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What the Keystone XL Pipeline Says About the Politics of Energy

Just when you thought it was dead, the Keystone XL Pipeline is back in the news, although this time maybe not for its own sake, but for the prospects it represents for upcoming transcontinental oil and gas pipelines linking the U.S. to Canada and soon to Mexico.
Earlier this month, TransCanada Corporation reported a net loss for the 4th quarter 2015 of $2.5 billion or $3.47 per share compared to net income of $458 million or $0.65 per share for the same period in 2014. However, this is the 16th year in a row that the Board of Directors has raised the dividend.

TransCanada CEO Russ Girling said “while we were extremely disappointed by the denial of a presidential permit for Keystone XL and resulting $2.9 billion after-tax non-cash impairment charge, we are well positioned to continue to grow earnings and cash flow in the years ahead.”

TransCanada’s Keystone XL Pipeline ignited a firestorm of debate before it was finally canceled by President Obama on November 6, 2015. However, the XL pipeline as proposed was no different than thousands of other oil and gas pipelines which currently crisscross the U.S. border with Canada and stretch in a vast labyrinth across the length and breadth of North America.

In the heady days of $100 plus oil from 2008 to 2014, the Canadian government championed extracting Alberta’s oil sands, although the cost remained stubbornly high while the selling price began to drop propitiously. “Tar sands” oil has always been more costly to extract than other more accessible varieties of oil. So now, in a producers’ nightmare where oil has fallen below $30 a barrel, the oil sands are either being shut down or simply being run to keep some income – any income – coming in.
However, Alberta is not throwing in the towel. Anticipating a future of expanding global demand, Premier Rachel Notley said the oil sands are “a tremendous asset which has transformed Alberta into one of the world’s leading oil producers”…”under our leadership, Alberta’s abundant oil and gas reserves will remain wide open to investment.”

In many ways, American anti-Keystone XL Pipeline sentiment was an anti-carbon gesture; a wish to “keep it in the ground” rather than have the oil sands extracted, refined and consumed. This notion is naive as Canadian producers – and their supporters in the provincial governments and federal ministries – will find an alternative to get their hydrocarbons to market. If the XL Pipeline is never completed and America is off-limits then China and other overseas markets will beckon and pipelines will be built from Alberta to the West and East Coasts of Canada and the oil will be shipped to foreign markets from there. This is a cruel twist on activists’ intransigence as consuming these hydrocarbons in the U.S. would be far cleaner than in China, where environmental standards are much lower than in the U.S.

Another consequence of shelving the Keystone XL Pipeline is a lot of Canadian crude now travels to the U.S. anyway, but by rail, which is far more dangerous than utilizing state-of-the-art pipelines that can be quickly shut off and diverted as required. Instead, a number of deadly derailments of crude have occurred, such as the accident in Quebec in 2013 in which 47 local Megantic residents were killed, devastating the town and polluting Lac Megantic and the Chaudière River.

Yet paradoxically a number of Canada-U.S. pipelines thrive in this anti-pipeline climate. The Maritimes & Northeast Pipeline is a network of pipelines that carries natural gas from Nova Scotia and producing areas of Atlantic Canada into the heart of the Northeastern U.S., including Maine, New Hampshire and Massachusetts where it connects with the North American pipeline grid less than 20 miles from Henry David Thoreau’s bucolic Walden Pond.

This gas pipeline has suffered no major environmental setbacks and powers the homes and businesses of many who you might suspect would be upset to learn that large quantities of natural gas flow only feet from their doorsteps. Is the Ogallala aquifer under the Sandhills of rural Nebraska that stopped the XL Pipeline any more fragile than Walden Pond, the swimming hole of Thoreau whom many regard as America’s first environmentalist?

Much of the fault for these contradictory approval processes is the mishmash of overlapping regulations that end up in jurisdictional battles between dueling government regulators. In 2011, with the full support of the Nebraska Legislature, TransCanada (TRP) agreed to bypass the Sandhills and charted a revised route. But the presidential permit was still not granted. In reflection, this battle was never about building a pipeline; it was the opening shot of a war to prevent the release of hydrocarbons trapped in the oil sands of Alberta into the atmosphere.

This was expressed in 2013 by James Hansen, a NASA climate scientist, who said “moving to tar sands, one of the dirtiest, most carbon-intensive fuels on the planet, is a step in exactly the opposite direction, indicating either that governments don’t understand the situation or that they just don’t give a damn.”

Carl Colby serves as executive director of the Vail Global Energy Forum, an annual conference on the future of energy in a global economy in Vail/Beaver Creek, Colorado.