What Happens If The Keystone XL Pipeline Isn't Built?

Feb 26, 2012
Originally published on February 27, 2012 5:56 am

Part two of a two-part series on the Keystone XL pipeline

Gas isn't like a rare bottle of wine that fetches a high price just because it's rare. But at the same time, no one can agree what drives gas prices. Demand for gasoline in the U.S. is at its lowest point in more than a decade; domestic oil production is at an eight-year high.

There's no simple explanation for why most people are spending $3.60 for a gallon of regular, unleaded gas. But many critics of President Obama's energy policy point to one possible reason: The U.S. isn't fully tapping into the potential supply from Canada and, specifically, a place called the Athabasca Tar Sands in Alberta.

Some are looking to a controversial proposal as a solution: the Keystone XL pipeline.

Pushing For Domestic Energy

There are consequences if the Keystone XL isn't built, but there are also issues if it never becomes a reality.

"If Canada can't produce this oil, we'll have higher oil prices than we otherwise would," says Michael Levi, senior fellow for energy at the Council on Foreign Relations.

Late last month, Obama rejected a plan by Calgary-based TransCanada to build a pipeline that would cross seven states and transport up to 700,000 barrels of Canadian oil a day to refineries on the Gulf Coast.

"The Keystone XL pipeline helps make sure that this resource can be developed if it's economically needed," Levy says. "And so that's good for the U.S. economy."

Obama doesn't necessarily oppose the pipeline, but he denied TransCanada the permit to build it because he argued there wasn't enough time to study its environmental impact. The company plans to file a new proposal next year.

A New Oil Boom

At the center of the Keystone XL debate is Cushing, Okla, the pipeline crossroads of the world. There are miles of giant white oil tanks across the town.

Cushing might be one of those rare places in the U.S. where the economic recession seems to have passed. Business is booming. It's so good that Pete Schwiering, chief operating officer of an oil storage company called Rose Rock Midstream, is adding a few new tanks on his tank farm. Each tank is capable of storing 250,000 barrels of oil.

Soon, Schwiering's tank farm will be capable of storing 2 million barrels a day, about 10 percent of all the oil consumed in America in a single day.

"I've been in this business 42 years and I've never seen activity out there on the production side like what's happening right now," he says.

There is so much oil coming into Cushing that there's actually a glut, which translates into big business for the storage companies. But what might be good for people like Schwiering is bad for pipeline companies like TransCanada. There are lots of incoming pipelines, but not enough outgoing ones.

Some of the oil moves to refineries in the Midwest where it's turned into gasoline. But its not happening fast enough and now, there's a bottleneck in Cushing.

The Case for Jobs

The Keystone pipeline starts in Alberta, travels almost 2,000 miles and ends in Cushing. It was completed last year, but can only handle the flow of half a million barrels of oil a day from the Tar Sands in Alberta, which make up the second-largest proven oil reserve in the world.

Now, Canada wants to send more than twice that amount down to the Gulf Coast refineries where it can potentially be traded on the lucrative global oil market. In order to do that, TransCanada wants to build a second pipeline, known as Keystone XL, which Obama rejected last month. TransCanada's argument for building it is twofold, says Robert Jones, the company's vice president.

He says it'll create thousands of jobs, a figure disputed by other independent analysts. The second point, Jones says, is that it puts the U.S. in charge of its own energy production.

"When you look at the premise of the project and why the project was created—which is to serve the public and the public interest — it is solely that the U.S. is less dependent on foreign sources of oil from Venezuela or OPEC," says Jones, referring to the Organization of Petroleum Exporting Countries, a bloc of the world's top oil-producing nations.

It's a compelling argument. If only the U.S. could buy more oil from Canada, it wouldn't have to buy as much from potentially hostile countries in the Middle East, Africa and Latin America.

But TransCanada is a pipeline company, not an oil company. There's no guarantee that once refined on the Gulf Coast, that oil would stay in the U.S. If oil companies can make more money selling it overseas, then it just comes down to business.

Safety Concerns

Then there's the issue with Canadian crude oil. It's heavy.

The difference between Canadian Tar Sands oil and Oklahoma light sweet crude is like the difference between Coca-Cola and cake batter. So to make it easier for Canadian oil to flow thousands of miles south to Cushing, it has to be mixed with chemicals to thin out.

