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The Keystone XL pipeline is irrelevant

The Keystone XL pipeline will make no measurable contribution one way or another to global climate change, Rapier writes. The arguments against it convey a false impression of the most important drivers of global carbon emissions.

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One variant of the argument against rail replacing Keystone XL has been to look at only the oil flowing from Alberta to the Gulf Coast. Since that is a much smaller number than what the Keystone XL would transport, the argument is that rail is therefore simply incapable of replacing Keystone XL. That misses a very important point, because it only counts oil that is getting to the Gulf Coast. Oil that is transported by rail to a Midwestern or West Coast refinery — possibly backing out crude being piped up from the Gulf Coast, wouldn’t be counted in this scenario. But it’s not that the oil must flow to the Gulf Coast. It must simply flow far enough from Alberta to make it economical to ship it. Refiners all over the US are installing heavy crude capabilities, and rail can (and does) move this crude from Alberta to those facilities.

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    (Robert Rapier/Energy Trends Insider)

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    (Robert Rapier/Energy Trends Insider)

  • Graphic Figure 3
    (Robert Rapier/Energy Trends Insider)

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Conclusions

To conclude, in discussing this issue with people I feel that many have a comic book view of oil markets and the oil industry. Things aren’t static. Insufficient heavy oil capacity today can change in a short period of time if the economics warrant that. A million barrels of oil can be transported by rail in a few short years if the economics favor that. For more insight into this, see this excellent article by Peter Tertzakian (author of A Thousand Barrels a Second) on Why markets don’t watch pipeline debates.

Price will be the determining factor here, or more correctly the difference in price between what producers can get for their crude oil locally in Alberta versus what they can get if they can transport it to a coast. If that differential is high enough, you will see continued explosive growth in rail traffic, and you may even see convoys of 200 barrel tanker trucks headed from Alberta to Canada’s West Coast.

If, on the other hand, the global price of crude oil falls and remains depressed for years, that would put the brakes on the growth of the oil sands industry. I believe that even though we may see some weakness in the short-term, there won’t likely be a sustained collapse in the price of oil. Thus, I believe that the rapidly growing business of oil-by-rail will continue to expand.

Calculations: * Per the paper by Swart and Weaver, each barrel of oil burned would have the impact of raising the global temperature by 2×10-13 °C. Thus, burning 830,000 barrels per day that is transported through the pipeline would raise the temperature (2×10-13 °C) * (830,000 bpd) * (365 days/yr) = 0.00006 °C per year. At that rate, it would take 1650 years of burning 830,000 bpd to raise global temperatures by one tenth of a degree.

Acknowledgement: I would like to thank Robert Joshi for pointing me to several valuable sources of data for this article.

Disclaimer: I do not have any financial interest in any company discussed in this article. Some who prefer ad hominem arguments to actually addressing data were falsely spreading a story that I own TransCanada stock.

Link to Original Article: The Increasing Irrelevance of the Keystone XL Debate

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