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Keystone XL: Analysis and Outlook

Tuesday, November 10, 2015

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Just days after North American energy company TransCanada asked the U.S. State Department to suspend review of its permit application, President Obama announced Friday (Nov. 6) that the construction permit has been rejected by his administration.

The Keystone XL pipeline project was intended to carry crude oil from the oil sands in Alberta, Canada, into the U.S. Heartland region, and on to the Gulf of Mexico for distribution. / Daniel Barnes
Photos: © / Daniel Barnes

The Keystone XL pipeline project was intended to carry crude oil from the oil sands (shown above) in Alberta, Canada, into the U.S. Heartland region, and on to the Gulf of Mexico for distribution.

An application to permit cross-border construction had been under review by the State Department, which ultimately decided allowing construction would not serve the national interests of the U.S., Obama said in his announcement Friday.

According to reports, the project seemed like a certainty when it was first introduced seven years ago, with the promise of job creation, a stable source of fuel, reduced gas prices and a safer mode of transport.

However, once the threat of pollution and environmental damage became part of the dialogue, the scene changed.

Reasons for Rejection

The administration’s decision hinged not just on a focus on climate change and its mission to cut carbon emissions but also on the country’s ability to set an example in this area.

"America’s now a global leader in taking serious action to fight climate change," Obama said. "And frankly, approving this project would have undercut that global leadership. And that's the biggest risk we face, not acting."

Echoing those thoughts, Secretary of State John Kerry was quoted in The Washington Post, saying: “The reality is that this decision could not be made solely on the numbers—jobs that would be created, dirty fuel that would be transported here, or carbon pollution that would ultimately be unleashed,”

“The United States cannot ask other nations to make tough choices to address climate change if we are unwilling to make them ourselves.”

During his speech on Friday, Obama summarized the reasons the State Department recommend rejection of the pipeline, emphasizing the ways in which he believes the project doesn’t support the national interest:

  • It would not contribute a long-term contribution to the economy: “If Congress is serious about creating jobs, this was not the way to do it,” Obama said  While thousands of jobs were said to be part of the project, they would have been temporary as part of the construction only, according to FiveThirtyEight; following completion of the pipeline, the number would have dropped to just 50 permanent jobs.
  • It would not lower gas prices for American consumers, as evidenced by the fact that gas prices have been falling already: “The national average gas price is down about 77 cents over a year ago…a dollar over two years ago…$1.27 over three years ago,” Obama said.
  • It would not increase America’s energy security: “What has increased America’s energy security is our strategy over the last several years to reduce our reliance on dirty fossil fuels from unstable parts of the world,” Obama said.

What’s Next?

The question now: What happens next?

In his speech, Obama indicated that new Canadian Prime Minister Justin Trudeau was disappointed in the decision but that their close relationship on a variety of issues, including energy and climate change, would provide the basis for even closer coordination between the two countries going forward.

“The Canada-U.S. relationship is much bigger than any one project,” Trudeau in a statement, “and I look forward to a fresh start with President Obama to strengthen our remarkable ties in a spirit of friendship and co-operation.”

For TransCanada, its president and chief executive Russ Girling voiced his company’s displeasure in a statement saying: “Today, misplaced symbolism was chosen over merit and science—rhetoric won out over reason,” the Post reported.

While the company is said to retain its commitment to the project, it remains to be seen whether TransCanada will challenge the rejection in court or through trade arbitration procedures. / Daniel Barnes

TransCanada is said to be turning its focus now toward domestic production and its $12 billion Energy East pipeline project.

Among options suggested by the Christian Science Monitor, the company could immediately submit a new application, which would likely prove fruitless given the current administration’s stance, or it could put any actions on the back burner until after the 2016 presidential elections. It could also challenge the rejection through the North American Free Trade Agreement.

Many seem to lean toward the more reserved approach, waiting until Obama has left office. "You don't just turn the light switch on again, they're grounded for a while," Michael Moore of Calgary's School of Public Policy told the CBC, according to the Monitor.

In the meantime, the company is said to be turning its focus now toward domestic production and its $12 billion Energy East pipeline project, which would carry 1.1 million barrels of crude oil from Alberta in western Canada to New Brunswick on its east coast.

It is in the process of redirecting pipe and equipment that had been pre-purchased for the Keystone XL to other pipeline projects, the Edmonton Journal said.


Tagged categories: Government; North America; Oil and Gas; Pipelines; Program/Project Management

Comment from M. Halliwell, (11/10/2015, 12:21 PM)

*Soap box alert* I would tend to agree that the politics and optics won out. The stats say that pipelines are the better option vs. rail and sea. Maybe Mr. Trudeau will make a move toward promoting domestic refining capacity and Canada can stop importing oil on the east coast by having Alberta supply upgraded and/or refined products to the entire country. As for the gas price drop argument....well, that's what happens when the price of oil drops from ~$120/bbl to $45/bbl over the same 3 years mentioned (especially big drop in the past year)...Perhaps when OPEC decides to wring every last cent of profit from oil (after completing their current plan to hurt the North American and North Sea oil companies) and after a few more train incidents involving oil, then the political climate will change it always seems to.

Comment from peter gibson, (11/13/2015, 1:18 PM)

Oil prices will remain low going into the future.With extracting US oil,there is no need for Canadian oil. The jobs create gimmick was just a ruse to get the thing built. The public is tired of companies hiding behind job creation to get their way.

Comment from M. Halliwell, (11/16/2015, 11:04 AM)

Job creation on a large pipeline is fairly small once the pipeline is up and running. Construction (as in all things) requires a lot of labour, but it is temporary in nature. Once up and running, there would be what, 100(?) long term jobs along the entire line. Whether from Canada, across Canada, across the USA or wherever, pipelines are the safer alternative per volume shipped vs. rail or maritime transport. I think the politics of "tarsands" and "climate change", low oil prices (cheap to import using existing infrastructure) and the less pressing need for oil imports (due to additional domestic production in the US) is what killed KeystoneXL.

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