The need for energy in America is insatiable. While US consumption has decreased by three million barrels per day (bpd) since 2005, Americans are still guzzling up roughly 20 million bpd, and remains the leader in world energy consumption. And while much of our oil is produced here at home, roughly 42.8 percent is imported from OPEC nations like Saudi Arabia, Mexico, and Venezuela, almost all of who produce a heavy sour crude stock that is imported and refined in US Gulf Coast refineries. [youtube width="560" height="315" video_id="n6O1fDB-6IM"]
Each day, aggregate fuel is moved from basins and shale plays across the country to refinery centers ready to produce distillate products American’s need for cheap fuels that supply everything from the gasoline in their cars to liquids that are used for popular materials many American’s use and take for granted everyday. Whether it’s hazardous liquids or natural gas transmission and distribution, the United States has more than 2.3 million miles of expansive pipeline infrastructure running through its subsurface.
While it was believed there was a scarcity of fossil fuels, new technology and the use of hydraulic fracturing has propelled the industry forward and breathed it new life. Now, with America’s promising new development and Canada’s oil sands right at its back door, North America is slated for many years of sustainable fossil fuel development.
With this new abundance also come challenges, especially for the Bakken play and supplies from Canada. Now the energy industry is trying to work around how to move crude not only from Canada but also within and out of the basins to the refineries.
The original Keystone pipeline helped with some of the transportation and with the proposed Keystone XL extension in 2008, the industry, especially the refining side was eager for the business; supplementing OPEC fuel for Canadian oil sands. Normally domestic pipelines are reviewed through regular permitting processes, but because the Keystone XL was crossing the Canadian-US border a Presidential permit is required, leaving the Department of State to handle the review process for the pipeline.
In an attempt to start construction on the pipeline, in December of 2011, congressional leaders adopted a provision to the Temporary Payroll Tax Cut Continuum Act, which required the President to respond within 60 days in regards to the Presidential Permit for the Keystone XL pipeline. Although the permit had been with the State Department for almost four years, the White House denied the application claiming that the imposed deadline didn’t allow for “sufficient time to prepare a thorough, rigorous, and transparent review of an alternate route through Nebraska.”
Congressional leaders, industry leaders, and communities across America as well as Canadians who had supported the project were more than disappointed while opponents cheered the decision of the President. “The government should be industry blind and open more areas for development and approve permits for faster for infrastructure projects,” said ConocoPhillips Chairman and CEO, Ryan Lance at IHS CERAWeek, “They need to level the playing field and let the market dictate what type of energy it wants.”
The exponential growth domestically has begged the question, is there still a need for Canadian oil sands in the US? What the market is telling the industry is, yes. The market wants oil, 20 million barrels a day, in fact. The industry is behind the unconventional renaissance and the movement of 830,000 bpd that the Canadian’s are hoping to move to the Gulf Coast refineries. “America will not only need the tight oil from plays like the Bakken but they’ll need the heavy crude from Canada to supplement the 800,000 bpd it is currently importing of OPEC oil,” said Greg Stringham, Vice President, Oil Sands and Markets, Canadian Association of Petroleum Producers.
In fact, America’s addiction to cheap and available energy requires the industry to produce and transport both tight oil and Canadian heavy crude to meet the steady public demand. With the delay in Keystone XL’s construction and the energy industry waiting for the approval of the pipeline’s proposed reroute through the Nebraska Sand Hills, all of that crude is now being moved via barge, tankers and rail, all of which require fossil fuels to move. Thus adding additional green house gas emissions and carry risks associated with each form of transportation.
“There are unintended consequences associated with the decision of this pipeline,” said Alex Pourbaix, President, Energy and Oil Pipelines, Transcanada, “You are increasingly seeing oil being moved by rail, over road and barge. These forms of transportation are at risk of spills each time they move. And while I think that there is a huge role for rail movements in smaller plays it doesn’t make sense for the quantity that is moving out of Alberta.”
Regardless of the final decision by the White House, which has turned into a litmus test for Obama and his stance on climate change, the Canadian oil sands will continue to be developed. The issue is where will it go and how will it move there. Currently, the Canadian government and energy producers are looking at a growing and very attractive international market.
Other markets the Canadian’s are considering include intra-Alberta to reduce their current bottlenecks as well as converting under-utilized gas infrastructure to transport Canadian oil sands crude to the eastern Canadian seaboard and Asia, who has already expressed its interest in Alberta’s prolific deposit.
So while activists and opponents oppose the safe, reliable, state-of-the-art new pipeline being proposed by Transcanada, they are unknowingly leaving America in a vulnerable supply position at the hands of volatile nations whose geopolitical factions could at anytime cease their imports that we have become so heavily reliant on. These unintended consequences, like rail, barge and tanker transportation can be avoided with the build-out of the Keystone XL pipeline supplying crude from our neighbor and ally, Canada.
“Twenty years ago I would have never expected to be a media darling or to see pipelines on the front page of newspapers across North America,” said Pourbaix, “Yet here we are.”