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Separating Fact from Fiction on Keystone XL

by Michael Levi
September 1, 2011

Opposition to the Keystone XL pipeline, which would move diluted bitumen from the Canadian oil sands to the Gulf Coast, has come into full force over the past couple weeks, with over five hundred people arrested at protests in DC. I’ve written extensively regarding how both sides of the oil sands debate exaggerate their arguments; in reality, the oil sands are neither a climate catastrophe nor an energy security bonanza.

As opposition has ramped up, though, pipeline opponents have gone into overdrive, introducing a host of new arguments, most of which are bogus. The purpose of this post is to sort out fact from fiction when it comes to the newer claims.

Let me be clear up front that my neglect of pro-pipeline arguments here doesn’t imply approval – many of them are ridiculous too. But I’ve written about them before, and don’t want to rehash old points. Nor should this post be read as saying that those who oppose Keystone XL are necessarily wrong on the fundamental question (though I tend to lean the other way): this fight is as much about power as anything else, and in politics, power matters.

On to the newer anti-Keystone claims:

“Gasoline made from the tar sands gives a Toyota Prius the same impact on climate as a Hummer using gasoline made from oil.” – Al Gore, August 31, 2011

A Hummer gets 10 miles per gallon. A Prius gets 50. Gasoline from the oil sands entails roughly 15% greater emissions than gasoline made from the average barrel of conventional oil used in the United States. A Hummer using “gasoline made from oil” thus has 4.3 times the impact on climate as a Prius using “gasoline made from the tar sands”, not the same amount. None of these numbers are controversial (well, some in industry would claim that 15% is too high). Someone like Gore who cares passionately about both climate change and scientific seriousness should not mislead his followers on such a massive difference.

“Exploitation of tar sands would make it implausible to stabilize climate and avoid disastrous global climate impacts. The tar sands are estimated (e.g., see IPCC AR4 WG3 report) to contain at least 400 GtC (equivalent to about 200 ppm CO2)…. if the tar sands are thrown into the mix it is essentially game over.” – James Hansen, June 3, 2011

This claim, which has become the rallying cry of anti-Keystone protesters, is literally – and only literally – true. As Andrew Leach has noted, it would take until the year 3316 to extract all of that oil at a rate of five million barrels per day (itself several times the current pace of extraction). Whether or not the oil sands – a resource worth somewhere around a hundred trillion dollars at current oil prices – are fully exploited will not be determined primarily by whether a seven billion dollar pipeline is built. Their fate will be decided by demand for oil. Slash oil demand and oil sands development goes away; keep oil demand on its current trajectory and we’ve got huge climate problems regardless of whether Keystone XL is approved.

“The Keystone XL’s tar sands oil will be exported, because America doesn’t need it. Our nation is already a net exporter of finished petroleum products. That’s why a good deal of Keystone’s capacity will end up on the international market.” – Peter Lehner, NRDC, August 31, 2011

Um, last I checked, the United States imported about half of its oil. So what gives? There are two separate arguments at work here, neither of which is convincing.

The first comes from Phil Verleger, an uber-sharp and contrarian guy. Phil argued earlier this year that current suppliers of oil to Gulf refiners, including Saudi Arabia and Venezuela, will insist on holding on to their U.S. market shares. That would force new Canadian oil supplies to be exported. I find this fairly implausible. For starters, Gulf refiners would do much better to sell their Saudi or Venezuelan oil on to other markets, and take Canadian oil instead, thus saving money on unnecessary shipping costs. (It is a lot more efficient, for example, to ship Saudi crude to China and Canadian oil to the United States than the other way around.) Phil suggests, though, that existing suppliers care so much about their U.S. markets shares that they will cut their prices in order to hold on. I don’t quite believe this, but Phil knows more about the finer workings of these markets than I do, so let’s take him at his word: the result would be cheaper oil for the United States. I don’t see what’s wrong with that.

