One of the unwavering arguments used by opponents to bolster their case against Keystone XL - the project’s contribution to carbon emissions - is being contested.
A report by consulting firm IHS Inc. said an increase in United States emissions as a result of increasing oil sands imports is not a given.
It found that the carbon intensity of crude oil consumed in the U.S. from 2005 to 2012 actually declined by 0.6 percent, regardless of a 75 percent rise in imports of oil sands and other Canadian heavy crudes to 2.1 million barrels per day from 1.2 million bpd.
Over the same period, shipments of heavy crudes from Venezuela and Mexico fell, while consumption of tight oil from the North Dakota Bakken and Texas Eagle Ford plays surged to 1.8 million bpd from virtually zero, helping to displace imports of similar crudes from Africa (with Nigerian imports down 64 percent) and elsewhere that carried relatively higher carbon footprints.
The findings were partly based on a meeting last October in Washington, D.C., with the Alberta government’s Department of Energy and major oil sands producers.
Kevin Born, a director of IHS Energy and leader of the firm’s oil sands dialogue in Calgary, told the Financial Post that much has changed since 2005, with heavy crudes pushing out other heavy crudes that all operated in the same greenhouse gas intensity range.
The IHS conclusions mirror those of the U.S. State Department, which said last year that Keystone XL’s impact on climate would be minimal because the production would be transported by rail or other pipelines if XL was abandoned.
IHS estimated GHG emissions from the oil sands are 1 percent to 19 percent higher than the average crude consumed in the U.S. in 2012 based on a “wells-to-wheels” analysis, which includes combustion of fuels in vehicles.
The report said that places the oil sands in the same range as 45 percent of all crude used as feedstock in U.S. refineries.
Extra safety measures
Separately, a Canadian analyst said that any extra safety conditions imposed on XL would not hurt the economics of the project.
Steven Paget, with FirstEnergy Capital, said that if TransCanada is required to take a “couple of extra steps” in the welding process that should not make an economic difference.
Reports have been circulating that the U.S. Pipeline and Hazardous Materials Safety Administration has required TransCanada to hire a third-party contractor of PHMSA’s choosing and to adopt a quality management program. Those conditions would be in addition to the 57 that TransCanada agreed to three years ago.
TransCanada Chief Executive Officer Russ Girling has already hinted that XL’s costs are likely to rise by several hundred million dollars from the current estimate of US$5.4 billion to more than US$6 billion.
“It will be a big number,” he has told reporters. “We’ll let people know once we get the go-ahead. But there’s no sense in me re-estimating every few months.”
The company has already spent US$2.5 billion on the pipeline, prompting FirstEnergy to suggest the final bill is likely to reach US$6.9 billion.
Sonny Mottahed, chief executive officer and managing partner at Black Spruce Merchant Capital, doubted that even costs in that range would make XL less attractive than the rail alternative.
However, Laura Lau, senior vice president of the Toronto-based Brampton Group, said the biggest test of XL is the prospect of delay in issuing a Presidential Permit.
She said that if President Barack Obama pushes that decision beyond his term of office to January 2017, shippers may opt to go with TransCanada’s proposed Energy East pipeline to Ontario, Quebec and Atlantic Canada.
