats and Republicans alike, albeit for different reasons. During his campaign, then presidential candidate Donald Trump vowed to immediately approve the line if he were elected and on March 24, 2017, President Trump signed a presidential permit to move the project ahead.

The Ruling

Judge Morris’ ruling in the lawsuit that commenced following President Trump’s permit will result in further delay for the project, one that is already running years behind schedule, and billions over budget for a pipeline initially designed to add merely 500,000 barrels per day capacity to domestic markets. By contrast, the U.S. used approximately 19.69 million barrels of oil per day in 2016, and that number increased slightly in 2017 to 19.88 million barrels per day according to the Department of Energy.

Next steps

Judge Morris also ruled that the analysis failed to review the effects of current oil prices and did not fully consider potential oil spills. Despite being studied more than any other project, TransCanada must feel like Bill Murry from Groundhog Day, a 1993 movie in which Murry’s character relived the same day, over and over again.

While likely to be overturned as judicial overreach, the path for TransCanada and the Trump administration has certainly become more problematic as any appeal of the judge’s decision would go next to the 9thCircuit Court of Appeals in San Francisco, California, a court considered more liberal than most.

Used as a political football for over a decade, frustration among analysts was clear as Zachary Rogers, a refining and oil markets research analyst at Wood Mackenzie summed up the current controversy saying, “This is the world's longest tug of war, with Western Canadian oil prices as the rope. While definitely a major setback in terms of timing, this is unlikely to be the nail in the coffin for Keystone XL.” 

While Keystone XL remains on ice, oil will still make it to market, as rail capacity remains more than adequate to move the oil after the opening of rail terminals and the addition of rail fleets to handle crude oil were made necessary while the Dakota Access Pipeline was delayed by similar protests. Now open, those assets are now available to transport Canadian crude, but only if oil prices are high enough to make the extra costs of transportation by rail competitive.


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