(Bloomberg) — Falling oil prices mean Keystone XL may have
a bigger effect on climate change than earlier thought, a
federal agency concluded in an analysis critics said gives
President Barack Obama the ammunition to reject the pipeline.
The Environmental Protection Agency said low global oil
prices mean the Canadian crude, which is relatively expensive to
process, may not be developed without a low-cost route to market
such as the pipeline.
The EPA findings led environmental groups to predict Obama,
who has vowed to block the project if it would worsen climate
change, will reject Keystone.
“Keystone doesn’t meet the president’s climate test,”
Michael Brune, president of the Sierra Club, said Tuesday after
the EPA responded to a State Department environmental review.
“We expect the president to reject this pipeline altogether.”
The proposed TransCanada Corp. pipeline has pitted Obama’s
allies in the environmental movement against the energy
industry. The Republican-led House next week is set to vote on a
Senate bill to approve the $8 billion pipeline and circumvent
the State Department review. Obama said he will veto the measure
and continue with his administration’s review.
The State Department has no deadline for deciding on the
application, spokeswoman Jen Psaki said Tuesday. The
department’s review was halted last year to await the outcome of
a legal fight over Keystone’s route in Nebraska, which was
concluded last month.
‘Significant Increase’
“Until ongoing efforts to reduce greenhouse gas emissions
associated with the production of oil sands are more successful
and widespread,” developing the crude “represents a
significant increase in greenhouse gas emissions,” EPA
enforcement chief Cynthia Giles wrote.
Also, the 50 percent drop in U.S. oil prices since June
should be analyzed “during decision making, due to the
potential implications of lower oil prices on project impacts,
especially greenhouse gas emissions,” she wrote in the letter.
Oil on Tuesday advanced for a fourth day on speculation
that reduced investment will curb crude production. Keystone
would deliver Alberta oil sands to U.S. Gulf Coast refineries.
TransCanada said the EPA overstepped its role and ignored
steps taken by Canada to cuts emissions tied to climate change.
“This goes far beyond the mandate of the EPA,” spokesman
Shawn Howard said in an e-mail. “Legislators and other would
not appreciate other countries interfering in issues of American
federal or state sovereignty.”
The 11-volume State Department analysis included a scenario
under which Keystone could play a larger role in spurring oil
sands development. If oil fell below $75 a barrel, shipping
alternatives such as rail may no longer be economically viable,
the 2014 report concluded.
‘Low Price’
It’s that “low-price scenario” that should be given
additional weight now, EPA said. Benchmark U.S. crude last week
fell to $44.45, the lowest since March 2009.
TransCanada, which rose as much as 3.5 percent in Toronto
trading to C$59.45 ($47.87), disputed some of the EPA analysis.
“Emissions intensity for oil sands derived crudes is going
down,” Howard said in the e-mail. “However, the emissions
intensity for other sources of heavy oil that the U.S. relies on
is going up and that trend is expected to continue.”
The oil sands Keystone would carry is “getting to market
today,” Howard said.
The State Department in an environmental review released a
year ago said Keystone probably wouldn’t increase emissions,
even though oil sands are more carbon intensive, because the
crude would be produced with or without the project.
More Gases
In Giles’ letter, the EPA said the crude oil carried by
Keystone could lead to the release of more than 27 million
metric tons of carbon annually compared with other, less carbon-heavy crude.
That’s the equivalent of emissions from 7.8 coal plants,
the EPA said. But it’s just one-half of one percent of total
greenhouse gases released annually in the U.S., according to
government data.
“They are just coming out with something to provide cover
for the president because he’s indicated he’ll veto the
legislation,” said Senator John Hoeven, a North Dakota
Republican and sponsor of the bill to approve the pipeline. “If
he vetoes the legislation, he is likely to turn down the
project.”
The EPA letter “continues to give the president a
rationale if he wants to reject it,” Lowell Rothschild, a
Washington-based environmental litigator at Bracewell & Giuliani
LLP, said in a phone interview.
The EPA also calls the State Department analysis
comprehensive and says it responded to concerns the agency had
voiced to a draft.
Kevin Book, an analyst at Clear View Energy Partners LLC,
said in a note today that the general tenor of EPA’s comments
was positive.
“But the agency’s arguments could create additional
headwinds for the project,” Book wrote.
Book said that it’s possible the State Department could
take additional time to study the impact of low crude prices on
the project.
To contact the reporters on this story:
Jim Snyder in Washington at
jsnyder24@bloomberg.net;
Mark Drajem in Washington at
mdrajem@bloomberg.net
To contact the editors responsible for this story:
Jon Morgan at
jmorgan97@bloomberg.net
Steve Geimann