Why TransCanada (and others) shouldn't be surprised by the recent Keystone XL decision

TransCanada pipes lay stacked and ready to go in advance of securing permit (photo by Dakota Rural Action, Nov 2011)

In 2008, the Canadian company TransCanada proposed a nearly 2,000 mile pipeline that would bisect the heartland of America in order to carry diluted bitumen, raw tar sands diluted with chemicals, to the Gulf Coast ports and refineries.  It was a bold proposal, sold to the oil industry as a cheaper way to access the Gulf than the longer route through the Midwest and down from Cushing, Oklahoma.  And the Gulf no doubt looked like the grand prize for an industry bullish on its future.  If they could get their oil to Texas ports, it could go anywhere in the world.  That was the grand plan. 

Three years later, the prospects for the pipeline are at best uncertain.  On November 1, the Nebraska Legislature began its special session to consider a bill that would give the Governor authority to stop oil pipelines from crossing its sensitive lands.  And on November 6, over 10,000 people from the U.S. and Canada encircled the White House asking the President to stand up to Big Oil and reject the pipeline.  Days later, the President and State Department announced they would take a harder look, especially at the route through Nebraska and its fragile Sandhills, but also at the climate and other environmental impacts posed by the pipeline and upstream extraction and downstream refining. 

So what happened?  How did this pipeline that was thought to be such a done deal that TransCanada bought and stacked pipe along the route go awry? 

It’s a long story and it started well before the events of the last several weeks.

In 2008, TransCanada’s first pipeline, Keystone One, was approved by the Bush Administration.  Because it crossed an international border, it required a Presidential permit under Executive Order 13337  and was met with little objection by other Federal agencies involved in the process.  Few in policy circles knew about the tar sands and most of the focus at that time for those concerned about the tar sands was on keeping a brand new federal procurement law, Section 526, from being repealed.  The TransCanada Keystone One pipeline would carry tar sands crude from Alberta to Cushing, Oklahoma, a huge oil terminal.   

Then in 2009, right after the Obama Administration came into office, another pipeline review was completed and the Enbridge Alberta Clipper was granted its permit.  At this point, the pipeline capacity for tar sands oil surged from 800,000 barrels, mostly carried by an aging pipeline system, called the Enbridge Lakehead system, to two million barrels a day.  Canada was producing less than a million and a half barrels and a significant portion of that was being used in Canada.  In other words, there was already signficant tar sands pipeline overcapacity by 2009.  

The fact that Keystone XL, a supersized pipeline (nearly the size of the other two combined), would add another nearly one million barrels a day meant that pipeline overcapacity would be that much greater.  That explains why Enbridge, TransCanada’s competitor, repeatedly tried to block the Keystone XL from going forward. 

What was clear then, as early as 2009, was that Keystone XL was not really about bringing additional oil into the U.S. – at least not for a decade or more – because Canada, in spite of the boom in the tar sands, could not produce it fast enough.  To survive, Keystone XL was going to have to divert oil from the Midwest pipelines – mainly from Enbridge – to fill its pipe to the Gulf.  In the Canadian National Energy Board hearings, TransCanada made it clear that they could get a bigger profit for the tar sands producers – to the tune of $4 billion a year – if they could take it out of the Midwest where it was backlogged (and where only a few refineries can refine it) and send it to the Gulf coast where it could get higher global prices.  By removing the glut, that $4 billion would effectively be coming out of the pockets of Midwest consumers. 

Fast forward to March of 2011 when a well known oil economist, Phil Verleger, would write an op-ed that undoubtedly ripped through the industry.  He said that the pipeline would not decrease the price of gas, as the oil lobby and a vocal group of anti-Obama Republicans claimed, it would increase it and increase it in a part of the country hardest hit by the recession.  The economist estimated that the cost would be 10-20 cents a gallon in the Midwest and would have a depressing effect on expenditures elsewhere in the economy.  He also asserted that the pipeline would serve mainly as an export pipeline to Asia and other foreign countries. 

All these arguments were to play a central role in the review of the pipeline and the growing public opposition to it.  But let’s go back to the beginning for now. 

In the spring of 2010, the State Department was in the midst of a controversial environmental review.  Thousands of citizens were sending comments into the State Department expressing concerns, especially those who lined the pipeline route.  But the State Department had picked the same contractor that had worked with TransCanada on Keystone One and had worked for Enbridge on the approval of the Alberta Clipper pipeline, Cardno-Entrix, to do the review.  It is possible that the contractor, which had been delegated the collection of the comments, did not give the State Department an adequate heads up that a huge controversy was brewing.  

