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During his first week in office, President Trump issued a Presidential Memorandum inviting TransCanada to resubmit its application to the Department of State for a permit for the construction and operation of the Keystone XL Pipeline.
The memorandum stated that "The Secretary of State shall reach a final permitting determination, including a final decision as to any conditions on issuance of the permit that are necessary or appropriate to serve the national interest, within 60 days of TransCanada's submission of the permit application."
TransCanada resubmitted that permit application with the State Department on January 26th, which means the 60-day period will end next week. White House spokesman Sean Spicer said the Administration will provide a Keystone XL update on Friday (today), with several unnamed government sources suggesting that the update will be the approval of the project.
Given the likely renewed public interest in the project, I wanted to provide a review and primer of the project to date.
The Keystone Pipeline is owned by Calgary-based TransCanada. Phase 1 of the pipeline began operating in 2010 and had the capacity to move 590,000 barrels per day (BPD) of crude oil from the Athabasca oil sands in Alberta to hubs and refineries in the US. In 2011, Phase 2 of Keystone connected Steele City, Nebraska to the major oil hub in Cushing, Oklahoma.
Phase 3 connected the Cushing hub to Gulf Coast refineries with a capacity of 700,000 BPD and began operating in January 2014. Phase 3 was the project that President Obama famously endorsed from the campaign trail in 2012, promising to “cut through the red tape” and to expedite the project. (President Obama's approval was not required for that leg of the project).
The Phase 4 expansion of the Keystone Pipeline is the one the world came to know as the Keystone XL (“XL” stands for export limited.) Like Phase 1, this expansion would add pipeline from Alberta and cross the US-Canadian border. The pipeline would have a capacity of up to 830,000 BPD and terminate in Steele City, Nebraska. Because the proposed route would cross the international border, the State Department was required to determine that the project was in the national interest to grant a permit (as the agency did with Phase 1).
Opposition to the Keystone XL turned into an environmental movement. The pipeline project became the most controversial one in the U.S. since the Trans-Alaska pipeline of the mid-1970s. Opponents of the Keystone XL believed that stopping the pipeline would slow the rate of oil sands development, and thus limit greenhouse gas emissions into the atmosphere. Proponents argued that it would strengthen our relationship with Canada at the expense of more hostile oil suppliers like Venezuela, enhancing U.S. energy security and creating jobs in the process.
The State Department was required to assess the projected economic and environmental impacts. It issued its Draft Environmental Impact Statement and opened a 45-day comment period on April 16, 2010.
The State Department’s draft findings were consistently challenged by the EPA and pipeline opponents. State kept updating its conclusions, but each time it reevaluated the project it continued to lean toward approval.
The State Department determined that the project was unlikely to have a significant impact on oil sands development or global greenhouse gas emissions, and further that an estimated six people per year would be killed on average if the oil was instead transported by rail. In a 2010 interview, then-Secretary of State Hillary Clinton responded to a question about the project with “We've not yet signed off on it, but we are inclined to do so, and we are for several reasons.” However, Candidate Clinton was forced to pivot to the left on the issue in response to the campaign of Sen. Bernie Sanders.
There were a number of protests in front of the White House to push the administration to oppose it. The Obama Administration, which could have ruled on the pipeline in 2010, would delay making a decision for five more years.
The years of foot-dragging appeared to be an attempt to appease everyone, a political equivocation forced by issues of symbolism rather than substance. But then in November 2015, after years of indecision, the Obama Administration finally rejected the application for the pipeline. In rejecting the project, the president cited the need for global leadership ahead of a meeting in Paris where world leaders would attempt to reach an agreement on binding cuts in greenhouse gas emissions.
Environmentalists claimed victory, but a year later Donald Trump won the election and invited TransCanada to resubmit its application. Whether TransCanada will actually build the pipeline isn't entirely certain. There is a real financial risk for them given the recent oil price slump. If TransCanada builds the pipeline but oil prices remain depressed for an extended period of time, that would definitely chill the pace of oil sands development -- and in turn, reduce demand for shipments on the pipeline.
Given the collapse in oil prices, President Obama may have unwittingly saved TransCanada a lot of money on a project premised on high oil prices.
Update: As anticipated in this article, the Trump administration has now issued a presidential permit enabling TransCanada to build the pipeline. This clears a major hurdle, but there are plenty of remaining obstacles for TransCanada, including economic justification given low oil prices.
