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Koch Subsidiary Told Regulators It Has 'Direct and Substantial Interest' in Keystone XL

A document filed with Canada's Energy Board appears to cast doubt on claims by Koch Industries that it has no interest in the controversial pipeline.

Oct 5, 2011

In recent months Koch Industries Inc., the business conglomerate run by billionaire brothers Charles and David Koch, has repeatedly told a U.S. Congressional committee and the news media that the proposed Keystone XL oil sands pipeline has "nothing to do with any of our businesses."

But the company has told Canadian energy regulators a different story.

In 2009, Flint Hills Resources Canada LP, an Alberta-based subsidiary of Koch Industries, applied for—and won—"intervenor status" in the National Energy Board hearings that led to Canada's 2010 approval of its 327-mile portion of the pipeline. The controversial project would carry heavy crude 1,700 miles from Alberta to the Texas Gulf Coast.

In the form it submitted to the Energy Board, Flint Hills wrote that it "is among Canada's largest crude oil purchasers, shippers and exporters. Consequently, Flint Hills has a direct and substantial interest in the application" for the pipeline under consideration.

To be approved as an intervenor, Flint Hills had to have some degree of "business interest" in Keystone XL, Carole Léger-Kubeczek, a National Energy Board spokeswoman, told InsideClimate News. Intervenors are granted the highest level of access in hearings, with the option to ask questions. The Energy Board approved Canada's segment of the pipeline with little opposition, and Flint Hills did not exercise its right to speak.

InsideClimate News contacted the Flint Hills manager who filed the Canadian document. She referred questions to Koch Industries general counsel Mark Holden, who did not return calls. Neither did Koch spokespeople.  

The State Department, which must approve the project because it crosses an international border, has spent three years reviewing the 1,375-mile U.S. leg of the pipeline proposal. Its decision, which is expected by the end of the year, will be the most far-reaching environmental decision of Barack Obama's presidency so far.

The project's supporters say the pipeline is needed because it would deliver a secure supply of oil from a politically stable ally and produce much-needed jobs during the recession. Opponents contend it would increase global warming emissions and raise the threat of oil spills in sensitive areas along the route. They also argue that gasoline prices in the Midwest would increase and that much of the 830,000 barrels of oil the pipeline could send into the United States each day would go to foreign markets.

Currently, Canadian crude can be pumped only as far as the U.S. Midwest, where a crude oil oversupply is keeping regional oil prices low. The Keystone XL would clear that bottleneck, send Canadian oil to the Gulf Coast and open access to world markets, creating a massive business opportunity for tar sands players.

"There's no ability to access world markets, and that's the reason why WTI [Midwest oil pricing] is depressed. Keystone XL will relieve that issue," said Chad Friess, an oil and gas analyst at UBS Securities Canada Inc. in Calgary, Alberta. "Pricing is expected to improve as it comes on stream."

A 2009 market analysis conducted for TransCanada, the Alberta-based company that hopes to build the pipeline, projected that it would create a $3 per-barrel increase, at minimum, for Canadian heavy crude in the Midwest. Canada's petroleum producers would benefit most from the price hike. The report predicts their annual revenues would increase $2 billion to $3.9 billion in 2013.  But the entire industry—including the refineries and shipping businesses where Koch Industries has concentrated its efforts—would also profit.

"Keystone XL is about the whole industry," said Danielle Droitsch, senior adviser to the Natural Resources Defense Council (NRDC), a nonprofit environmental organization that opposes the pipeline. "They will fetch a higher price of oil from the Gulf Coast market, which also happens to be an international market."

Deep Involvement in Oil Sands Trade

The controversy over the Kochs and the pipeline was sparked by an InsideClimate News report from February. That analysis, also published on Reuters.com and later cited by various news organizations, found that Flint Hills is deeply involved in the Canada-Alberta oil sands trade and is well positioned to benefit if more heavy crude is exported to the United States.

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