Stonewalling XL Pipeline Won't Stop Canadian Oil's Flow to Texas

April 28, 2014

Late last week the Department of State announced that it was going to take more time to make a decision about whether to approve the Keystone XL Pipeline project.  The announcement tried to make it clear that the process was not starting over but that they needed more time to review about 2.5 million public comments and vet them through multiple “relevant agencies.”

The timing of the announcement is interesting.  The Administration delayed its release until the afternoon of Good Friday. “On a day when many Americans are observing Good Friday and preparing for Easter, the administration took the opportunity to quietly announce yet another Keystone delay despite the five successful environmental reviews of the energy project,” Senator John Thune (R-SD) said in a statement.  The criticism of the news was bipartisan as Democrats from energy-producing states added their voices to the mix.

To date this project has been under review for five years.  The Administration’s love affair with “Green energy” and its efforts to shut down fossil fuel energy (e.g., coal) exposes the failure of Obama’s energy policies.  While they are willing to squander $500 million of taxpayer’s money on the now bankrupt Solyndra they are not willing to approve a permit to complete the construction of the Keystone XL Pipeline which will further energy independence and employ thousands of workers.  We also wonder how politically-driven the decision to delay approval of the pipeline permit was when billionaire Tom Steyer promised the Democratic Party a hundred million dollars should they block approval of Keystone. 

Meanwhile, there is still hope.  What the Obama Administration and its environmental allies fail to recognize is the power of the free enterprise system.  When one approach is struck down or delayed by the government an alternative will be sought.    Back in March it was revealed that Canadian oil producers are looking at alternatives that don’t require the President’s approval.  Enter Canada and its railroads!  Although a pipeline is the safest way to transport Canadian tar sands oil, using this method has its drawbacks.  Tar sands oil is very thick oil and requires diluents in order to flow though a pipeline.  Transporting the oil by rail requires far less diluents and unlike a pipeline, railcars go in two directions, allowing the shipment of diluents back to Canada for reuse in subsequent shipments.  Additionally, unlike a pipeline, rail cars can move the oil quicker and to multiple destinations.  It is estimated that within two years Canada’s two largest railroads could procure enough rail cars to transport between 600,000 and 800,000 barrels of Canadian crude on a daily basis.  The Keystone XL Pipeline has a capacity of  830,000 barrels.  In both cases the bulk of these shipments will go to the Texas Gulf Coast which has the largest concentration of refinery capacity in the U.S.

Although the Canadian plan only requires two years, this option isn’t without its own issues.  The hundreds of trains required to move the oil could further choke an already strained railway infrastructure.  One lesson learned from shipping Bakkan oil by rail was that building additional trackage capacity takes time, perhaps 5-10 years.  Meanwhile, all shippers will suffer from increased traffic on too few available rails. In addition, there are issues with the safety of moving crude oil by rail. Unlike pipelines, rail cars can derail and cause environmental hazards as well.

The three of us still want the permit for the XL pipeline approved but even if the Administration continues to stonewall it, rest assured it looks like Canadian crude will still be heading to Texas and if it requires our railroads to beef up their infrastructure, that could be a good thing too!

Bill, Mark, and John