Twice during his November Pacific Rim trip to two global summits, President Barack Obama indicated he will not easily be budged from his well-entrenched views on Keystone XL.
In answer to a question at a news conference in Australia he said: “I won’t hide my opinion about this, which is that one major determinant of whether we should approve a pipeline shipping Canadian oil to world markets, not to the United States, is does it contribute to the greenhouse gases that are causing climate change?”
Earlier, Obama said XL would give Canada the ability to “pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else.”
The essence of his message is that XL is designed as merely a conveyor belt to markets beyond North America.
What he has done is trigger a war of words and soured Canada-U.S. relations by undermining the core purpose of the original Canada-U.S. free trade deal, reinforced by the North American Free Trade Agreement.
To describe XL as an export pipeline is “pure fabrication,” an enraged TransCanada Chief Executive Officer Russ Girling told reporters.
“The notion that this oil is going to get exported is pure fabrication by those that are opposed to our project,” he said, adding “it is very highly unlikely that any of this crude will leave North America.”
In addressing Obama’s claims, Girling said any tankers carrying XL-delivered crude beyond the United States would first have to pass incoming tankers carrying huge volumes of foreign crude to the U.S.
Given that 4.5 million barrels per day of oil is imported to the Gulf Coast, he said that describing XL as an export conduit “doesn’t make any sense.”
XL is designed to carry 730,000 bpd of diluted bitumen from the Alberta oil sands and 100,000 bpd of light crude from the Bakken fields to Gulf Coast refineries, with the Valero refinery in Port Arthur, Texas, committed to take 325,000 bpd.
Valero spokesman Bill Day has told reporters it is “frustrating that we have said numerous times that there is no intention to export any (XL) crude. We have said that over and over and still I hear this come up in debate.”
He said Valero’s plan is to take XL crude and “make it into gasoline, diesel and jet fuel,” with some of the byproducts of bitumen getting exported.
“For people to say it is an export pipeline is just wrong,” Day said.
The Valero refinery has only recently been modernized to process some of the world’s “worst-quality crude,” such as the bitumen-laden production from the oil sands, into gasoline and diesel fuel.
Even the U.S. State Department, in its final environmental impact statement that ended a painstaking and prolonged review process, disputed claims that XL crude would “pass through the United States and be loaded on to vessels for ultimate sale in markets such as Asia,” arguing that could not be economically justified.
The State Department said the decline in crude supplies from Mexico and Venezuela means Gulf Coast refineries have a “significant incentive to obtain heavy crude from the oil sands.”
The report also said any exports from the United States would be influenced by market conditions, not pipeline scenarios, with the deciding factors confined to “domestic demand versus domestic refining capacity, the cost of natural gas, and refining capacity abroad, including in foreign markets currently importing U.S. refined products such as Mexico, Brazil, Chile and Europe.”
The Energy Information Administration’s 2013 annual report listed U.S. exports of distillate fuel oil at 898,000 bpd of the 2.59 million bpd produced, while finished motor gasoline exports accounted for 323,000 bpd of the 946,000 bpd produced.
Girling insisted market forces are working strongly in favor of XL and increasing among Alberta and Bakken producers.
“We’re a market responsive company. And to the extent that the marketplace wants (XL to be built), TransCanada’s going to stay in,” he said.
Girling said that some of the 41 senators who voted against fast-tracking XL in a jobs bill did so simply because the project has yet to clear all of the regulatory and legal hurdles, suggesting that once the Nebraska Supreme Court deals with the jurisdictional issue of who controls pipeline decision-making, TransCanada hopes it can “expeditiously move to approval and get this pipeline under construction.”
The NAFTA option
If that doesn’t happen there is a groundswell building in Canada to tackle Obama head-on through a free trade challenge - although such a step would add years to the eight years already consumed since the project was unveiled and would ensure that XL ended on the scrap heap.
The Canada-U.S. FTA’s energy chapter, later woven into NAFTA, pledges to protect the free flow of oil, except in times of scarcity or national emergency - a clause that former Canadian Prime Minister John Turner said in 1988 would “sell out the birthright of this nation” and turn Canada into a U.S. colony.
What nobody had counted on was that the balance of power would shift through the technology-driven unlocking of shale deposits in North America.
Derek Burney, Canada’s ambassador to the U.S. from 1989-1993 and a lead free-trade negotiator, said the U.S. was adamant in the original negotiations that it should have “unfettered access to supply from Canada on a non-discriminatory basis and Canada agreed.”
He said there is “little doubt” that Obama wants either to veto XL, or stall the project long enough for it to die.
Burney questioned Obama’s figures on XL’s job creation potential, including a claim of only 90 permanent jobs, noting that the State Department’s review estimates the pipeline would generate more than 40,000 jobs and generate taxes in the counties through which the pipeline would run.
He warned that a presidential veto could trigger a formal challenge by Canada “against what would be a breach of the spirit and the letter of NAFTA.”
