IHS CERA Finds:
- Keystone XL will have “no material impact” on greenhouse gas emissions.
- Venezuela will be “the number one beneficiary of a negative decision” on Keystone XL.
- Rail is a viable option for transporting Canadian oil sands: “Even if new pipelines lag oil sands growth, rail will fill the gap, as it is doing today.”
- “Even if the Keystone XL pipeline does not move forward, we do not expect a material change to oil sands production growth.”
IHS CERA’s independent report released this week finds that Keystone XL will have “no material impact on greenhouse gas emissions,” and therefore, meets President Obama’s clearly stated test for approval of the pipeline. Further, the report addresses opponents’ charges head on regarding the State Department’s Draft Environmental Impact Statement findings, eviscerating their oft-repeated claims that without Keystone XL Canadian oil sands will stay in the ground.
As IHS CERA points out, there are two key reasons that Keystone XL will not significantly impact the climate: 1) heavy crude oil will be refined in the U.S. Gulf Coast (USGC) refineries regardless – but without Keystone XL, much of that crude will be imported from Venezuela instead of Canada and 2) Canadian oil sands will be transported via rail or other pipelines with or without Keystone XL.
The report says it best so let’s have a look:
Keystone XL will have no material impact on greenhouse gas emissions: IHS CERA independently comes to the same conclusion as the State Department’s assessment: Keystone XL will not significantly impact greenhouse gas emissions.
- From the report: “The purpose of this Insight is to bring clarity to the question of Keystone XL and its potential GHG implications. IHS CERA’s assessment agrees with the US State Department—Keystone XL will not be material to GHG emissions.”
Refineries in the U.S. Gulf Coast (USGC) will still refine heavy crude oil – but they will get it from Venezuela instead of Canada: As IHS CERA states, refiners in the Gulf are configured to process heavy crude oils and will continue to do so. But if they are not producing the larger volumes of crude from Canada that would be transported by Keystone XL, “the most likely alternative USGC heavy oil supply is Venezuelan crude which has the same GHG emissions range as oil sands” so greenhouse gas emissions will see little to no change.
- From the report: “[T]he Gulf Coast region has a strong appetite for heavy crude—requiring 2.4 million barrels per day (mbd) in 2012. Its refineries are generally configured to optimally process this type of crude given the large scale of the coking capacity already in place. Therefore, with or without oil sands supply to the Gulf Coast, refiners there will continue to process heavy crude oils. (The USGC is the center of gravity for US refining with about half of the nation’s total refining capacity).
Today, the majority of heavy supply on the USGC comes from Venezuela (0.8 mbd),followed by Mexico (0.7 mbd); the rest is from smaller suppliers including Colombia and Brazil. If Gulf refiners cannot access Canadian heavy oil, the most likely alternative is Venezuelan supply, which is projected to grow based on ongoing investments (including the Orinoco). Although Mexico has historically been a large supplier of heavy oil, its production has been dropping steadily (declining production has reduced exports; compared with seven years ago, heavy oil shipments to the United States have been cut in half). Therefore, the decision on Keystone XL may ultimately boil down to a determination of oil market share between Canada and Venezuela. Venezuelan heavy oil—and Venezuela—will be the number one beneficiary of a negative decision on Keystone.
The GHG emissions from Venezuelan supply are in the same GHG intensity range as oil sands (see Table 1).
Rail is a viable option for transporting Canadian oil sands: IHS CERA is very clear that, in the event that Keystone XL is not approved, rail is a strong alternative to transporting oil sands crude.
- From the report: “Even if the Keystone XL pipeline does not move forward, we do not expect a material change to oil sands production growth. Therefore the Keystone decision itself will not have any impact on GHG emissions. Without Keystone, alternatives will be developed including other pipeline projects and crude delivery by rail. Not including Keystone XL, the volume of proposed pipeline capacity exiting western Canada currently totals 3 million barrels per day (mbd). Eighty percent of this proposed capacity connects Alberta with Canada’s west and east coasts, and obviously would not involve any US government approval. Even if new pipelines lag oil sands growth, rail will fill the gap, as it is doing today. With more investment, rail economics could approach those of pipeline.”
According to IHS CERA “although moving crude oil by rail is generally more expensive than by pipeline, heavy oil sands could be the exception.” That’s because rail cars do not necessarily require the oil sands to be diluted as is necessary for pipeline transportation. Therefore, “by railing pure bitumen (instead of dilbit in a pipeline or rail car) oil sands producers can avoid some expense.”
The report further states that “oil sands can grow using rail; it is already happening.” Yes, it is: as Reuters reported this week, Gibson Energy Inc and U.S. Development Group announced that they will build a 140,000-barrel-per-day terminal in Hardisty, Alberta to facilitate rail transports of oil sands. And just last month, Keyera Corp and Kinder Morgan said they are planning to build a new crude oil rail loading facility in Edmonton that will be able to load 40,000 barrels of crude oil into tank cars per day.
But as the Calgary Herald reported a few months ago, many investments in rail on a much larger scale are in a holding pattern at the moment in anticipation of President Obama’s decision on Keystone XL. The IHS CERA report reflects this:
- From the report: “The rationale, so far, for not investing in the pure bitumen transport option is that most oil sands producers are assuming that sufficient pipeline capacity will become available in a few years. In order to receive a payback on building pure bitumen railing infrastructure, producers must anticipate its use over a longer time frame—perhaps five years. However, if producers anticipate that new pipeline capacity will not keep pace with oil sands growth, we expect that they will make investments in more efficient rail transport, including equipment for moving pure bitumen. These investments would narrow the gap between the economics of transporting oil sands by pipeline and by rail.”
With the release of this important study, it’s worth pointing out that the Keystone XL debate has never really been about whether the pipeline would significantly increase greenhouse gas emissions – it won’t. It has always been about off-oil proponents using Keystone XL as a “symbol” to pursue their agendas.
And don’t take our word for it. Just this week, a Nature article featured several climate experts conceding that point.
- David Keith, a Canadian climate scientist at Harvard said, “The extreme statements — that this is ‘game over’ for the planet — are clearly not intellectually true…”
- David Victor, a climate-policy expert at the University of California explained, “As a serious strategy for dealing with climate, blocking Keystone is a waste of time. But as a strategy for arousing passion, it is dynamite.”
- Ken Caldeira, climate researcher at the Carnegie Institution for Science in Stanford, California put it this way: “I don’t believe that whether the pipeline is built or not will have any detectable climate effect.”
So IHS CERA, the State Department and even prominent climate scientists agree that Keystone XL meets President Obama’s climate standard – could it be any clearer that Keystone XL is in our national interest?