What is later to become the core of an Inspector General review, Cardno-Entrix listed TransCanada as a “major client” and there were other conflict of interest issues (they were working for multiple oil major companies with interests in the tar sands and the pipeline). This should have raised red flags for the supervising government agency.  But because the State Department did few environmental reviews, and usually delegated the oversight of them to junior foreign service officers who then moved on to other posts, they had little in house experience in executing NEPA and overseeing the process. 

In April, the State Department released what was widely viewed as an extremely flawed Draft Environmental Impact Statement.  Fifty members of Congress, all the major environmental groups and many regional groups, and 250 entrepreneurs (members of E2, a business advocacy association that partners with NRDC) sent letters raising questions about the review, especially about its disregard of the serious climate impacts of the pipeline.  In July, EPA added its voice, and raising similar concerns about climate impacts, sent a comment letter that gave the lowest possible rating to the draft.  At the same time, the chairman of the Energy and Commerce Committee, Congressman Henry Waxman wrote a particularly critical comment letter. 

As skepticism was growing that the State Department could do an adequate review, in July of 2010 the Enbridge Lakehead pipeline exploded in the Kalamazoo River in Michigan, spilling nearly a million gallons of tar sands sludge into the river and its tributaries.  Booms and skimmers were deployed but this heavy crude simply sank to the bottom where it couldn’t be cleaned up.  For months afterwards, images of fouled shorelines and sickened residents reminded the American public of the onshore risks of pipeline spills as the disaster in the Gulf of Mexico was also unfolding. 

In spite of this rupture, in mid-October, the Secretary of State stated at an event in San Francisco that she was “inclined” to approve the pipeline, even as State was in the midst of conducting its environmental review.  That spurred a terse letter from eleven Senators, led by Senator Patrick Leahy, the lead appropriator for the State Department’s budget, who wrote asking their former colleague to answer a series of questions about the adequacy of the review.  By the end of the year, State had agreed to carry out a supplemental EIS and append studies on pipeline safety, climate impacts and oil supply scenarios ranging from no pipeline at all to multiple new pipelines.  The supplemental was hastily put together – again by the consultant Cardo-Entrix – and released in April of 2011.  EPA dug in again, did a detailed comment letter, and gave the review another failing grade.   

Then, in July, there was another major pipeline spill, this time in the Yellowstone River in Montana.  While it was not a spill of tar sands oil, the pipeline carried tar sands oil.  The Kalamazoo River that had had the rupture a year earlier was still closed and clean up costs were north of $500 million.  By this time, Keystone One had had problems of its own, with pipeline spills at far greater frequencies than they had promised regulators (one "spill" was a geyser of oil that shot 60 feet into the air and was first reported by a nearby landowner, not by the TransCanada leak detection systems.)

The final environmental impact statement, which followed a few months later in late August 2011, found – in almost a shocking display of dissonance with these events and the growing public and media attention – that there would be “no significant impact” from the pipeline.  Very short mention was made of these spills, even though Cardno -Entrix, the contractor for the EIS, was doing clean-up assessments for Enbridge in the Kalamazoo spill. 

And the review had failed to do a significant analysis of the pipeline safety issues in spite of the fact that that June, two months earlier, the administrator of the agency overseeing pipeline safety testified before Congress that there were no regulations that govern bitumen pipelines and that she could not go on the record stating that bitumen would behave the same as conventional oil in pipelines.  Organizations such as the Pipeline Safety Trust, which had partnered with NRDC earlier to issue a report raising safety concerns, also began to speak out more vocally about the risks.

Adding to these concerns was the fact that the route of the pipeline would carve right through the Ogallala aquifer, one of our most important aquifers, and cross iconic rivers like the Yellowstone.  As tensions were rising in Nebraska, where the Ogallala comes both to the surface along the pipeline route in the famous Sandhills region and is at its deepest, TransCanada was digging in and making it clear that they would not move the route.  In October, they met with legislators for a four hour session where they made it clear that the refineries couldn’t wait for another environmental review and Nebraska was just going to have to live with the route.  That the Republican governor asked the State Department to move the route mattered little. It would go forward, like it or not.    

