More Keystone Spin

With a showdown vote approaching on the Keystone XL pipeline, both sides continue to spin the facts about exports and safety.

• Critics continue to call it an “export pipeline” while proponents say the oil it carries would be “used by Americans, not exported overseas.” Actually, somewhere between 38 percent and 50 percent of the output at the coastal refineries it would serve was exported in the most recent 12 months on record, depending on assumptions.
• Critics claim that building the pipeline won’t stop derailments of tank cars carrying crude oil. Perhaps not entirely. But the fact is that rail shipments of Canadian crude oil into the U.S. are surging while derailments, spills and fires are becoming more common, and a pipeline is a much cheaper and safer way of carrying that oil.

The Senate is expected to vote this week on whether to override President Obama’s veto of a bill passed by the Republican-controlled Congress to force approval of the project.  Senate Majority Leader Mitch McConnell has promised a cloture vote no later than March 4.

Exports

The Keystone XL project would bring oil from Alberta across the U.S. border for eventual delivery to U.S. refineries on the Gulf Coast. Opponents including the Natural Resources Defense Council have called it an “export pipeline” that would primarily send Canadian oil to overseas markets without benefiting U.S. consumers. In a Feb. 24 USA Today opinion piece, the NRDC’s president, Rhea Suh, said Keystone oil would “be refined on our Gulf Coast into fuels that would mostly be sent overseas.”

But TransCanada Corporation — which would build the pipeline — says just the opposite. For example, in a 15-second TV spot that ran briefly in Washington D.C., it said the pipeline would carry oil “to U.S. refineries to be used by Americans, not exported overseas.”

Who’s right? Each side is telling just half the story.

The fact is that most if not all of the Canadian crude is designated to be processed in U.S. refineries, not exported directly. But a large portion of the diesel fuel, gasoline and other products of those refineries is indeed expected to be sold overseas. Exactly how much is impossible for us to predict, however. And expert sources are in disagreement.

We can calculate how much of total refined product from the entire Gulf Coast district went for export in 2014. It was close to 37.5 percent.

That doesn’t support the NRDC’s claim that the refined product would go “mostly” for export. However, NRDC’s analysts argue that the Keystone crude would go primarily to several export-oriented refineries that are located close to port facilities, bypassing inland refineries in the Gulf district that serve mostly domestic markets.

The district, known as PADD3 (Petroleum Administration for Defense District 3) includes six states: New Mexico, Texas, Louisiana, Arkansas, Alabama, and Mississippi. A number of refineries in the district are indeed many miles from shipping ports.

NRDC told us its calculations assume that all of the Canadian crude coming through the pipeline would go only to coastal refineries in Texas and Louisiana (sub-districts for which the government provides aggregate production figures), and that all of the Gulf Coast district’s exports of refined products come only from those refineries. Using those assumptions produces a figure that supports the claim that Canadian crude would “mostly” end up as exported product — but just barely.

Using NRDC’s assumptions, and data from the U.S. Energy Information Administration, we calculate that 50.4 percent of the output of those refineries went for export in 2014. But that means 49.6 percent stayed in the U.S.

As for other experts, the U.S. State Department’s market analysis of the Keystone project said that “[A]lmost half of PADD 3 [Gulf Coast district] refined products go to the domestic market.” That would support the critics’ contention that a wee bit more than half is now going for export.

But a more recent report from IHS Inc., which sells marketing data and analysis to businesses and governments, stated on Feb. 23 that “about 70 percent” of the fuel derived from oil flowing through the Keystone pipeline would be consumed in the U.S. IHS told us that their report was part of their regular service to paid subscribers, and was not commissioned or underwritten by any third party.

Neither the State Department report nor IHS showed how they had calculated their respective figures. Based only on EIA statistics, we can say that no more than 50.4 percent of the oil would be destined for export as refined product under today’s conditions, though the figure would likely grow over time assuming that the current boom in fuel exports continues.

