Controversial Keystone Pipeline Could Be Next President’s Problem

NOTE: This story was updated Wednesday, Nov. 4th.

The seven-year saga of the Keystone XL oil pipeline looks set to continue for at least one more year after the company behind the controversial project, Canadian energy giant TransCanada, asked the Obama administration to put its application on hold.

The unusual request –TransCanada has spent years urging U.S. officials to reach a speedy decision — is a reflection both of shifting pipeline politics and fundamental changes that have reshaped the U.S. energy sector in the years since the multi-billion dollar project was first proposed. One shift in particular explains the slackening enthusiasm for the project: American refiners have already found ways to use as much or more U.S. oil than the amount that Keystone would be able to transport from Canada.

In a letter late Monday, TransCanada — which has been prepared to spend about $8 billion to build the pipeline — asked the Obama administration to hit the pause button while state officials in Nebraska conclude their own review of a modified route through that state. The Keystone XL pipeline is meant to snake from Alberta, in Canada’s heavy oil patch, down through the Great Plains to the huge oil refineries on the U.S. Gulf Coast. Keystone XL could carry about 730,000 barrels a day of Canadian crude, plus an additional amount of oil from North Dakota. Since the pipe crosses an international border, the U.S. State Department has the final say on whether to approve the project or not, but the pipeline has been a political football for the duration of the Obama presidency.

The State Department has twice concluded that the project would create at least small numbers of jobs while not causing any significant environmental harm. But environmentalists argue that building the pipeline would encourage more exploitation of Canada’s tar sands, the production of which emit a lot more greenhouse gases than regular crude oil. For years, they have argued that greenlighting Keystone is incompatible with U.S. plans to clamp down on climate change. President Barack Obama has deferred a decision for years, but has hinted that he opposes the project and is increasingly concerned about his environmental legacy. White House spokesman Josh Earnest said last month a decision would come before Obama left office.

TransCanada’s request for a delay, if granted, could push back a final decision on Keystone until next year, or perhaps even until the next administration. That’s because it could take 12 months for Nebraska to review the new route through that state. The Obama administration doesn’t have to grant the request for a pause, and could give a thumbs up or down to the project at any time.

But with the presidential election heating up in the United States, and with a new Liberal government in Canada that’s less supportive of the project than the former conservative government, TransCanada may see an opportunity to wait for a more favorable political climate. Republican candidates and most Republican lawmakers favor the pipeline’s construction, which they say would reduce U.S. dependence on oil imports from places like Venezuela and Saudi Arabia. Still, the upcoming presidential election in the United States is far from guaranteed to help the company’s cause: Democratic candidates, especially former Secretary of State Hillary Clinton, have recently made clear their opposition to the project.

On Wednesday, the State Dept. told TransCanada it would not pause the review, which is slated for completion in coming months. “We’re not required to pause it based on an applicant’s request, there’s no legal basis to do that,” State Dept. spokesman John Kirby said, according to The Wall Street Journal. A TransCanada spokesman said the company “respects” the decision, but will continue to work for the project’s completion. If the final decision on Keystone, he said, “is based on its merits and on science over symbolism, it will be approved.”

Beyond the politics, though, there are fundamental reasons that Keystone is less necessary than it may have been almost a decade ago, when policymakers in the United States were worried about shrinking domestic oil production and rising oil imports. Today, thanks to the U.S. energy revolution, oil output is booming and imports are falling.

More specifically, the world’s biggest oil-refinery complex, on the U.S. Gulf Coast, was geared to use heavy crude oils, like those from Canada’s tar sands, as well as from Mexico and Venezuela, rather than the super-light crude oils gushing out of wells in Texas and North Dakota. That’s why pipeline proponents saw a perfect match: U.S. refiners needed heavy crudes, and Canada needed a market for its oil. That’s also why oil producers in the United States have started clamoring to be able to export U.S. crude, since for long it was seen as a less-than-ideal input for the big refineries.

But in the years since Keystone was first proposed, two things have changed. Railroads are carrying increasing amounts of crude oil, both within the United States and from Canada. While more expensive — and dangerous — than shipping by pipeline, moving oil by rail is also more flexible. That makes new pipelines less necessary.

At the same time, U.S. refiners, especially those on the Gulf Coast, are rejigging their operations in order to use more light oil from the United States, making additional imports of heavy, Canadian crude less needed. Refiners in the Gulf Coast region say they will by next year be able to process 700,000 barrels a day more of light crude than they could when Keystone was first proposed, and many say they could handle another 800,000 barrels a day on top of that.

That could be the ultimate irony of the years-long fight over Keystone: Whether it’s built or not, the project may already be outdated.

Photo credit: RANDEN PEDERSON/Flickr