December 12, 2012 / 11:34 PM / 5 years ago

TransCanada says oil forecasts support Keystone XL

6 Min Read

CALGARY, Alberta (Reuters) - New forecasts of booming oil output and falling demand in the United States have only strengthened the case for the Canada-to-United States Keystone XL pipeline, a top executive with proponent TransCanada Corp (TRP.TO) said on Wednesday.

President Barack Obama last January rejected it on concern about the line's route across a Nebraska aquifer, effectively removing it from much of the 2012 campaign debate.

With a new environmental assessment of the project expected soon, the U.S. State Department is moving closer to another decision on whether the $5.3 billion pipeline is in the national interest.

Environmental groups remain staunchly opposed, saying the pipeline will prevent a faster shift to renewable energy, and TransCanada is facing flare-ups of opposition to the southern leg of the project among a handful of landowners.

Alex Pourbaix, president of TransCanada's energy and oil pipelines division, pointed to a surprising November forecast by the International Energy Agency projecting that growth in U.S. unconventional oil production and a 30 percent drop in demand could allow the United States to become energy self-sufficient in the next two decades.

"Even if all of those come true, and I certainly have some concerns about that size of demand reduction, the U.S. is still, by 2035, importing 3.5 million barrels a day of oil," he said in an interview.

"The obvious place for that oil to come from is Canada, so I would expect that we're still going to see projects like Keystone XL, and more projects on top of that, go forward to bring Canadian oil to U.S. markets."

The United States currently imports about 9 million barrels a day, and Canada supplies more than 20 percent of that.

Last week, Enbridge Inc (ENB.TO) proposed a $6.2 billion expansion of its massive pipeline network to bring more crude from Canada and the U.S. Bakken region of North Dakota to refineries in the southern and eastern United States, as well as to eastern Canada, spelling more potential competition.

Pourbaix said that does not concern him.

"I don't think that changes anything for Keystone," he said. "Keystone is basically 100 percent underpinned by long-term contracts, so from our perspective, our shippers have really spoken with their pocketbooks," he said.

"We'll see what projects go ahead afterwards, but we have no concerns about Keystone XL. We're just about at the end of a very long permitting process and I think without a doubt, the most important project for Canadian and Bakken production to go forward right now is Keystone XL."

The U.S. government has said TransCanada can expect a decision by the end of March for the project, which would carry 800,000 barrels a day of oil sands-derived crude to southern Nebraska from Alberta. It would also ship U.S. Bakken crude.

From there the oil would move on an existing line to the Cushing, Oklahoma, storage hub, then to Texas refineries on a pipeline segment that is now being constructed.

It has been a long road.

Rejection, Reapplication

TransCanada, which first applied to build Keystone XL more than four years ago, refiled its application last spring.

Nebraska is currently assessing a new route, and Pourbaix said the state's Department of Environment Quality is expected to give its report to Governor Dave Heineman in the next two weeks. He could rule early in the new year.

U.S. environmental groups have said they have heard growing speculation that the State Department will release a new environmental impact statement shortly, and officials on both sides of the debate expect it to say the pipeline would have little adverse effect on the environment, a similar conclusion to two previous versions.

Some green groups, including the Natural Resources Defense Council and 350.org, are unhappy that the assessment does not factor in more of the impact of carbon emissions from increasing Alberta oil sands development.

"If they stop Keystone, it will be the first time the Obama administration has actually been willing to leave some carbon in the ground someplace. It will demonstrate to the rest of the world we are at least marginally serious about this stuff," said Bill McKibben, head of 350.org and one of the leading opponents of the project. "I would imagine the State Department's going to go ahead and recommend approval. It looks like its been politically wired there from the beginning.

The big question, McKibben said, is whether Obama, who talked about an "all of the above" energy strategy on the campaign trail, signs off on it or "stands up to the fossil fuel industry."

Daniel Yergin, vice chairman of energy consultancy IHS and author of "The Prize: the Epic Quest for Oil Money and Power," said he believes the opposition will step up its campaign but that the administration's "all of the above" stance gives it room to approve the project.

"There's a much better understanding now of the strategic importance of the pipeline to the U.S. energy security system, and a much better understanding of its important role in the overall Canadian relationship," Yergin said after speaking at a conference in Toronto.

Additional reporting by Timothy Gardner in Washington and Alastair Sharp in Toronto; Editing by Steve Orlofsky

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