COLUMN-Keystone XL double standard: Tale of 2 pipelines: Campbell

Wed May 22, 2013 2:50pm BST

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By Robert Campbell

NEW YORK May 22 (Reuters) - A casual observer familiar with the Keystone XL saga would think the United States was making it very hard to build any oil sands-related pipelines. But nothing could be farther from the truth.

While TransCanada Corp's Keystone XL is mired in seemingly endless studies, a competing project that could carry hundreds of thousands of barrels of oil sands crude to U.S. refineries every day is sailing through its own regulatory review.

Why the double standard? It's well known that Keystone XL is a cause celebre for environmentalists who see defeating the pipeline as a way to halt the development of Canada's oil sands in the name of slowing climate change.

But what is really hurting Keystone XL is the lack of a serious U.S. greenhouse gas policy and the need to go through a far more stringent regulatory process than other projects.

Consider the plan hatched by gas-focused pipeline group Energy Transfer Partners LP and Enbridge Inc, the top shipper of oil sands crude, to convert part of ETP's Trunkline natural gas pipeline to oil service by 2015.

ETP must first get the approval of the Federal Energy Regulatory Commission (FERC) to remove Trunkline from service, a formal procedure known as abandonment. Part of this process is a environmental assessment. That study was published quietly in April and comment from the public closes on Wednesday.

The word "climate" appears only five times in the Trunkline environmental assessment, largely in a single paragraph where climate change is dismissed as a significant factor that needs to be considered in the scope of the review.

The study admits "Trunkline has indicated the future operator intends to use the abandoned pipeline for oil transportation, the eventual disposition of the pipeline ... is not a key factor in the Commission's decision to grant abandonment."

In other words Trunkline, which will facilitate the growth of the oil sands business, need not face any formal study of the broader implications of the conversion.

INCOHERENT POLICY

Indeed, the Trunkline draft environmental assessment goes on to briefly discuss the planned conversion of the pipeline to oil service while noting the future use of the line for shipping crude oil is outside of FERC's jurisdiction.

But at no time is the proposal subjected to a rigorous review on its potential status as a "facilitator" of the oil sands industry and the greenhouse gas emissions associated with increased oil sands crude extraction - unlike Keystone XL.

Political posturing has forced Keystone XL to go through an exhaustive review of various greenhouse gas emissions scenarios in an effort to show construction of the pipeline will not have an effect on emissions from the oil sands. Others are held to a far lower standard.

This omission comes even as Enbridge and ETP have been forthright about their plans to ship Canadian crude oil on the pipeline since they announced the project in February. The question to be asked: why the double standard?

Even if the Trunkline project does not cross the border with Canada and directly increase imports of oil sands crude, it makes oil sands production more viable by increasing market access and hence, improving oil sands crude prices. Furthermore, the project directly facilitates Enbridge's own plans to substantially increase the capacity of its own network to bring in more oil sands crude into the United States.

The explanation for this is the fact that U.S. President Barack Obama has not articulated a clear policy on climate change and the use of energy in the United States. While it is known that he backs measures to reduce America's greenhouse gas emissions, political opposition to those plans has led him to prefer administrative rather than legislative approaches to the problem.

Thus, greenhouse gas standards are being gradually incorporated into environmental regulations. But in the absence of a formal policy, many measures are undertaken on an ad hoc basis.

Many observers suspect Obama does not share the doomsday concerns that opponents of Keystone XL have raised about the climate change effects associated with the pipeline's construction, but has chosen delay as a means of avoiding a confrontation with his own core supporters.

Those suspicions are borne out when other cases, such as Trunkline, are considered.

The converted Trunkline pipeline will move up to 600,000 barrels per day of oil from Patoka in southern Illinois to the Louisiana Gulf Coast. The oil moved on the line will come from Canada, where oil sands production dominates, and North Dakota's Bakken crude, itself an emissions-intensive crude, given the high rate of natural gas flaring associated with oil production in North Dakota.

But we don't really know what the Obama administration thinks about this issue. There has been no formal policy articulated regarding America's consumption of carbon-intensive oil. Indeed, such a policy would likely be deeply unpopular, given that it would force a long, hard look at the gas flaring associated with the shale oil boom.

Instead all we really know is that regulatory arbitrage on those issues is the best way to get an oil pipeline built. That means avoiding agencies where political considerations can be brought to bear on the review.

This serves neither the efficient development of North America's energy resources nor the longer-term fight against climate change.

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