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Keystone Project on Hold While TransCanada Weighs Three Options

Two of the options don't cross the U.S.-Canada border. Oil industry, state, federal officials wait and watch.

Jan 30, 2012
State Sen. Jim Smith of Nebraska

Official action on the Keystone XL pipeline review has virtually ground to a halt since President Obama rejected the pipeline permit. The U.S. State Department can't proceed until TransCanada, the company that wants to build the project, files a new application. And Nebraska's environmental officials need further direction from the state or federal government before they continue rerouting the pipeline out of the fragile Sandhills.

That leaves the next step to TransCanada, which has been trying to get the project approved since 2008. Spokesman Shawn Howard told InsideClimate News that the company still intends to pursue the project, but it is now considering several options in addition to the original route.

Two of those options would avoid crossing the U.S.-Canada border. That means TransCanada wouldn't need approval from the State Department, which oversees energy infrastructure projects that cross an international boundary.

"We have to decide what the new application will look like," Howard said. "That [decision is] ultimately made for us by our shippers and our customers."

Howard did not offer a timeline for when that decision would be made.

While TransCanada makes up its mind, Jim Smith, a Nebraska state senator, is urging the legislature to pass a bill that would allow Nebraska's Department of Environmental Quality to continue working on a reroute for the project, regardless of what happens in Washington, D.C.

Nebraskans spent years persuading lawmakers to move the pipeline out of the Nebraska Sandhills, which overlies the critically-important Ogallala aquifer. Citizens feared a spill would damage their land and water and affect the livelihoods of Sandhills ranchers.

"What I would like to see ... is that we do not have to wait for TransCanada to file another request with the federal government, that we can continue our review of Nebraska's alternative route even now," Smith told InsideClimate News.

TransCanada is considering at least three options, Howard said:

--It could re-apply for the complete Canada-to-Texas pipeline, which would run 1,700 miles from Alberta's tar sands to Texas refineries on the Gulf Coast and transport up to 830,000 barrels of crude oil per day.

--It could cut off the Canada connection and use Baker, Mon. as the pipeline's starting point, thereby eliminating the need for State Department approval. Instead of transporting heavy crude from Canada's tar sands, the pipeline would tap into the booming Bakken oil fields of Montana and North Dakota. Bakken oil was slated to fill 25 percent of the capacity on the original Keystone XL route, Howard said.

-- It could shorten the project even more by building from Cushing, Okla., eliminating not only the border crossing but also the section through Nebraska. Howard said this option would relieve the oil bottleneck in Cushing by providing additional pipeline capacity to refineries in Texas.

TransCanada's Goal Unclear

The Baker and Cushing options raise questions about TransCanada's eventual goal, said Martin Tallett, president of EnSys Energy, an international consulting firm that specializes in refining and oil markets. The company has prepared Keystone XL assessments for both the State Department and the Department of Energy.

Tallett said industry analysts are trying to figure out whether TransCanada views the shorter routes "as part of an eventual integrated Keystone XL that would come down from western Canada, or if they're trying to justify them as standalone projects."

Even without a cross-border pipeline, Tallet said, TransCanada might still find ways to transport more Canadian crude.

Beginning the route at Cushing could allow TransCanada to take advantage of its existing pipeline, simply called Keystone. It began operating in 2010 and transports tar sands crude from Alberta to Cushing and Patoka, Ill. Keystone XL could then move that oil from Cushing to refineries on the Texas Gulf Coast.

At some point, TransCanada could also expand the first Keystone's capacity by increasing power at existing pump stations, building new pump stations or even constructing a parallel pipeline along the same right-of-way, Tallett said.

The Baker route leaves fewer options for connecting to Canadian oil, Tallett said. Oil can be moved by train across the border to Baker, but current rail capacity is only about 200,000 barrels of oil a day. Tallett said he isn't aware of any existing oil pipelines between the two locations.

It all comes down to what TransCanada wants to do, Tallett said, "and their [current] plans are not clear."

Nebraska in Limbo

Meanwhile, the curtailed pipeline permit has left Nebraska's rerouting efforts in a state of limbo.

Department of Environmental Quality spokesman Brian McManus said his agency has stopped all work on the reroute and is waiting for guidance from the State Department or the Nebraska legislature. "We don't want to spend taxpayer dollars doing a review if we don't have an agreement that this information is going to be used by a federal agency," he said.

The Nebraska legislature passed a bill in November called LB4, which gives the state's DEQ authority to work with the State Department on finding a new route. The agencies had begun laying out the terms of their collaboration through a Memorandum of Understanding when the the Obama administration rejected TransCanada's original application on Jan. 18.

Speaking at last week's hearing before the House Subcommittee on Energy and Power, State Department Assistant Secretary Kerri-Ann Jones emphasized that the administration's decision wasn't a reflection of the merits of the project. She said there simply wasn't enough time to obtain the necessary information, including Nebraska's new route, before the Feb. 21st deadline. That deadline was imposed by Congressional Republicans who wanted to expedite the pipeline review.

The bill introduced in Nebraska by Sen. Smith would amend LB4 so the DEQ could proceed without federal involvement.

Smith believes there's a "strong likelihood" that the entire Alberta-to-Texas pipeline will be approved. But even if TransCanada bypasses Nebraska and chooses the Cushing-to-Texas option, he thinks his bill would be useful.

"We're going to cross that road sooner or later," he said. "Eventually there's going to be another pipeline that's requested to pass through Nebraska."

Smith's bill would also clarify another source of confusion in Nebraska. In addition to LB4, state lawmakers passed a second bill in November called LB1, which gives Nebraska's Public Service Commission authority to review future major oil pipelines, aside from Keystone XL.

Smith said it's unclear if LB1 would apply to a new TransCanada application, so his bill includes a provision ensuring that the DEQ takes responsibility for the pipeline route.

"DEQ is ... in a better position to conduct the environmental review at this moment in time," he said, because the Public Service Commission still needs time to hire staff and set up new regulations.

Smith's bill is scheduled for a hearing before the Natural Resources Committee on Feb. 16. Smith said he will continue to keep track of what's happening at the federal level and add amendments if necessary. No matter what happens in D.C., he said, "we want to keep with our commitment to review the alternative routes."

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