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The Ultimate Fate of the Keystone Pipeline

by | published January 20th, 2012

Yesterday the Obama Administration decided not to approve the Keystone XL pipeline.

This has introduced another political firestorm into an already uncertain market.

If there is one subject that is likely to stimulate more angst over economic recovery prospects, it is the availability of energy.

Energy is central in everything that happens in the U.S. market.

And Keystone is designed to transport up to 700,000 barrels of oil a day from Alberta to refineries on the U.S. Gulf coast. It represents a new North American-centered initiative to lessen reliance on Middle Eastern imports and would create thousands of new jobs.

It also would create new opportunities for investors.

But the pipeline has had its detractors from the beginning.

Environmentalist Concerns Reign

Environmental concerns have been raised over the greenhouse gas emissions and passage of the pipeline through ecologically sensitive areas.

It is also opposed by those who view the current condition of virtually guaranteed crude oil price increases as an opportunity to invest in alternative and renewable energy technologies.

Some of the environmental issues can be resolved by simply moving the pipeline route.

But others are more difficult to counter.

The crude involved is very heavy oil, primarily from the Athabasca oil sands and similar deposits in Alberta and Saskatchewan. That raw material requires upgrading to synthetic oil and that is far more environmentally invasive than processing lightweight crude.

Therefore, proponents of the pipeline can't resolve environmental concerns simply by changing the route.

And then there is the added problem of a current U.S. statute, namely, §526 of the Energy Independence and Security Act (EISA) of 2007. This prohibits federal agencies from procuring (which includes importing) synthetic fuel unless its life-cycle greenhouse gas emissions are less than those for conventional petroleum sources.

The “life-cycle” considers the GHG emissions throughout the extraction and processing of the oil – that is, from the time it is taken out of the ground, through its transport and upgrading, to its delivery to a refinery (and its emissions there).

When originally passed, this section was designed to benefit domestic American producers over the import of heavier and higher sulfur content foreign oil. It was never intended to create a problem with our neighbors to the north.

Unfortunately, we sure have a problem now.

The Future of Canadian Imports

Whether Keystone XL is ultimately approved, Congress must change this legislation or the Alberta oil flow into the Lower 48 is not possible by statute.

But this is hardly the only matter that will put the pipeline issue squarely back into the center of the ideological divide that is Congress. In fact, the primary political impediment to the pipeline acceptance has actually resulted from actions pushed forward by project supporters.

The environmental vote is an issue in an election year, one which favors Obama.

Yet the pro-pipeline support is also being gauged as a political tool in a protracted campaign season by those on the other side of the aisle.

To put pressure on Obama, and require a decision prior to the election, Congressional Republicans insisted upon a presidential decision within 60 days.

The intent was for the White House to turn it down before the high-campaign season begins, thereby providing fodder for the Republican attacks on sacrificing U.S. jobs and economic stimulus.

Here's the problem with the strategy.

Everybody understands that the required environmental evaluation cannot be done in so short a time. It provided the president a reason to reject Keystone while still saying (as he made a point of doing with Canadian Prime Minister Stephen Harper) that the project could be accepted later.

By making a political move focused on the elections, the Congressional Republicans have allowed Obama to take the high ground with both the pro and anti pipeline camps… while not actually having to make a final decision on anything.

The Fate of Keystone XL Will Come Down to This

The environmental impact assessment (EIA) will conclude that, according to current law (§526 EISA), the crude flow and its processing exceeds allowances.

That then sets the stage for a compromise on changing the law.

The ultimate decision on Keystone will depend on the price of crude.

Oil prices are going to increase. Assuming the EIA after the revision in law provides no impediment, primary environmental opposition will have no substantive basis upon which to proceed.

Ultimately, Keystone will receive approval… regardless of political machinations inside the Beltway.

When that happens, I'll be sure to let you know how it will affect your investments.

Sincerely,

Kent

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  1. Douglas
    January 20th, 2012 at 13:38 | #1

    When do you expect oil to rise?

    I keep getting the same oil constriction information in emails weekly and have subscribed to, and read through all the information about the oil constriction.