"They won't tell us what's in the oil to make it flow," says Randy Thompson, a Nebraskan cattle rancher who's opposed Keystone XL.

He's successfully spearheaded a campaign to halt the construction of Keystone XL through the ecologically sensitive Sandhills of Nebraska that lie atop one of America's largest underground aquifers.

"We know they're toxic chemicals. So this is a severe concern for a lot of us people out here," Thompson says. "A lot of us people out here, we gotta drink this water. Be nice to know what the hell they're pumping through it."

TransCanada claims that its proposed Keystone XL line will be the safest of its kind ever built.

"I believe we can absolutely build pipelines with new technology that are getting closer and closer to being leak free," Jones says.

Just Beginning Of The Debate

But for many environmental activists, the heart of the debate isn't about the Keystone XL pipeline. It's about the source of the oil it would carry.

Last year, James Hansen, a NASA scientist, wrote that if the Alberta Tar Sands continue to be mined for oil, it's "game over for the climate."

Longtime environmental activist Bill McKibben agrees.

"Keystone XL will be by far the biggest push in terms of plumbing those tar sands, building the infrastructure to fully exploit them," says McKibben, who led a demonstration of anti-Keystone XL protesters in front of the White House last November.

In order to get crude oil from the tar sands, it needs to be heated up. Scientists estimate that process produces up to 80 percent more atmospheric carbon than traditional drilling in places like Saudi Arabia and Oklahoma.

McKibben sees this progress as a sign to keep the oil in the ground.

"Sooner or later, hopefully sooner, we have to start getting off fossil fuel. And this is a very good place to start. We need to keep carbon out of the atmosphere," McKibben says. "That's the bottom line."

McKibben and other opponents of Keystone XL say they believe that if they can prevent its construction, it could dramatically slow down the mining at the Canadian Tar Sands.

The arguments raised by the two sides are based on different sets of facts: lots of jobs vs. a few; lower gas prices vs. higher ones; an environmental catastrophe vs. the realities of human consumption. What is clear, though, is that both sides are determined to win.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

GUY RAZ, HOST:

From NPR News, it's WEEKENDS on ALL THINGS CONSIDERED. I'm Guy Raz.

Even energy experts can't say with absolute certainty why gas prices are all of a sudden higher. It may have something to do with the tension in the Middle East or Wall Street traders or a temporary shortage of refineries.

But gas isn't like, say, a rare bottle of wine that fetches a high price because it's, well, rare and everyone wants it. Demand is actually at its lowest point in more than a decade here in the U.S., and domestic oil production is at an eight-year high.

Now, there's no simple explanation for why most of us are paying on average $3.60 a gallon at the pump right now.

(SOUNDBITE OF MUSIC)

RAZ: Yesterday on the program, we looked at the price of oil through the prism of a controversial pipeline proposal called Keystone XL that would run from a massive oil deposit in Canada all the way to the U.S. Gulf Coast.

Today, we're going to look at the consequences of building Keystone XL and the consequences of not building it. And that's our cover story.

MICHAEL LEVI: Well, let's be clear. If Canada can't produce this oil, we'll have higher oil prices than we otherwise would.

RAZ: That's Michael Levi. He's an energy analyst at the Council on Foreign Relations. Late last month, President Obama rejected a plan by Calgary-based company TransCanada to build Keystone XL. It's a pipeline that would cross seven states and transport up to 700,000 barrels of Canadian oil a day to refineries on the Gulf Coast.

LEVI: The Keystone XL pipeline helps make sure that this resource can be developed if it's economically needed. And so that's good for the U.S. economy.

RAZ: Now, the president doesn't necessarily oppose the pipeline, but he denied TransCanada the permit to build it because he argued there wasn't enough time to study its environmental impact. So for now, the company plans to file a new proposal next year.

(SOUNDBITE OF CAR ENGINE)

RAZ: Now, to fully understand the impact of Keystone XL, you have to visit the small town of Cushing, Oklahoma, known locally as the pipeline crossroads of the world. Producer Brent Baughman and I traveled from Nebraska through Kansas and on to Cushing last week to learn more about the pipeline.

