Washington, DC – Today, just hours after a Nebraska court decision upheld a state law allowing the Governor to approve the proposed Keystone XL pipeline route through the state, U.S. Senator Sheldon Whitehouse (D-RI) sent a letter to U.S. Secretary of State John Kerry urging him to reject the overall project. The decision on the pipeline, which must ultimately be made by the State Department because it crosses an international border, had been delayed while the Nebraska court case played out.
“As you know, President Obama set a clear test for deciding the fate of TransCanada’s Keystone XL Pipeline: if it will exacerbate climate change, then its approval is not in the national interest,” Whitehouse wrote. “Since I last submitted comments, with Representative Henry Waxman, on the State Department’s Final Supplemental Environmental Impact Statement (FSEIS), real-world developments make it even more unlikely that Keystone XL can pass the President’s test. Therefore, I urge you to determine that Keystone XL is not in our national interest and deny the project’s permit.”
The letter highlights the recent plummet in crude oil prices, which make the pipeline even more essential to the development of Canadian tar sands. Shipping the tar sands by rail is estimated to cost $15 more per barrel than shipping it by pipeline – meaning that rejecting Keystone XL could limit future tar sands development and the associated carbon pollution. As Whitehouse’s letter notes, the State Department’s own analysis shows tar sands crude is 17% more greenhouse gas intensive than the average crude oil refined in the U.S., and the extra carbon pollution associated with Keystone XL transporting 830,000 barrels of tar sands crude each day is the emissions equivalent of adding as many as 6 million cars to the roads.
The full text of Whitehouse’s letter is below. The comments he submitted last year with Rep. Waxman are available here.
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January 9, 2014
Dear Secretary Kerry,
Thank you for your continued leadership on climate change. As you know, President Obama set a clear test for deciding the fate of TransCanada’s Keystone XL Pipeline: if it will exacerbate climate change, then its approval is not in the national interest. Since I last submitted comments, with Representative Henry Waxman, on the State Department’s Final Supplemental Environmental Impact Statement (FSEIS), real-world developments make it even more unlikely that Keystone XL can pass the President’s test. Therefore, I urge you to determine that Keystone XL is not in our national interest and deny the project’s permit.
As Representative Waxman and I previously wrote, the FSEIS incorrectly downplays the importance of the pipeline for tar sands development and the climate. It uses a flawed frame of reference by assuming that business-as-usual growth in carbon pollution is acceptable. Moreover, events since the FSEIS was released in January 2014 directly contradict the scenario that the FSEIS determined would be most “likely,” exposing the flaws in its assessment of Keystone XL’s expected effect on tar sands development.
Over the past year, it has become more apparent that the extent of tar sands expansion—and the related carbon pollution—depends on whether Keystone XL is built. Numerous studies, including a recent peer-reviewed paper in Nature Climate Change, point to Keystone XL increasing carbon emissions and tar sands expansion. Meanwhile, a study just released in Nature concludes that without major technological advances in carbon capture, tar sands production, which the Keystone XL pipeline will facilitate, is incompatible with economically efficient and effective action on climate change. Even Keystone XL supporters admit the pipeline is key to growing tar sands production. Criticizing the review of the pipeline, New Jersey Governor Chris Christie recently said that “[by] limiting the ability of increased production from the Canadian oil sands to get to market, it stunts production.”
The projected growth in tar sands is significant. The Canadian Association of Petroleum Producers (CAPP), an industry group representing Canadian oil and gas producers, expects tar sands oil production to grow by nearly 3 million barrels a day by 2030. That projection assumes the operation of several new pipelines for transporting tar sands crude cheaply, of which Keystone XL is the second-largest. CAPP Vice President Greg Stringham recently said, “the biggest uncertainty in this forecast is the timing associated with this [pipeline] capacity and whether or not they can deliver the capacity on the timelines they now propose.” According to a recent estimate from RBN Energy, it costs a minimum of $15 per barrel more to transport heavy crude to the Gulf region by rail than by pipeline.