    Currently my (OIL) march $30 calls are huge losers and I’m starting to get a little nervous. All of my other energy stocks from portfolio are also quite far in the red.

  2. Perry Noblett
    January 20th, 2012 at 13:41 | #2

    If you had been paying attention last summer you would know that the administration turned this deal down at the request of the Governor of Nebraska. The Pipeline co agreed to route around the Neb. aquafer/water supply and the administration would then approve. NPR told the whoe story. Even CNBC had the story yesterday that the pipeline co. expects to bring the whole project in per the original schedule. At least that is what they are telling their investers.

  3. January 20th, 2012 at 14:01 | #3

    HI KENT ANY WORDS OF ENCOURAGEMENT ON OPTIONS BOUGHT FOR MARCH OIL 30 CALLS – ITS NOW JAN 20TH DO YOU THINK THESE OPTIONS WILL STILL WORK? OR JUST BE PATIENT OR TRY N GET JUNE 30TH OIL CALLS? THANKS FOR IN ADVANCE ON YOUR ANSWER, SINCERLY NEW SUBSCRIBER ENERGY ADVANTAGE MIKE STORY

  4. Edouard D’Orange
    January 20th, 2012 at 14:14 | #4

    You write: Congressional Republicans have allowed Obama to take the high ground with both the pro and anti pipeline camps. Huh? I don’t know anyone who supports the pipeline who believes this line of thinking. I certainly don’t. Obama simply bows at the feet of the enviro-wackos and green energy campaign supporters. Moral high ground and Obama are mutually exclusive terms.

  5. Ben Foulk
    January 20th, 2012 at 14:30 | #5

    My question is the same as Mike’s re: March 30 Calls. I subscrive to Engergy Advantage and Sigma Trader.

  6. Roger Neumann
    January 20th, 2012 at 14:31 | #6

    I wonder why the Canadians do not build a refinery, process the oil as necessary and sell value added product to USA, China or whoever is an end user? Roger

  7. Dale Rush
    January 20th, 2012 at 14:36 | #7

    Based upon previous industry pundit’s claims that North America will become a net gas and oil exporter and the flow in many pipelines will be reversed, it seems the pipeline from Canada to the gulf is simply a means of getting crude or refined products to a gulf port for export to Europe. If Europe is the target, then a west coast alternative is much less attractive to the Canadians. Besides the gulf is where the refining capacity is.

  8. Ron
    January 20th, 2012 at 14:53 | #8

    MIKE STORY :HI KENT ANY WORDS OF ENCOURAGEMENT ON OPTIONS BOUGHT FOR MARCH OIL 30 CALLS – ITS NOW JAN 20TH DO YOU THINK THESE OPTIONS WILL STILL WORK? OR JUST BE PATIENT OR TRY N GET JUNE 30TH OIL CALLS? THANKS FOR IN ADVANCE ON YOUR ANSWER, SINCERLY NEW SUBSCRIBER ENERGY ADVANTAGE MIKE STORY

  9. Ron
    January 20th, 2012 at 14:55 | #9

    How should the March 30 calls OIL be played? Haven’t seen an update lately

  10. January 20th, 2012 at 15:31 | #10

    @MIKE STORY
    I am also concerned about March Oil Calls, will the options still work?
    Should we commit to placing that order”?
    Art

  11. Hal Schmidt
    January 20th, 2012 at 15:33 | #11

    Unless I am mistaken, we are already using tar sand crude oil in the U.S. This pipeline only allows more of it to flow to refineries in the gulf coast. We also import heavy crude from Venzuela and refine it. Much of the crude in the Williston Basin is sour and has sulfur, we refine it also. I don’t get this supposed law, is it because we would have increased volume that the law kicks in?

  12. vel
    January 20th, 2012 at 16:34 | #12

    Well Canada may have another option, it may have the option to refine the crude in Canada and export the finished product.

  13. Ed
    January 20th, 2012 at 17:24 | #13

    From my reading the pipeline had the approval of those who reveiewed it before passing it to BO – so if you stick to your expertise of oil and energy, the chances are you’ll make a whole lot more sense than when you drift.