BRENT BAUGHMAN, BYLINE: Yeah, that's an oil smell.

RAZ: The first thing you notice in Cushing is the smell, something like a combination of burning rubber, asphalt and a gasoline station.

BRETT ANDERSON: Smells like money.

RAZ: That's Brett Anderson. He was born and raised in Cushing. He's a small-time oilman and something of an amateur local historian here who gave us a personal tour.

ANDERSON: Well, you know, when I was a kid growing up our last refinery...

RAZ: Eventually, we pulled up to the highest point in Cushing, overlooking the entire town. So where are we right now, Brett?

ANDERSON: Well, we're just north and west of the airport, and basically the - all the tanks are all south and east of here.

RAZ: It's an overwhelming sight, giant white oil tanks that stretch for miles across Cushing's red soil landscape. Many of America's pipelines meet up and terminate right here, and it's why so much oil gets stored here.

ANDERSON: Oil, you know...

RAZ: We drove around with Brett for an hour and we still didn't see all the tanks. And though we looked, it's hard to find anyone in Cushing opposed to building pipelines or extracting oil.

ANDERSON: All these ecologists and the green people, they want to have their cars and be able to fly places. It's the way the world is now.

RAZ: Cushing just might be one of those rare places in America where the economic recession seems to have passed. Business is booming. Do you want to take this in first?

ANDERSON: Sure.

RAZ: It's so good that Pete Schwiering, the chief operating officer of an oil storage company called Rose Rock Midstream, is adding five new tanks on his tank farm.

PETE SCHWIERING: Careful, there's a little water.

RAZ: Schwiering took us inside a brand new and still empty tank capable of storing 250,000 barrels of oil. Wow. So this is the inside.

SCHWIERING: This is the roof of the tank right here that...

RAZ: And this tank farm alone? Soon, it'll be capable of storing two million barrels a day, or about 10 percent of all the oil consumed in America in a single day.

SCHWIERING: I've been in this business 42 years and I've never seen activity out there on the production side like what's happening right now in northern Oklahoma, western Oklahoma...

RAZ: There is so much oil coming into Cushing that there's actually a glut.

SCHWIERING: ...in Ohio, Pennsylvania...

RAZ: These are good times.

SCHWIERING: Yeah. It's going to be coming in...

RAZ: A glut that's translated into big business for the storage companies. But what might be good for people like Pete Schwiering is bad for pipeline companies like TransCanada, companies that can't send that oil out of Cushing and on to the Gulf of Mexico, North America's gateway to the global oil market. In Cushing, there are lots of incoming pipelines but not enough outgoing ones.

Some of the oil moves to refineries in the Midwest where it's turned into gasoline, but it's not happening fast enough. So in Cushing, there's a bottleneck. This sound?

(SOUNDBITE OF LIQUID SPRAYING)

VIRGIL PFENNIG: You're hearing the crude oil flowing through the pipeline.

RAZ: This is the TransCanada Keystone pipeline. It starts in Alberta, Canada. It travels almost 2,000 miles and ends right here in Cushing. Virgil Pfennig is the terminal manager for TransCanada in Cushing, and he showed us around.

PFENNIG: Just continuing through. This is just one of our valves that we have in the system.

RAZ: This pipeline was completed last year. The problem is it can only handle half a million barrels of oil a day that flow from the Tar Sands in Alberta, Canada. Those tar sands now make up the second-largest proven oil reserve in the world. And Canada wants to send more than twice that amount down to the Gulf Coast refineries where it can potentially be traded on the lucrative global oil market. But in order to do that, TransCanada wants to build a second pipeline, the one President Obama rejected last month, the one known as Keystone XL.

TransCanada's argument for building it is twofold. One, it'll create 13,000 direct jobs, they say, a figure disputed by other independent analysts. The other selling point? Here's Robert Jones, a top executive with the company.

ROBERT JONES: When you look at the premise of the project and why the project was created, which is to serve the public and the public interest, it is solely that the U.S. is less dependent on foreign sources of oil such as those from Venezuela or OPEC.

RAZ: It sounds like a compelling argument. If only the U.S. could buy more oil from Canada, it wouldn't have to buy as much from potentially unstable countries in the Middle East, Africa and Latin America. But there's a problem with that argument.