The second argument is newer and more puzzling. Advocates have started noting that Gulf refiners are likely to export diesel made from Canadian crude. (Hence Peter Lehner’s observation that “our nation is already a net exporter of finished petroleum products”.) That sounds correct to me, but I don’t see why it matters. U.S. demand for refined products is tilted toward gasoline; European demand is biased toward diesel. As a result, the United States ships diesel to Europe, and buys gasoline from it. Canadian oil would increase the amount of U.S. gasoline that is produced in the United States, which is to say, it would decrease imports. The fact that some additional diesel would be exported to Europe doesn’t change that. In addition, if one thinks that sourcing oil in North America gives the United States an economic cushion against oil price volatility, that cushion remains regardless of whether the refined products are exported or not. Moreover, regardless of what happens to the refined products, more oil from Canada means less oil imports from elsewhere — that’s just basic arithmetic.

I should emphasize that, as I’ve written before, I don’t believe that the source of U.S. imports matters all that much. It may matter marginally because of how petrodollars flow, but even then, I’m not sure. But that’s the premise implicit in NRDC’s claim that the existence of diesel exports somehow matters; hence the need to set this part of the record straight.

“Canadian companies intend to incur higher pipeline tariff costs using the Keystone XL pipeline to bypass PADD II refineries in the Midwest.  This will have the effect of manipulating supply levels allowing prices of oil refined in PADD II to rise and ultimately benefitting the Canadian companies with higher prices…. It is therefore critical to determine whether the increased prices expected to be incurred by U.S. consumers and the potential for significant redistribution of crude oil supplies now destined to U.S. refineries due to the proposed construction of this pipeline is the result of anti-competitive practices that violate U.S. laws through agreements among the proposed shippers.” – Senator Ron Wyden, April 6, 2011

This is the trickiest of the anti-Keystone arguments. Canadian oil currently faces a dearth of outlets due to inadequate pipeline infrastructure. The result has been a glut in Cushing, OK, leading to anomalously low prices there. Keystone XL would rectify that, leading to similar prices for oil in all parts of North America. This is what pipeline opponents refer to as “manipulation”. It would be more accurate, though, to describe the current state of affairs as the one involving manipulation – it is not natural for oil to have such different prices in different parts of the Untied States – and the hypothetical one with Keystone XL as representing a freer market.

So why is this tricky? The current “manipulation” may actually be good for the United States, since cheaper oil for U.S. refiners from Canadian producers is economically beneficial. Ending that manipulation, on the other hand, could raise prices for many U.S. refiners. But this should be seen as a pure national interest calculation, no one where the United States is somehow on the side of the free market angels. Moreover, this is not the full picture. Retarding infrastructure development will eventually depress production in Canada (and possibly North Dakota), raising world oil prices. Midwest refiners might benefit, but all other U.S. oil consumers would suffer.

A Final Thought

I would be remiss if I didn’t conclude this post with an observation about how unpleasant the debate over Keystone XL has become. In Vancouver last week, I had dinner with a few people from Edmonton (no personal connections to the oil industry), who were absolutely baffled by the invective being hurled at Alberta from south of the border. I know: politics is a rough and tumble business. But this has gotten absurd.

Both sides are guilty. Earlier this year, Alberta Energy Minister Ron Liepert offensively demanded that President Obama “sign the bloody order” approving Keystone XL. But the opponents have really taken things up a notch in recent weeks. NRDC tweeted earlier this week that Canada might be “practical evil”; the sentiments expressed by many protesters are pretty similar. Indeed when you compare yourself to Martin Luther King and the civil rights movement, you’re placing those who disagree with you in pretty horrific company. It’s long past time for some perspective all around.

Post a Comment 15 Comments

  • Posted by Government of Alberta

    Thank you for addressing this, Mr. Levi.

    The Government of Alberta respects the U.S. process. We have consistently said that our concern is only that a decision be reached based on facts. Thus it has been distressing to see opposition to oil sands development – and this pipeline – rallied on information that is not factual.

    You refer to inaccuracies stated on the pro-development side as well. While I am very familiar with your work on this, I am concerned that I may have missed any criticisms you have of the statements of the Government of Alberta. (To be sure, there are those of my colleagues who believe you somewhat underestimate the energy security importance – and those who do not. There was lively debate here after Council Special Report No. 47.)

    If there are areas in your view in which the Government of Alberta make representations that are not supportable, I would very much like to know about them.