  14. eric taylor
    January 20th, 2012 at 17:31 | #14

    I wonder if the Canadians could pipe their own oil east to be exported
    to Europe? They would surely have some environmental concerns up north
    with the capital costs for refining also a hindrance, but I would bet
    that building such a long pipe would have Canadian government concerns similar to the Obama administrations.

  15. Malcolm
    January 20th, 2012 at 17:46 | #15

    The US is currently importing about 600,000 bbl/day of Alberta oil from Hardisty in Alberta to Cushing and Patoka in the mid-west. Keystone XL is designed to do 3 things.

    1. Increase the volume of tar sands oil pumped out of the Hardisty, Alberta terminal.
    2. Allow oil from the Bakken shale oil deposit in the USA to be pumped to Texas oil refineries.
    3. Remove the bottleneck at Cushing and allow oil to be transported directly to underutilized refineries in Texas and the Gulf Coast. This will replace the heavy oil from Venezuela with whom the US has less than friendly relations.

    But of course the political hypocrisy on the whole issue just boggles the mind.
    Apparently environmentalists consider it OK to import oil from dictatorships and other despotic rulers but not to import it from Canada. I do not see any protests at oil terminals importing from such countries or did I miss something?

    And of course the irony is that should the pipeline not be constructed the oil will go by road and rail (at least as much of it as can be transported that way)- much worse for the environment than a steel pipe buried in the ground.

    But, the market for oil is large and I am sure there are buyers in the Asian markets who would be very pleased to have a supply from a friendly and stable country even if the US no longer considers us in that light. There is at least 17 trillion dollars worth of oil at current prices there and if you think we are going to leave it in the ground – your wrong.

  16. Gary Wieland
    January 20th, 2012 at 19:01 | #16

    After reading your article on the Keystone Pipeline “It Comes Down to This” I have lost some respect for your knowledge of the Oil Industry. I have been in the business for nearly 40 years and much of what your are saying is incorrect about the tar sands oil and its transportation in the Keystone Pipeline. First the oil is heavy but it is NOT being processed into SynFuel before shipment. That requires a refinery and that IS why it is being shipped to the south. If this were true your contention would put and end to the enviromentalists concerns about dirty oil, refining emissions, etc (none of these are true anyway). Second the Act forbidding Federal Angencies from buying Synfuel would have nothing to do with this petroleum liquid even if your statement on Synfuel were true because it is not the Federal Agencies buying fuel. Private companies are buying the crude, transporting it to refiners in the south, and then selling these products on the open market. Let’s get the government and the Federal Agencies out of this. In addition, your comment that this crude is “more environmentally invasive” is pure BS. There are a number of similar heavy crude in the world today of which some are already imported into the USA to refineries that are specifically designed to handle these types of crude. To make this statement is totally irresponsible. Pipelines are the most reliable and safe mode of transportation of petroleum liquids in existance today. Just imagine exporting 700,000 B/D onto ocean going vessels every day where every vessel connection to the loading facilities and every storm/bad weather enhances the opportunity for a spill onto the ocean. The one thing you did get correct was that the pipeline will get approved. We can only hope that this approval doesn’t come too late. Also don’t ignore the power of free enterprise where the companies may come up with a solution that doesn’t require the approval of the Federal Government and Mr. Obama.

  17. J
    January 20th, 2012 at 20:43 | #17

    @Ron
    hi , kent I too am holding the march options. what do i do? thank you jim , jimbo.14@live.com

  18. Todd J. Smith
    January 20th, 2012 at 23:50 | #18

    Why is American not energy independent already? It’s been 4 decades since the oil embargo of the 70s when we imported 30% of our oil and now we import 50% of the oil we need. At 2 billion dollars a day, that’s a lot of money flowing out of America. Money that would create more jobs? Investing billions into alternative options to oil, energy efficiency and green energy, would keep 2 $billion a day from flowing out of our economy. Come on folks, it makes a few thousand temporary jobs building the Keystone, look stupid. If America invested in getting off of foreign oil (through a national energy policy) the investment would pay itself off quickly, give Americans options, create permanent jobs, increase our national security, and reduce our health care costs). Why would our politicians be so concerned about helping a foreign company take private American land (through threat of eminent domain) to build a pipeline to keep us addicted to oil?