In addition, some portion of the Canadian oil may be exported directly. The EIA reports that the U.S. is currently exporting more crude oil than it has in 57 years, including small test shipments of re-exported Canadian oil to refineries in Spain, Italy, Switzerland and Singapore. But it remains to be seen how large that volume might be in the future. Enbridge Inc., the pipeline company that was the first to get a permit to re-export Canadian crude oil, said that it plans to export less than 1.5 percent of its total U.S. shipments.

 Safety

The explosion and fire of a tanker train carrying crude oil to a refinery in West Virginia last month is only the latest in a number of similar mishaps that we highlighted nearly a year ago in our “Pipeline Primer” article. As we said then, “Pipelines are dangerous, but tanker cars are more so.” And that is still the case.

Suh, the NRDC’s president, noted — correctly — that the West Virginia train was carrying oil from North Dakota, “like the train that exploded last year in Virginia, and the one that blew up the year before that in Alabama.”

“The tar sands pipeline won’t take that oil off the tracks,” she stated in her op-ed.

This spins the facts. For one thing, pointing to derailments that spilled only U.S. oil glosses over others that have spilled Canadian oil. For example:

• 

  On Feb. 14 — just two days before the West Virginia crash — several tank cars carrying crude oil and distillate from Alberta to eastern Canada derailed and burned in a remote area near Gogama, Ontario. A total of 21 cars were damaged by the fire, and at least 19 spilled a combined total of over 1 million liters (264,172 U.S. gallons) of petroleum product, according to a preliminary report by the Transportation Safety Board of Canada.

• A year earlier, a 120-car train carrying Canadian crude oil derailed in Pennsylvania. No fire resulted but thousands of gallons of crude oil were spilled.
• In January of last year, a train carrying crude oil and propane derailed and burned in New Brunswick, Canada, just 20 miles north of the U.S. border.

Fortunately, none of these have come close to repeating the 2013 disaster in Lac Megantic, Quebec, when a runaway crude oil train derailed in the town center and killed 47 people.

But it’s a fact that more and more Canadian oil is being shipped by rail into the U.S. The volume has grown more than ten-fold in the past three years, from an average of 15,980 barrels per day during the first three months of 2012 to 182,059 barrels per day in the July-September quarter of last year, according to most recent figures from Canada’s National Energy Board.

Suh chose her words carefully when she wrote that the Keystone pipeline would not take “that” oil off the tracks. Grammatically, she was referring only to the “North Dakota” oil she mentioned in her previous sentence, and not to Canadian oil.

But even that narrow claim is open to serious dispute. The fact is, TransCanada says it has signed firm contracts to transport 65,000 barrels per day of U.S. crude oil through the proposed Keystone XL project. Oil from the Bakken formation in North Dakota and Montana would flow by way of a proposed spur — the “Bakken Marketlink” — which TransCanada proposes to build if the XL itself is approved. The spur could carry up to 100,000 barrels per day, thus accounting for up to 12 percent of the main pipeline’s capacity of 830,000 barrels per day.

Contrary to the NRDC president’s suggestion, there’s no question that a pipeline would take “oil off the rails” wherever that pipeline goes, whether the crude originates in the U.S. or Canada. That’s because it is not only less dangerous to ship oil by pipe than by rail, but far less expensive as well.

How much less expensive?  Significantly less.

The Association of Oil Pipelines says that “The cost to ship crude oil by rail is generally $10 to $15 per barrel versus under $5 per barrel by pipeline.” And that’s supported by the independent IHS report we cited earlier. It says, “on average we estimate that rail costs about $8 to $10 more to move a barrel of heavy crude blend from western Canada to the USGC [U.S. Gulf Coast] compared with pipelines.”

We agree with the NRDC’s president that the Keystone won’t stop all rail shipments of crude oil. We don’t know of anybody who has claimed it would. But the economics make it obvious that less oil would go by rail if the pipeline is built than if it isn’t.

— Brooks Jackson