TransCanada is a pipeline company. It's not an oil company. The oil that flows through its pipes is owned by oil companies. And there's no guarantee that once refined on the Gulf Coast, that oil would stay in the United States. If oil companies can make more money selling it overseas, well, that's the business of oil.

And then there's the problem of Canadian crude oil. It's heavy.

(SOUNDBITE OF CONVERSATION)

RAZ: At one of the biggest oil storage companies in Cushing, Plains All American, we met Tim Wharry, the terminal manager.

TIM WHARRY: These are the samples that they were talking about.

RAZ: He proudly showed off a display of 96 small vials. This is not aromatherapy. This is oil, right?

WHARRY: That's oil.

RAZ: Yeah. All right. OK.

(SOUNDBITE OF LAUGHTER)

RAZ: Vials filled with different types of crude oil that have passed through this tank farm.

WHARRY: A lot of people really don't understand what you're talking about when you talk about crude oil. They think it's just one thing and that's it. Well...

RAZ: There's oil from Brazil, Canada, Africa, Russia, Angola. Wow. Look how thick that is, that Mexican oil. That's like molasses.

WHARRY: Yeah. Very, very heavy. Very viscous. That is really comparable to what you'll see come out of Canada.

RAZ: The difference between Canadian Tar Sands oil and, say, Oklahoma light sweet crude is like the difference between Coca-Cola and cake batter. To send Canadian oil thousands of miles south to Cushing, you have to mix it with lots of chemicals to thin it out.

RANDY THOMPSON: And they won't tell us what's in the oil to make it flow. I mean, they dilute it with some kind of chemicals.

RAZ: That's Randy Thompson, a Nebraska cattle rancher we heard from in our story yesterday. He's successfully spearheaded a campaign to halt the construction of Keystone XL through the ecologically sensitive Sandhills of Nebraska that lie atop one of America's largest underground aquifers.

THOMPSON: I mean, we know they're toxic chemicals. A lot of us people out here, you know, we got to drink this water, and it'd be nice to know what the hell they're pumping through it.

RAZ: TransCanada claims that its proposed Keystone XL line will be the safest of its kind ever built. Here's TransCanada executive Robert Jones again.

JONES: I believe we can absolutely build pipelines with new technology that are getting closer and closer to being leak free. And compared to moving oil by railcar or by barge or by truck, it's 50 to 100 times safer.

UNIDENTIFIED GROUP: Soil. Not oil. Soil. Not oil.

RAZ: But the heart of the debate, at least for many environmental activists like those at this anti-pipeline demonstration in Washington late last year, isn't just about the Keystone XL pipeline. It's really about the source of the oil it would carry. Last year, a NASA scientist James Hansen wrote that if the Alberta Tar Sands continue to be mined for oil, it's, quote, "game over for the climate."

Now, in order to get crude oil from those tar sands, you have to heat it up. And scientists estimate that process produces up to 80 percent more atmospheric carbon than traditional drilling in places like Saudi Arabia and Oklahoma.

BILL MCKIBBEN: Keystone XL will be by far the biggest push in terms of plumbing those tar sands, building the infrastructure required to fully exploit them.

RAZ: That's Bill McKibben, a longtime environmental activist. He led that demonstration last November when thousands of anti-XL protesters surrounded the White House.

(SOUNDBITE OF PROTESTERS)

RAZ: McKibben and other opponents of Keystone XL believe that if they can prevent its construction, it could dramatically slow down the mining at the Canadian Tar Sands.

MCKIBBEN: Sooner or later, hopefully sooner, we have to actually start getting off fossil fuel. This is a very good place to start. We need to keep carbon out of the atmosphere. This oil, like all the other kind of unconventional oil, needs to stay in the ground.

RAZ: All of the arguments raised by opponents and by proponents are based on two different sets of facts: lots of jobs versus a few; lower gas prices versus higher ones; an environmental catastrophe versus the realities of human consumption. What is clear, though, is that both sides are determined to win. Americans burn through 18 million barrels of oil a day. So the stakes are high. TransCanada stands to make billions.

Environmental activists believe the pipeline will set back the development of renewable energy. And the battle for and against Keystone XL is very far from over. Transcript provided by NPR, Copyright NPR.