    Because of money. We had a plan to get ourselves off of foreign oil after the oil embargo. It was the average fleet fuel economy put forth during the Ford administration and held up by the Carter administration that would have gotten us closer to energy independence. That plus research and development into energy efficiency and alternative energy. During the Reagan administration the phased in mileage standard was reduced and the tax credits for alternative energy was eliminated. That’s when our dependence on foreign oil started it’s rise. Lobbying and contributions from the oil and auto industry paid off. The more dependency, the more demand, the higher the price for oil, the more politicians could holler “Drill baby drill”. Seems like a great deal for oil companies and investors but not very smart for America.

    Look, here are two facts. China already has big investments in Canadian Tar Sands, and the US refineries are already exporting more gasoline products than America uses. When tar sand oil gets to the refineries on the gulf coast, do you think it’s going to stay in America? Duh! Now it’s at a great shipping port to somewhere else- maybe China wants some of it’s investment back?

    Mean while, every time oil prices go up, Americans suffer because they don’t have alternatives. Our economy suffers, our businesses (other than oil) suffer, our national security suffers. Look up the military’s “National Strategic Narrative”. You will find that it strongly suggests we reduce our dependency on fossil fuels especially foreign oil.

    The Military wants a portion of our railroad electrified so that in case of a disruption in oil, we could still ship things around the country. Why not electrify the whole railroad now, which will get the railroad off of oil. If you made two lines high speed from coast to coast and north to South you could do away with a majority of the shipping through the panama canal (run on oil), a portion of long haul freight(run on oil), and a portion of airfreight(run on oil). All going on electric rail.

    Now use the electric railroad as the much needed electric grid to carry wind power from the central plains and solar in the southwest to power the line with green energy.

    Put big trucks on Liquified natural gas (LNG)and get them off of oil.

    Use the Better Place (Betterplace.com) model of battery swapping stations to help bring on the electric car. When your battery runs low you can either charge it at home or drive into a local battery swapping station to get a fully recharged one. One week of oil sales would pay to build all of the infustructure for the battery swapping stations throughout the USA. It could be financed by a few cents per gallon over 4 years creating 1000s of jobs giving us an inexpensive electric car option that really works, and keep our energy dollars in the USA! They are doing this now.

    These things would produce millions of jobs and the investments would pay back quickly.

    Americans needs to believe it can become independent of foreign oil. When we believe we can, we will. The message of Keystone is that we can’t.

  19. Bill
    January 21st, 2012 at 07:25 | #19

    Quite interesting that the new route through Nebraska had not be finalised, yet there are those that think the study should have been completed. The imposition of the 60 day time frame WAS DC politics pure and simple.

    The ravings of those with an axe to grind, either political or financial, are amazingly easy to spot.

  20. Bernard Durey
    January 21st, 2012 at 19:28 | #20

    Wel.one more time,Hi again Kent, Not directly related to the Keystone XL but more indirectly throughout the refining process. If you don’t know by now NASCAR is doing away with the carburetors on the race cars this year. I wonder if the fuel injected ones will burn cleaner? I also believe NASCAR has switched to ethynol on the going green machines. So whatever comes out of mixing and refining the tars sands oil and the Bakken crude if used in motor vehicles what can America and/or other countries expect with the polution that comes through the exhaust systems? Will it be compatable and/or incompliance with the greenhouse gases,etc. in the Kyotl and/or Montreal Treaties or will they have to change those to make everything as close to compliance as possible? Just food for thought to keep you running. The body also neeeds fuel so you are well charge with energy in your symposiums and so forth>

  21. KB
    January 23rd, 2012 at 07:06 | #21

    @Roger Neumann
    I was thinking along this same line. Why not build a refinery complex near Williston ND(it is on Missouri river) as the end point of the XL pipeline, and export (to lower 48) refined product by barge downriver?

