TransCanada Keystone XL Pipeline

John Lagasca
November 2, 2012

Submitted as coursework for PH240, Stanford University, Fall 2012


Fig. 1: Keystone XL Pipeline Route. [6] (Courtesy of the U.S. Department of State)

With a daily consumption rate of 18.8 million barrels of oil per day (18.8 MMSTB/d) in 2011, the United States is the largest consumer of crude oil and refined petroleum products in the world. [1] While this represents a 9.45% decrease from the peak oil consumption rate in 2005, the USA still imports 8.4 MMSTB/d (45% of total consumption) from other countries, notably from Canada (24%), Persian Gulf OPEC Countries (16%) and Mexico (11%). [2] Canadian oil production continues to increase with the development of the Canadian Oilsands, while the United States has found major sources of shale oil in places such as Oklahoma and North and South Dakota, thereby allowing the United States to shift towards the use of North American crude oil supplies. Development in these areas was also driven by the increasing disparity in the price per BTU between oil and gas primarily due to the significant shale gas being exploited in Pennsylvania, Texas and Louisiana. [3] However, pipeline capacity has not kept up with the increased North American crude oil supply and has resulted in a supply glut in the existing oil processing hubs in Cushing, Oklahoma and the US Midwest with the current existing Keystone pipeline unable to provide the required capacity for the development of these new fields. Due to this global supply imbalance, the oil spot price in Cushing, Oklahoma (WTI) has been decoupled relative to the oil spot price in Brent (UK), which is usually the internationally prevailing price of crude oil. [4] While not shown, the price disparity in the crude oil pricing in North Dakota (generally called the Bakken price) and Canada (generally called the Edmonton Par price) has recently grown to an extent that significant trucking and railcar transportation options for crude oil are starting to be utilized extensively. [5] Gasoline prices have recently been more in line with the Brent crude oil price since the price is generally set by the highest refiner costs. [6]

The TransCanada Keystone XL Pipeline

TransCanada Inc. has applied for the construction of approximately 1,711 miles of 36-inch-diameter pipeline with 30 pump stations, and 112 mainline valves connecting Hardisty, Alberta to Cushing, Oklahoma to Houston, Texas thereby creating 700,000 STB/d of additional pipeline capacity. [6] It is expected to cost $7 billion in combined capital expenditures. [6] The route is illustrated in Fig. 1. Back of the envelope calculation indicates that at the expected viscosity , about 650 psi of pressure drop is expected at each segment of the pipeline between pump stations, and the power requirements can vary from $3-20/bbl depending on the efficiency, costs of electricity and the operating requirements (such as oil viscosity), and the amount of throughput. [7] The pipeline is defined as a facility that crosses the international boundaries of the United States, a presidential permit, through the State Department, is required in addition to the National Energy Board (NEB) of Canada. The pipeline has caused major controversies with major environmental groups and notable individuals voicing support or dissent. We will discuss the economic and development issues first as they form the basis of the creation of the project, while the environmental and safety concerns will dominate the go or no-go decision making.

Economic and Development Issues

The pipeline is seen as a significant step in US energy security as it will be shifting its acquisition of crude oil supplies from "volatile regions" to Canada, which is a "source more stable and friendly to United States interests." [8] The project has been forecasted to benefit the region in many ways including, increased business and manufacturing activity from construction, property taxes paid over the project lifetime, and a reliable supply of crude oil. [5] It is estimated that up to $100 billion in total spending and 342,000 jobs may be created by this infrastructure investment (directly and indirectly), with at least 13,000 jobs on the construction of the pipeline alone, and provide an estimated $100-600 million/year of net conomic benefits. [9] Some of these, such as a local emergency planning and response positions, have been committed to low income and minority populations. [6] Lost in the debate in the prospect that the refineries may be hugely underutilized in the near future. Refineries in the Midwest and near the Gulf import approximately 2.9 MMSTB/d of crude oil primarily from Venezuela and Mexico, which are in steady decline. [6] Indeed, a growth of at least 500,000 STB/d of refining capacity is expected by 2020, with up to 4.3 MMSTB/d refining capacity available for the pipeline. [6,8] Demand currently exists for the project, with at least 380,000 STB/d of the pipeline capacity already firmly contracted out to different companies for an average of 17 years. [8] Indeed, Valero strongly supported the project at the Canadian National Energy Board hearing, stating that its own refineries alone represent a market of 750,000 STB/d requiring the heavy oil that will be transported in the pipeline, which is already above the pipeline capacity. [8] The benefits of these stay in the United States as the profit from the refining operations would stay in the Gulf Coast. Indeed, the pipeline will also facilitate the transportation of oil from Montana, North Dakota and Oklahoma. The Bakken Marketlink and Cushing marketlink, are considered "connected actions", meaning that they depend on the construction of the Keystone XL Pipeline to transport 65,000 STB/d and 150,000 STB/d of crude oil from Montana and North Dakota, and Oklahoma respectively. [6] This will allow the production of shale oil, which is a new burgeoning unconventional resource. The fact that the oil will be refined in the United States makes is unlikely that the pipeline is destined to be an export pipeline as current trends still indicate an underutilization of existing refining capacity and a robust import market.

