One of the strangest things about U.S. hesitation over the Keystone XL pipeline is that despite environmental objections against it, nearly half of all Canadian oil exports to the U.S. already come from oil sands. The pipeline, a project of TransCanada, would transport an addition 830,000 barrels per day from Alberta down to the U.S. Gulf Coast.
The fractious Canadian political landscape, where provincial and federal party systems are not always well aligned and where there is greater regional advocacy of regional interests even than in the U.S. federal system, has fallen into line in favor of the Keystone XL. Even the federal opposition party, the New Democratic Party, focuses its criticisms not on environmental issues but on how best to draw economic advantage from this or other projects for sending Canadian oil to the United States.
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Oil sands are less expensive to produce and of higher environmental quality now in the past. According to BMO Capital Markets, oil sands projects production costs currently fall between $50 and $90 per barrel, where in the U.S. production of crude from the Bakken shale in North Dakota, for example, comes in at between $70 and $90 per barrel.
Alberta currently is producing more than it has pipelines to transport. So even while Shell is adding up to 100,000 barrels per day (bpd) to its oil sands project in Athabasca Oil Sands Project, Suncor will add as much as that through eliminating bottlenecks in within-system flows. New technologies, according to the BMO report, could bring underground extraction project costs down to $25 per barrel in some cases.
If the Keystone is refused or delayed again, Canada has other choices the Northern Gateway Project goes west to the coast of British Columbia, while the East Coast Pipeline project goes east to Quebec and New Brunswick. The latter makes especial sense, since it would include, as well as export, also the construction of new refineries in Canada for Canadian consumption.
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Those provinces are now dependent on high-cost imports at international market prices. Canada holds the third largest crude-oil reserves in the world, with 173.5 billion barrels proven, yet for the eastern provinces it had to import 600,000 barrels last year.
The energy expanded to produce oil sands crude varies according to the baseline and methodology for calculation. According to Cambridge Energy Research Associates, the life-cycle emissions from oil sands crude is comparable to U.S.-produced crude and potentially lower than that from U.S. Imports from Venezuela.
Canada will develop the oil sands whether Keystone XL is approved or not. European protectionism based upon alleged environmental reasons are falling by the wayside, as Alberta for example implemented even six years ago an administrative regime limiting greenhouse gas emitters with penalties for non-observance.
By. Robert M. Cutler
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