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Need for Keystone XL Shrinking as Industry Looks to Export U.S. Crude Oil

A dramatic and unexpected American oil boom is transforming pipeline networks and changing the way petroleum has flowed for decades.

Oct 25, 2012
(Page 3 of 4 )
TransCanada's Keystone XL pipeline depot

The notion that the Keystone XL is needed for U.S. energy security persists even as a succession of experts acknowledge that the pipeline's primary target market—the Gulf Coast refining hub—is already well-supplied and will reach glut levels as more U.S. oil flows to the region.  

"If the public realizes that [the Gulf Coast refiners] don't need the Keystone XL ... I think it would have a huge impact on support for the project," said Anthony Swift, an attorney at the National Resources Defense Council, which has campaigned against the pipeline for years.

The Keystone XL system was originally intended to run 1,700 miles from Canada's oil sands patch in Alberta to refineries in Texas. But the project needs a permit from the U.S. State Department because it crosses an international border. Early this year President Obama postponed his decision on that permit, saying further environmental review was needed—especially for the section that passes through the Ogallala aquifer in Nebraska, a key source of drinking and irrigation water.

Most of pipeline's 830,000-barrel-a-day capacity would be reserved for diluted bitumen (dilbit), a blend of heavy tar sands bitumen diluted with liquid chemicals. In June, a series of reports by InsideClimate News showed that after a 2010 dilbit spill in Michigan's Kalamazoo River, the liquid chemicals began evaporating and the bitumen began sinking to the river's bottom. More than two years later, oil is still pooling in the river. The EPA recently informed Enbridge that the most expensive inland pipeline spill in U.S. history—costing more than $800 million at last count—is still far from over.

To keep the Keystone XL project moving, TransCanada split it into two parts. While the company awaits permits for the northern leg, construction has already started on the southern section, which runs from Cushing, Okla. to Texas and doesn't need State Department approval.

Romney has repeatedly pledged to approve the northern segment "on day one" of his presidency if he wins the election, arguing that the project would create jobs and increase the nation's energy independence. Obama hasn't said whether he plans to approve the northern route.

Why the Oil Equation Changed

The dramatic turnaround in U.S. oil production began with the twin technological breakthroughs of horizontal drilling and large-scale use of a controversial process called hydraulic fracturing, or fracking, which together have made it possible for oil companies to tease "tight oil" out from dense shale rock formations. Such unconventional oil formations are what’s fueling the boom in North Dakota and Texas.

Oil production in North Dakota jumped to more than 700,000 barrels per day in August, more than triple its 2009 output, according to state reports. The Eagle Ford area in South Texas is still ramping up, but oil output there is already catching up to production in North Dakota. Tight oil production has already surpassed 900,000 barrels per day, and it's on pace to reach 1.2 million barrels per day by 2020, equal to 18 percent of total U.S. oil production, according to EIA estimates.

"U.S. oil production is up 25 percent since we last had a presidential campaign," said Daniel Yergin, author of The Prize, an acclaimed history of oil, and The Quest, a new book about energy. "In 2008, everything was really dominated by this notion of scarcity and peak oil."

With the rise of unconventional oil, or 'tight' oil, "there's this sense that our resources are more abundant," Yergin said in an interview. "The share of dependence on the Middle East oil will be lower than was anticipated."

The rebounding production is just part of the nation's new oil equation, however. U.S. fuel consumption has fallen off sharply in recent years because of the combination of a slumping economy, more biofuels use, more efficient vehicles and a shift in driving habits and demographics. While demand may recover somewhat when economic activity picks up, experts say the other factors will keep U.S. oil use on the decline.

Keystone XL supporters say neither the domestic oil boom nor the drop in fuel use negate the need for the pipeline and its cargo of Canadian heavy crude.

"We are still the largest oil consuming nation on the face of the earth. The more oil we can bring from Canada, in general, will displace oil coming from Saudi Arabia, from Nigeria ... that's better for us," said Fadel Gheit, a senior analyst covering the oil industry for Oppenheimer & Co. "Basically, we reduce our dependence on imported oil."

Indeed, the United States is currently a net importer to the tune of 8 million barrels per day of petroleum, driven mostly by demand from the nation's fleet of cars, trucks, trains and planes. That puts the United States a long way from becoming self-sufficient, and further still from becoming a major oil exporter.

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