    Thank you again.

    David Sands, spokesman, Government of Alberta

  • Posted by Hans Nicolaisen

    Quick thoughts; without reading ML’s links.

    Carbon and climate – I think it’s true that if the US doesn’t take the tar sands oil, China will. It’ll get burned one way or the other. Same as if we don’t mine US coal for US use, it’ll be mined for export to India and China.

    That said, should we take the moral high ground, or increase oil supply security?

    Price considerations… I doubt tar sands oil will make much of a difference. As I see it, the price of oil will be going up, unless global recession, because the “easy” oil is a thing of the past, and “new” oil is more difficult, and costly, to find and produce. Deep water, tar sands, heavy oil, and political considerations all add to costs and environmental hazards. To say nothing of Arctic oil extraction being planned.

    Redistribution of crude and finished product? Check out this: Crazy.

    My own view is that the sooner we find significant and meaningful ways to reduce our oil consumption, the better off we’ll be. We need to begin now. Desperate measures taken now to continue on the present path only delay the inevitable – at much cost in many ways.

  • Posted by Hans Nicolaisen

    David Sands made a post while I was writing mine and I would like to give him something to consider.

    While my name is Danish, I am part Native American on my mother’s side of the family.

    I ask Mr. Sands, and his colleagues in Alberta and Ottawa, to consider the almost incomprehensible damage being done to air, water, forest, and land in the pursuit of temporary profit and the (fruitless) dream of maintaining our present path.

    What will your grandchildren think of what you have done?

  • Posted by David Sands

    Hans Nicolaisen,

    I think you are inviting me into a discussion for which I am profoundly unqualified. I can say that our Government firmly believes that the world must transition to clean energy sources. At the same time, as we remain dependent on fossil fuels at present and for the foreseeable future, we must lessen the environmental impact of extracting and using those fuels.

    I invite you to examine what Alberta is doing on both those fronts – there is a lot, we are tremendously involved in this global effort – and I won’t waste readers’ time here spouting key messages or touting the level of our investments. If you are curious, please investigate. Here’s one place we’ve gathered much of that information, but by no means all of it:

    – David Sands

  • Posted by David Shimoni

    Mr. Levi,

    First, I simply cannot understand how you “lean towards” the use of gasoline that, in your words, “entails roughly 15% greater emissions than gasoline made from the average barrel of conventional oil used in the United States.” What are your priorities?

    [ML: I favor focusing on cost effective ways of dealing with emissions. It is far more expensive to cut emissions by keeping oil sands in the ground than it is to do things like switch from coal to gas or renewables or drive less. I suspect that there are many things that result in greenhouse gas emissions that you don’t favor blocking — indeed, many things that you do every day — because the cost of blocking them is too high.]

    Second, the New York Times estimates that Canada’s tar sands production will entail cutting down 740,000 acres of boreal forest – a natural carbon sink- over the next decade. Are you taking this into consideration in your estimate of the carbon cost of tar sands, or are you only considering the cost of heating the sands to extract the oil?

    [ML: By far the biggest impact is from burning the gasoline/diesel in the tank of your car. If I recall correctly, the carbon impacts from deforestation are considerably smaller.]

  • Posted by Hans Nicolaisen

    David Sands,

    You are the spokesman for the Alberta gov’t, yet you write that you are, “… profoundly unqualified” to speak on the issues which I brought up. If you are not qualified, who is?

    At your link, I noted with interest the following:

    “Alberta is working directly with Aboriginal communities to conduct studies, collect data and monitor changes in the environment.”

    Conduct studies, collect data, and monitor changes are well worn, and well known, euphemisms for doing nothing.

    When can we expect more than that from Calgary and Ottawa?

  • Posted by Danielle Droitsch

    NRDC just posted a response to Michael Levi’s blog here:

    Michael Levi misses several fundamental points. First, Levi challenged Dr. James Hansen’s arguments that exploitation would result in “game over” in efforts to stabilize the climate and avoid impacts. While Levi was correct in stating it might take some time to extract all of the tar sands he missed the point about why NRDC, Dr. Hansen, and others are so worried. The concern is the trend toward using dirtier and dirtier oil. Greenhouse gas emissions from tar sands – just the emissions to extract and upgrade tar sands to synthetic crude oil – are 3-4 times higher than the production of conventional crude oil.