New development of tar sands oil will occur if the market price for heavy crude oil is high enough, and the cost of production low enough, for that development to be profitable immediately or down the line. The FSEIS states that crude oil prices below $75 per barrel, benchmarked to Western Texas Intermediate crude (WTI), could limit development of tar sands crude and that lower prices and more limited pipeline capacity could further curtail growth. The FSEIS asserts that such a scenario is “unlikely” and makes its determination assuming that crude oil prices will remain above $75 per barrel.
This year, we have seen the “unlikely” unfold. WTI prices have fallen below $50 per barrel, well below the level that could inhibit development of tar sands crude. The U.S. Energy Information Agency predicts that WTI prices will remain below $65 throughout 2015. Presently, oil futures are priced on the Chicago Mercantile Exchange below $75 per barrel through 2023. All of this pushes down the margins on tar sands development, making new pipeline capacity critically important.
The FSEIS’s questionable assumptions go beyond the market price of crude. Tar sands oil projects are facing increasing production costs—from labor, materials and infrastructure limits—that are even leading companies to stop tar sands projects. These rising costs of tar sands oil production further cast doubt on the profitability of tar sands expansion projects.
According to a recent report from the Canadian Energy Research Institute (CERI), new tar sands projects require crude prices of at least $85 per barrel to break even, because of a $20 per barrel increase in the cost of production. The FSEIS estimated its hypothetical production costs by incorporating CERI data from 2012 and 2013, before the steep increase in production costs pushed the CERI break-even price for the least expensive method of producing tar sands oil above the $75 floor estimated by the FSEIS. The possibility of such cost inflation is important for evaluating the Keystone XL pipeline because evidence shows that increasing production costs and falling oil prices have made pipeline access a make-or-break proposition for new tar sands projects.
Even before oil prices fell through the floor, Shell, Total, and Statoil cancelled or postponed major tar sands expansion projects, due to market factors and a lack of pipeline access. Over their lifetimes, these projects would have produced 4.7 billion barrels, releasing 2.8 billion metric tons of CO2 into the atmosphere. Unfavorable market conditions and limited pipeline capacity put those projects on hold and kept carbon in the ground.
In the absence of Keystone XL, rail has not proven to be a practical alternative to pipeline transport for expanding production of tar sands oil. In 2013 and 2014, the amount of heavy Canadian crude reaching the refineries in the Gulf Coast was less than 50,000 barrels per day, just 6 percent of the 830,000 barrels per day Keystone XL would bring. As explained in the FSEIS, tar sands crude is 17 percent more greenhouse gas intensive than the average crude oil refined in the U.S. and the carbon pollution associated with Keystone XL transporting 830,000 barrels of tar sands crude each day is equivalent to adding 5.7 million cars to the roads.
The FSEIS specifically cited the plans of Southern Pacific Resources and Canexus to justify its evaluation that rail transport could readily substitute for pipeline transport. We now know this reasoning to be incorrect. Southern Pacific Resources has nearly gone broke transporting heavy crude to the Gulf by rail. The Canexus terminal in Alberta has run far below capacity and has been plagued by logistical problems. Canexus has lost contracts with developers, and has put the terminal up for sale. In reality, the challenges of transporting tar sands crude by rail are proving too difficult to overcome.
Events of the last year demonstrate that the Keystone XL pipeline is crucial to unlocking the growth of tar sands production. On this point, proponents and opponents of the pipeline agree. It would be reckless for the Administration to ignore that its “unlikely” scenario for development has in fact occurred.
Now that the pipeline route through Nebraska has been settled, it is time for the State Department to resume its project review. The events of the last year make it clearer than ever that Keystone XL will significantly increase carbon pollution. The pipeline fails the President’s climate test and is not in our national interest. I urge you to deny the project’s permit.
Sincerely,
Sheldon Whitehouse
Cc: The Honorable Gina McCarthy, Administrator of the U.S. Environmental Protection Agency
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