What Future for Keystone XL?

By Roland Bensted

The decision to postpone the construction of the Keystone XL pipeline demonstrates that North America has not yet defined a workable compromise between competing demands to increase energy security, and reduce the negative environmental impacts of energy. The US$7 billion proposal by TransCanada to build a 1,700 mile pipeline from Alberta, Canada, to refineries in Texas has been delayed in the face of strong environmental protests and local opposition within Nebraska along the pipeline’s would-be route. The project, which has been strongly supported by the Canadian government, has now been pushed back until after the next US Presidential election.

The proposed Keystone XL pipeline would transport the product of Canada’s oil sands to the refineries of the Gulf of Mexico. Crossing five US states, it would bolster the capacity of the existing Keystone pipeline. The heated debates around Keystone XL in North America and beyond are not simply about a pipeline: they bring into sharp focus competing perceptions of Canada’s oil sands.

Situated largely in Alberta, the oil sands have attracted growing interest in recent years. Supporters point to their potential to contribute to greater North American energy security and independence, not to mention job creation. Opponents highlight concerns over the emissions and environmental degradation caused by oil sands development, as well as the alleged disproportionate impact on the First Nations peoples of the Athabasca region in northern Alberta.

It has long been known that a large swath of Alberta has contained plentiful bituminous material. However, until recent decades it has not been possible for industry to extract, upgrade, and refine the material into synthetic crude oil while still making a profit. Improved technology, commercial viability, and a growing awareness that conventional reserves of oil are at- or even past- a peak have been key factors in larger scale oil sands development in recent years. However, as some experts such as the University of Calgary’s David Keith, the key challenge is not lack of energy but the greenhouse gas emissions from energy consumption that cause climate change.

Although located to the north of the 49th parallel, the oil sands are as huge a political issue in the US as in Canada. To their supporters, which include Canadian Prime Minister Stephen Harper, they offer the opportunity for Canada to achieve “energy superpower” status while also assuring North American energy security for at least the next century, thus reducing American dependence on supplies from unreliable, unstable, or obnoxious regimes.

Canada’s liberal democratic society, coupled with its geographical proximity, make it a particularly attractive supplier for its southern neighbour. Paradoxically, it is Canada’s strong democratic tradition that has hampered its desire to construct Keystone XL. Environmental and other anti-oil sands campaigners are able to freely mobilise to oppose Keystone XL, or even call for the shutdown of oil sands production because, as a liberal democracy, Canada allows dissent. Other oil-rich states, such as Saudi Arabia, Nigeria, or Venezuela, have a less tolerant attitude to political dissenters.  What can Canada do to placate the protestors? What can it do to reduce emissions while still harvesting Alberta’s huge energy reserves?

Alberta’s provincial government and the oil industry have championed their investment in carbon capture and storage (CCS) technology, although the effectiveness of this technology is largely unproven. The Albertan government - like Prime Minister Stephen Harper - has also suggested that revenue surpluses from oil sands production could be used to invest in green sources of energy, thus reducing emissions in the longer term. However, there is little evidence of any significant investment of this sort. Potential future technological improvements to reduce emissions in the oil sands production process have also been touted, yet this is often more in hope than a sign of actual change.

In the US, President Obama may have bought some time by delaying the decision. He has placated the environmental lobby for now, while allowing for the future possibility of an operational Keystone XL. However, if re-elected in November 2012 he will need to take a clear position on Keystone XL: a decision cannot be postponed indefinitely. If the Republican presidential candidate were to win, it is likely that they would attempt to bring forward the pipeline’s construction.

In the absence of Keystone XL’s construction, there are potential alternatives for both sides. For the US, the prospect of securing “tight oil” and gas from shale within its own territory have led some commentators to suggest that the US is already rebalancing its supplies. North of the border, Canadian Federal Finance Minister Jim Flaherty suggested that delays to Keystone XL will speed up Canadian plans to export the product of the oil sands to Asian markets via British Columbia, to the detriment of the US.

In reality construction of Keystone XL is likely to go ahead, even though it will be behind the anticipated schedule. North America’s energy needs, and the absence of viable alternative - or “green” - sources, mean that there remains an extremely strong case for the pipeline’s development. The impact of jobs creation both in Canada and the US during a prolonged economic downturn further bolsters the likelihood of construction, although parts of the pipeline will need to be re-routed.

Whatever the new route is, it is likely to continue to face stiff opposition from environmental campaigners. Heated debates on both sides are not likely to subside, and the difficulty of finding a “middle way” between the desires for greater North American energy security and reduced emissions will remain a challenge for the continent’s political leaders.


14 November 2011