At this point, Americans from all walks of life were making it clear that they opposed the Keystone XL pipeline.  Organizations such as the National Farmers Union, Transport Workers Union, Amalgamated Transit Union, National Congress of American Indians, League of Women Voters, mayors, scientists, landowners, dozens of members of Congress and communities that would be hit hardest by refinery pollution in Texas were all weighing in against the pipeline.  And the major environmental organizations had made the campaign to stop the Keystone XL tar sands pipeline and the expansion of the tar sands a top priority.

In late summer, Bill McKibben and his organization TarSandsAction orchestrated "waves" of arrests, ultimately totalling over 1250 people, in front of the White House.  The arrests included many public figures but also many directly affected by extraction, piping, or refining tar sands oil.  A substantial number of those arrested had been moved by James Hansen's statements that expansion of the tar sands was "game over" for the climate.  Following on the heels of the arrests, nine Nobel Laureates wrote the President in support of the protests and asking him to reject the pipeline. And Robert Redford, a long-tim trustee of NRDC, launched one of the first New York Times video op-ed with a three minute piece urging rejection of the pipeline. Wherever the President traveled in the fall, he was met by protesters asking him to stand firm against Big Oil and say no to the Keystone XL tar sands pipeline. 

Also in September and October, thousands of people flooded public hearings held by the State Department along the pipeline route and in Washington D.C.  and, in the largest environmental protest since the 1970s, again organized by McKibben's TarSandsAction, over 10,000 people encircled the White House to send the President the message that they would stand with him in rejecting the Keystone XL pipeline. 

There are many more stories, about the revelations that TransCanada had a cozy relationship with officials in the State Department and with the contractor Cardno-Entrix that have led to an Inspector General investigation at the State Department, and about the dearth of reflection of public concerns in the review, that help explain why there was little choice but to restart the review process and to look for alternative routes for the pipeline. 

But for now, the President and State Department’s decision to do additional review begins to rectify what was far from a political decision.  It would have been one – and a potentially catastrophic one for the American public – had the Secretary of State or the President made a decision to permit the pipeline given the history of the pipeline review and public concern.  In fact, that is the government’s duty under the Executive Order - to determine that the pipeline is in the national interest (apart from the industry interests) – before approving its permit. 

That there was surprise expressed by TransCanada and some observers in Canada and the U.S. shows that they either arrogantly assumed they would get this pipeline permit in spite of the American public’s concerns or that they were genuinely not paying attention.  Their attempt to use jobs as a cynical ploy to counter growing sentiment against the pipeline also began to fall apart, with TransCanada admitting that the 20,000 pipeline jobs were more likely to be in the hundreds after a few thousand temporary jobs building the pipeline had run their course, and with an independent jobs report finding that the pipeline could be a job killer by suppressing the Midwest economy and green jobs.  And their arguments that the pipeline would provide energy security were also unraveling.  

We may never know why TransCanada so misjudged the response of the American public, but for now, the Administration put the interests of that public ahead of the interests of TransCanada and committed to taking a harder look.  Some in industry see this delay as an opportunity to push other proposals forward. Enbridge – TransCanada’s rival – announced its purchase of the Seaway pipeline to reverse oil flow from Texas to the Midwest in order to take tar sands oil from the Midwest down to the Gulf.  And just as we expected, the price of oil in the Midwest increased as a result of this announcement, consistent with our argument that these pipelines to the Gulf will increase the price of oil to consumers in the Midwest and that this oil is destined in part for foreign markets, putting a lie to the brash energy security claims of tar sands promoters.  See my colleague, Danielle Droitsch’s blog here for more on this story. 

That there will be more twists and turns in this story is a certainty - like the Enbridge moves this week - but at the end I believe it is likely that the Keystone XL will either fail on its own accord or be rejected.  Even the delay has dealt a major blow to a huge priority project for the oil industry, bent on expanding the tar sands and moving the dirtiest oil on the planet to international markets. 

Will Keystone XL's demise stop the tar sands from expanding?  Maybe yes, maybe no. But today it is a serious question.  And every pipeline proposal, whether that's Enbridge's Gateway, Seaway or Wrangler or a shortened TransCanada's Keystone XL, will be met with much more scrutiny going forward.

One other thing is for sure  - a pipeline that was once thought to be a done deal could become a pipedream. And that's something big.

Photo by Josh Lopez at Tar Sands Rally on November 6, 2011

Comments