Solicit a passerby for an opinion on the Keystone XL pipeline. If the response is something like “It’s environmentally unsound, it’ll tear up the landscape, it’s an abomination to Mother Gaia,” ask your mark if she has any idea where the pipeline starts and where it finishes. Then, end the silence by reading her this article.
Moving an Ocean of Oil
The sad news for the ecologically unswayable among us is that the Keystone pipeline is more or less built. It’s a project in four phases, I through III of which are already online. Originating at the oil depot in Hardisty, Alberta, in the east-central part of the province, the pipeline continues to Steele City, Neb., a 61-person hamlet two minutes from the Kansas border. From there, the original pipeline heads east to refineries in southern Illinois, while the remaining phases carry oil south to Oklahoma and ultimately the Texas coast. (For more, see: The Keystone XL Pipeline Explained.)
Phase I cuts a sharp jag in that it heads west from its Alberta origin to the town of Haskett in southern Manitoba, then abruptly turns south to Steele City. The controversial Phase IV would connect Hardisty and Steele City as the earthbound crow flies; the pipeline would trace the hypotenuse of the right angle subtended by Haskett, pitching southwest through Saskatchewan, Montana, and South Dakota and cutting about 320 miles off the journey.
The problem is that only 304 of Phase IV’s proposed miles pass through Canada. The remaining 875 cross a country that in recent years has reverted from national dynamism to becoming synonymous with red tape and sclerosis.
The pipeline is the work of TransCanada Corp. (TRP), the Calgary-based firm that also owns and operates enough gas pipeline to circle Earth twice. With a vast network from Alaska to Mexico, TransCanada derives most of its revenue from those plentiful natural gas pipelines. But in recent years, oil has played a gradually more important part in TransCanada’s business.
Phase IV would employ a pipe 3’ in diameter. That’s half a foot wider than Phase I, and thus could transport oil 44% more quickly. Of course, there’s more to pipeline construction than just laying down a solitary if phenomenally long pipe. Phase IV’s path would be 110’ wide, the extent necessary to accommodate frontage roads and other ancillary construction. Do the math and you’ll find that Keystone Phase IV will take up 24 square miles. If you’d like a comparison, BrightSource Energy has covered seven times as much of the Mojave Desert with solar panels. (For more, see: Bull vs. Bear: Canuck Oil is Safest, But Pure Canadian Plays Are Hard to Find.)
Risks vs. Realities
The benefit to the U.S. economy is undeniable. Most of the steel to build Keystone Phase IV would come from American sources. Yet one of the most cited arguments for not building Phase IV, even though the existing phases are operating without incident, is that there might be a spill. In a world with zero alternatives, and in which every slight risk has a 100% chance of becoming reality, that might be a legitimate objection. The problem is that the oil that would enter the pipeline is going to be drilled out of the Athabasca sands one way or another. It will: the infrastructure is there, the manpower mobilized. The question is where and how to transport it once it starts flowing. Without Phase IV, pipelines would move the oil west to British Columbia’s ports, bypassing the United States entirely. Which will ultimately involve tankers, which necessitates a mention of the Amoco Cadiz, Exxon Valdez, and various other craft that have ended up polluting gigantic tracts of ocean over the decades.
(For more, see: Pipeline Plans are a Big Win for the Oil Sands.)
A Win-Win for TransCanada
Either way, TransCanada wins. The company’s enormous natural gas network already includes huge swaths of the route from Alberta to the Pacific. Moving oil across a similar path is a relatively simple task, albeit one requiring plenty of engineering muscle. With no Congress to win over in such a scenario, TransCanada has some leverage. And much like water, petroleum prefers the path of least resistance; whether it’s physical, legal or otherwise.
President Obama promised a resolution on this issue in the first quarter of 2014. The pipeline is now on the Supreme Court’s docket, and likely won’t be resolved before the winter of 2014-15. Should the hurdles clear, and the weather cooperate, getting the pipeline built will be largely academic. Phase I was proposed in 2005, and the spigots turned on five years later. There are highway interchanges that take longer to construct. (For more, see: Profit in the Pipeline.)
The Bottom Line
A development on the scale of Keystone, or even just one of its phases, requires millions of man-hours of surveying, logistics, application, and alas, lobbying. TransCanada has already had to commandeer several plots of private land to build Keystone, much of it acquired from understandably disgruntled owners who feel that no price is worth being subjected to eminent domain. We won’t argue here whether a privately owned pipeline company should force landholders to sell in order to accommodate a project can be considered a public utility. But eminent domain is only one battle, and a relatively winnable one for TransCanada. If Phase IV in its entirety is shot down, the company can simply turn its gaze westward and continue to profit. And should Phase IV get the go-ahead, it’ll be cheaper than ever for TransCanada’s American partners to develop and refine. We’ll predict that either way, the marketplace will continue to reward efficiency. (For related reading, see: A Natural Gas Primer.)