Environmental and Safety Issues

The United States Department of State (DOS) in its Final Environmental Impact Statement (FEIS) has stated that "there would be no significant impacts to most resources along the proposed Project corridor." [6] This is similar to the determination made by the Canadian National Energy Board, which stated that "the proposed project is not likely cause significant adverse environmental effects." [8] One of the major contentions of those opposed to the pipeline is the Ogallala Aquifer (officially the Northern High Plains Aquifer System). Studying the crude oil release in 1979 in Minnesota, the DOS concluded that a spill is likely to be limited in extent and will only occur at the spill site, and that the contamination of the entire aquifer can be effectively ruled out. [6] Most of the habitat loss and environmental disturbances should be transient in nature and confined mostly in the construction phase. While no shrubs can grow right on top of the pipeline for monitoring purposes, the effective footprint is small. [6] Furthermore, according to the United States Fish and Wildlife Services (USFWS), it has no effect or is not likely to adversely affect 24 currently endangered or threatened species. [10] It is, however, likely to adversely affect the American burying beetle. In consultation with the USFWS, TransCanada has agreed to a stringent monitoring program and to offset the lost habitat with purchases of suitable grassland at a replacement ratio of greater than 1:1 (i.e. buying more land than the destroyed habitat). [10]

It is unquestionable that an oil spill will cause detrimental impacts in the surrounding region. Indeed, according to the Pipeline and Hazardous Materials Safety Administration (PHMSA) of the US Department of Transportation, with the incorporation of more stringent requirements agreed to by TransCanada, the "Project would have a degree of safety greater than any typically constructed domestic oil pipeline system under current regulations." [8] They include a leak detection system from the pipeline pressure, which can be remotely monitored 24-hours a day at a central location, which will generally detect a leak that is 1.5% of the pipeline flow rate, since leak detection systems are dependent on observed pressure decreases. [6] An emergency response plan, which involves the closure of isolation valve within 12 minutes and the deployment of local emergency response teams. Using the methods developed by PHMSA, it is estimated that there would only be 1.18-1.38 spills greater than 50 barrels of oil per year for the entire project, which is minimal in quantity. [6,11]

Knowing that there is a significant driver to get the stranded oil in the market , the current alternatives to pipeline transportation are relatively unpalatable but are currently being implemented. [5] The FEIS noted that the the transportation of oil using trucks and railroad units is 87 times more likely to result in a fatality and 35 times more likely to cause an explosion, in addition to increased traffic, greenhouse gas emissions, and detrimental effects of increasingly congested transportation lines, while adding up to $3/bbl to the transportation cost of the crude oil. [6]


Based on the publicly available data, it does seem that the pipeline is poised to enhance the energy equation of the United States while certain restrictions have mitigated many of the risks. Environmental concerns, while present, are more speculative in nature and are not supported by the State Department's FEIS and the report of the National Energy Board of Canada. Opponents fail to recognize that alternative to a "no-go" decision is not the cessation of development activities but a ramp-up in trucking and railroad services.

Note that this is a current event with possible fast-paced project updates and scope changes as the project is refined and further consultations are performed.

© John Lagasca. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.


[1] "BP Statistical Review of World Energy 2012," British Petroleum, June 2012

[2] N. Nerurkar, "U.S. Oil Imports and Exports," Congressional Research Service, CRS Report R42465, 4 Apr 12.

[3] M. M. Foss, " The Outlook For US Gas Prices in 2020: Henry Hub at $3 or $10?," Oxford Institute for Energy Studies, NG 58, December 2011, p. 25.

[4] D. Strumpf, "Nymex Crude Falls as Brent Divergence Widens," Wall Street Journal, 8 Oct 12.

[5] A. Gonzalez, "Statoil Using Rails to Ease Bottleneck," Wall Street Journal, 29 Aug 12.

[6] A. Yuan, "Final Environmental Impact Statement for the Keystone XL Project," U.S. Department of State, 26 Aug 11.

[7] P. E. Koppel, W. L. Mazurek and A. Harji, "Project Scenarios for Bitumen Upgrading," One Petro, 78983- MS, 4 Nov 02.

[8] "Reasons for Decision in the Matter of TransCanada Keystone Pipeline GP Ltd," National Energy Board of Canada, OH--2009, March 2012.

[9] N. Snow, "EPRINC: Economic Gains to Be Made From Keystone XL Project," Oil and Gas J. 108, 48 (2010).

[10] M. D. George, "Transmittal of U.S. Fish and Wildlife's Biological ...," FWS-NE: 2010-377, 23 Sep 11.

[11] N. Snow, "DOS Issues Final EIS For Proposed Keystone XL Crude Oil Pipeline," Oil and Gas J. 109, 16 (2011).