Friday, August 09, 2013

Industry Study Says KXL "No Material Impact" On GHG

Aug 8: The proposed Keystone XL pipeline would have "no material impact" on U.S. greenhouse gas (GHG) emissions, according to a brief, 6-page IHS study. The report indicates that in the absence of the pipeline, alternate transportation routes would result in oil sands production growth being more or less unchanged. The study also found that any absence of oil sands on the U.S. Gulf Coast (the destination for Keystone XL) would most likely be replaced by imports of heavy crude oil from Venezuela, which has the same carbon footprint as oil sands.

    IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today's business landscape. IHS indicates that businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods. IHS indicates that since 2009, the IHS CERA Oil Sands Dialogue has brought together policymakers, industry representatives, non-governmental organizations -- including environmental groups -- and other related stakeholders to advance the conversation surrounding Canadian oil sands development. The objective is to enhance understanding of critical factors and questions surrounding industry issues and foster a fact-based discussion.

    In a release, IHS indicates that the pipeline's potential impact on GHG emissions has been the subject of increased focus. President Barack Obama's June 25 climate address [
See WIMS 6/25/13 & See WIMS 6/26/13] indicated that the relative emissions related to increased Canadian oil sands processing in U.S. markets resulting from the pipeline are a key criteria for the United States' decision whether to approve the project.

    Following his June 25 address, President Obama, in an interview with the New York Times said, ". . . I meant what I said; I'm going to evaluate this [KXL] based on whether or not this is going to significantly contribute to carbon in our atmosphere. And there is no doubt that Canada at the source in those tar sands could potentially be doing more to mitigate carbon release. . ."  [See WIMS 7/29/13]. 

    IHS says that its new study agrees with the conclusions of the U.S. State Department's Draft Supplemental Environmental Impact Statement for Keystone XL that says oil sands production is expected to continue at similar levels regardless of whether Keystone XL goes forward. IHS currently expects oil sands production to grow from 1.9 million barrels per day (mbd) in 2013 to 4.3 mbd in 2030 and does not expect the Keystone XL decision to have a material impact on the production outlook.

    The IHS study points out that 3 mbd of additional oil sands pipeline capacity (not including Keystone XL) is currently proposed. Eighty percent of this proposed alternate capacity travels exclusively through Canada -- connecting the oil sands with Canada's west and east coasts -- and thus would not require U.S. government approval. Even if pipeline capacity were to lag behind oil sands growth, the study says that transportation by rail is expected to play an ongoing role and that greater investment could make rail more economic to a level approaching that of pipelines.

    The study found that with sufficient scale and investment the additional cost of transporting oil sands by rail to the U.S. Gulf Coast rather than by pipeline could be lowered from today. If heavy oil sands producers were to invest in improved rail efficiencies, the economics could be within $6 per barrel compared to pipeline (for each barrel of oil sands produced). This would place rail well within the break even range for most oil sands production. One source of improved economics could come from shipping oil sands bitumen in its pure state. A lack of pipeline capacity would incentivize such added investment.

    The study also found that, were oil sands not to be shipped to the U.S. Gulf Coast, it would result in little to no change in overall GHG emissions. The region -- which contains 50 percent of total U.S. refining -- has a large capacity to process heavy crude. This means that crude oils of similar GHG intensity would continue to be refined in the absence of oil sands.

    Venezuela is currently the largest single supplier of heavy crude to the U.S. Gulf Coast and would be the most likely alternative source of heavy crude supply absent oil sands. IHS research has found Venezuelan heavy crude to have a similar range of life-cycle GHG emissions as oil sands imported into the United States. The study says, "Venezuelan heavy oil -- and Venezuela -- would be the number one beneficiary of a negative decision on Keystone."
    Environmental groups, including Natural Resources Defense Council (NRDC), Oil Change International and others, cite competing arguments from a research report published by Goldman Sachs (GS) Global Investment Research team on June 2, entitled, Getting oil out of Canada: Heavy oil diffs expected to stay wide and volatile. The groups indicate that  the report casts serious doubts on the U.S. State Department's market analysis of the Keystone XL tar sands pipeline. They say the GS report substantially undermines the State Department draft EIS and indicates that, ". . .not building Keystone XL would likely slow the growth of tar sands extraction by virtue of lowered prices for Canadian oil. In this event, GS found that tar sands projects would likely be deferred or canceled." [See WIMS 6/11/13].
    Access a release from IHS on the report (click here). Access the 6-page IHS report (click here, registration required). Access the IHS CERA Oil Sands Dialogue website for more information (click here). Access the State Department KXL website for more information (click here). Access a blog posting by NRDC (click here). Access the summary of the GS investment report (click here). [#Energy/KXL]