    Levi then questions why NRDC points out that Keystone XL tar sands oil will be exported. The information from a recent Oil Change International report explains how Valero, one of the top beneficiaries of Keystone XL pipeline will be exporting the Canadian oil they receive. This is something Valero acknowledges. KXL proponents are selling the pipeline on the basis that it will bring the U.S. energy security. On August 25, 2011 a spokesperson for TransCanada declared: “The U.S. has a decision to make, [d]o they want to import oil from Canada or get conflict oil from OPEC nations?”

    There are two very important points here:
    1. If Keystone XL oil is exported from the U.S., then where are the U.S. energy security benefits? This point matters because the U.S. is about to make a decision about whether the pipeline is in the national interest. If this pipeline, with its many risks to the drinking water supplies in the Midwest, is really about giving oil companies access to an international market, then this needs to be clear up front.

    2. Keystone XL would do almost nothing to stop the U.S. from importing oil from OPEC nations. The Organization of the Petroleum Exporting Countries (OPEC) has over 70% of the world’s reserves and is not affected by a bit more Canadian oil in the market. The International Energy Agency has shown that even with maximum production of tar sands, OPEC’s share of the oil market is going to rise. The only way for America to reduce its dependence on Middle Eastern oil is to reduce its dependence on all oil.

    But it is important to make a distinction between a pipeline that will bring oil to America and a pipeline that will bring oil to world markets. In fact, this pipeline will give oil companies access to world markets and in the process will increase gas prices in the Midwest and bring with it a higher risks of incidence of spills. This is the point that NRDC and others are trying to make: the Keystone XL tar sands pipeline is not in the national interest.

  • Posted by Stephen Norman

    “It’s long past time for some perspective all around.”

    Yeah, hacks will always chase after the “political center” — their professional lives depend upon it. Also, nice job building up strawman arguments.

    [ML: Want to ID the straw man so that I can respond? I was replying to quotes from key players in the debate.]

  • Posted by David Lewis

    One key to understanding how this pipeline debate became so heated can be found if you examine the ideas of Dr. James Hansen in a bit more detail than you have.

    Hansen believes that if civilization wants to conserve anything like the planet it evolved on in anything like its present form it needs to understand that there is too much CO2 in the atmosphere already. From his perspective, any fossil fuel use that results in additions to the CO2 that has already accumulated in the atmosphere as a result of human activities increases the difficulty civilization will face if it wakes up and tries to extricate itself from the situation he sees. He thinks it might still be possible that because of the tremendous inertia of the global ocean, the planetary system can withstand this “overshoot” of CO2 long enough for civilization to wake up and do what is required; hence he isn’t declaring that it is “game over” already. But he has been warning that not much time is left.

    Given this perspective, anyone might think Hansen would be equally opposed to any use of any fossil fuel. However, Hansen and pipeline protest organizer Bill McKibben don’t make the same fuss they are stirring up over Keystone XL about any and every fossil fuel.

    This is because Hansen gives the use of conventional oil a “free pass”. Hansen has been saying for years that there is nothing anyone is going to be able to do about conventional oil such as the vast pools in Saudi Arabia or Russia, etc. In his calculations, the carbon in this oil is all going to be converted to CO2 and be allowed to enter the atmosphere. You won’t hear him say that if the US imports or uses any more of this kind of oil, its “game over”.

    Instead he directs people who ask him what to do to go after and stop the exploitation of the energy in coal and tar sand. He himself has protested coal use by being civilly disobedient to the point of getting arrested in a protest, and now he’s done the same with tar sand oil.

    I prefer the position of those who call for civilization to put a global price on CO2 emissions high enough to force itself to decarbonize rapidly enough to conserve the planetary system. (I note here that Hansen stepped into the biggest spotlight the climate issue has ever had in the runup to the final negotiations in Copenhagen and said he hoped that negotiation would fail. He opposes the WAY the negotiators were going to attempt to reduce global emissions, i.e. cap and trade, even though nothing in that agreement would have stopped any signatory country from adopting Hansen’s preferred solution, i.e. a carbon tax.)