    Since Williston is also a hub for Bakken shale gas, the refinery could also include gas-to-liquids processing for ND nat gas, making gasoline and jet fuel from CH4.

  22. david tarbuck
    January 23rd, 2012 at 11:14 | #22

    Unfortunately the animosity between quick returns and environmental concerns has obscured the fact that there exist alternative methods to extract the goo from the sand.

    These do require additional development hence delays, and would not recover 100% of the oil but they do make for a much better balance of concern for energy and for a small planet’s exco systems.

  23. Nanoo Visotor
    January 23rd, 2012 at 15:47 | #23

    @david tarbuck

    Any references to backup the assertions?

  24. Amy Lase
    January 25th, 2012 at 09:46 | #24

    Canada exports almost all her oil to the U.S. It is always a bad idea to have only one customer. I think she should build a pipeline to the West Coast and start accepting Asian customers. Some of the customers in Asia has only one political party, there is no infighting and decisions are made very quickly. Canada gets to keep the jobs in the country too.

  25. Kevin Beck
    January 29th, 2012 at 09:56 | #25

    Regarding the current statute: If the oil is lifted from the ground, this would result in an environmental clean-up of the Athabasca tar sands. If the wackos opposing this on environmental grounds would actually think about the current condition of the area where the oil is extracted, then improvements could actually be made. The natural resources extraction industries have a good record of reclamation after they are done; this would end up being one of the world’s best land reclamation efforts ever!

  26. R. Squier Ball
    February 13th, 2012 at 18:55 | #26

    The energy debate generally avoids a political “third rail”, which is the power structure in the US. It is long past due that our financial
    commentators study how political terrains have and are controlled.
    An elementary start would be Dan Smoot’s The Invisible Government(1960s) and Gary Allen’s None Dare Call it Concpiracy (1963?). A deeper look would involve researching four semi-private, semi-public power groups, the CFR(Council on Foreign Relations), the Bilderbergers(1970s onward), The Institute of Pacific Relations and the Tri-lateral Commission. And, of course, there is the longstanding need to research the FED, which most Americans ignore is not a US government agency. Until these entities are brought into public debate, I doubt that America can be saved. Compare our original Constitution with how it has been bent out of shape is, of course, part of the research. Understanding these different parts of the puzzle is key. I am tired of so many pundits running around in circles, waving their arms and screaming about this or that factoid of the moment, while avoiding these fundamental issues.

  27. R. Squier Ball
    February 13th, 2012 at 19:07 | #27

    A key part of the process is to audit the FED. From there, the ball of yarn can be unwound, which can lead to the rest of the issues I have named. Just avoiding these issues constitutes a type of cowardness. With the national debt way out of control, our national survival depends on informed “patriots” who will answer the call. Who will take on the challenge?

  28. February 18th, 2012 at 05:14 | #28

    there are ptelenrsy over 12 million natural gas vehicles in use.You should buy one of those, Greg. I kind of like the idea of you driving around with a huge tank of explosive gas pressurized to 3,600 PSI in your trunk.Reply

  29. February 21st, 2012 at 04:33 | #29

    I am in opposition to this plan. I do not like the idea of transporting more oil for America’s usage. I feel that the way to the future is in alternative energy, and this plan would only increase the reliance on crude oil. For sustainability, the government needs to look at alternative sources of energy.

  30. April 16th, 2012 at 12:10 | #30

    Some very interesting ideas have been presented here. Back in January I was opposed to the Keystone Pipeline because it appeared that the US was going to take all the environmental risk, and TransCanada would reap all the benefits. The Canadian government states that there is excess pipeline capacity projected out for at least 15 years. The only benefit to the US appeared to be some temporary construction jobs and maybe a few more refinery workers.
    A compromise, incorporating alternative extraction methods and either (preferably) building a refinery in South Dakota or skirting the pipeline around the Ogallala aquifer might be acceptable to all parties. The Canadian tar sands companies get access to their markets, we get a potential supply of oil from a more stable trade partner, and we either build new refineries (jobs) or take up excess refinery capacity.

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