    A high price on carbon emissions that caused civilization to decarbonize its energy supply might not stop the use of tar sand oil. It is quite possible that technology can be deployed which would allow fossil fuels to be used while preventing the CO2 produced from entering the atmosphere. Rather than asking North Americans not to exploit the energy in their coal, tar sand, and shale while expecting them to watch as Russia and Saudi Arabia get to do whatever they feel like, I would ask all nations to hammer out some kind of agreement to conserve the viability of the only planet known to support life, and live up to it.

    The environment movement is mistaken to oppose all use of some of the fossil fuels. The focus should be on all possible ways to reduce emissions of CO2. Instead of denouncing carbon capture as impossible people should take a fresh look at it. The US coal industry all talk and no build “clean coal” campaign conducted while most of their effort went to stopping climate legislation poisoned the atmosphere in more ways than one.

    Stephen Chu at the DOE for instance, says carbon capture and storage will prove to be second only to efficiency as a climate mitigation measure.

  • Posted by aw hess

    Just because we can extract this ‘oil’ does not mean we should do it. If the quest for oil “at any cost” continues the planet as we know it will not survive. It is, and remains, a question of rational choice. Perhaps influenced by greed.

  • Posted by Bill Nicolay

    Thanks for being a voice for facts and rationality – keep it coming.

    Is there a reason why anybody would pipe oil that far instead of building their own refinery and moving the finished product by truck or train (or pipeline). Am I missing something?

    [ML: The distant refineries already exist. Much cheaper to ship it to them than to build new ones.]

  • Posted by Scotty Austin

    On the southeast Texas coast is the largest concentration of refineries distilling oil of every type only to export finished products around the world. Great for commerce and our balance of trade. But it is a shipping point, pollutes the 4th largest city in the US. Constantly under fire for dangerous cancer causing byproducts by this industry.

    Can I propose an alternative? Build a much shorter pipeline across southern Canada to the great port of Vancouver. If it is worth a trillion dollars to the citizens of Canada then they could surely afford to build refineries on their beautiful bay with access to the world.

    The chances of that are zero, so once again my special Texas coast will be further degraded. How sad.

  • Posted by Ken Collins

    TransCanada has tried, unsuccessfully, to get BC to take their pipeline and sludgeoil. They’ve tried, unsuccessfully, to send it east. Why not try America? After all, we will do anything to make money at any cost. Reason does not enter into our decisions. As for arguments pro/con on Keystone, I ask if those who will not financially benefit from opposing it are still opposing it, does that not mean something? And mostly those for it, Big Oil and TransCanada, AFL-CIO and Alberta,, will benefit in the short run at a dear cost to air, water, forestry and general health.
    As always, the best way to stop this is to decrease the need by increasing the efficiency of energy use and implementing alternative methods.
    Taking a look at what this tarsand extraction is doing to the Atabasca region and I want nothing to do with the horror.

  • Posted by Master Kwang Kai Pang

    The Trans-Alaska Pipeline thru the tundra had more heated arguments, including the trajectory of the oil when a bullet is fired thru it. But it has withstood decades of use. To the Gulf ? That would mean warmer climate … more viscous, less expensive to pump … There is, of course and alternative route.

  • Posted by R Manville

    Alberta oil is not nearly as dirty as often assumed, specifically There are 13 oil fields in California, plus crude oil blends originating in at least six other countries, that generate a higher level of upstream greenhouse gas emissions than Canadian dilbit blends;

    • Crude oil from Alaska’s North Slope, which makes up about 12 per cent of California’s total crude slate, is actually “dirtier” than the Canadian dilbit known as “Access Western Blend”;

    • The “dirtiest oil in North America” is not produced in Canada, but just outside Los Angeles, where the Placerita oil field generates about twice the level of upstream emissions as Canadian oilsands production; and

    • The title of “world’s dirtiest oil” goes to Brass crude blend from Nigeria, where the uncontrolled release of methane during the oil extraction process generates upstream GHG emissions that are over four times higher than Canadian dilbit.

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