Keystone XL Likely Dead

Critics of U.S. domestic energy policy are trying to maneuver the Keystone XL oil pipeline past the Oval Office, trumpeting the project as the 21st century version of the New Deal. The project has come to represent growing divisions in domestic energy policy during the presidential campaign cycle in the United States. In the long shadow of the project, however, are a series of domestic oil pipelines that could make Keystone XL redundant by the time it goes into service in 2015.

Republican lawmakers may try to force the administrations hands once again on the Keystone XL pipeline, a project meant to transfer crude oil from tar sand deposits in Alberta, Canada, to refineries along the southern U.S. coast. Presumptive Republican presidential nominee Mitt Romney mourned, before an audience of supporters in Nevada, that the U.S. government was able to put its manufacturing muscle on display by building the interstate highway system and the Hoover Dam. Now, the U.S. government "can't even build a pipeline," he said in a reference to Keystone XL.

Since the fight over Keystone XL began, however, several projects have developed that could make the pipeline redundant. TransCanada, the company behind Keystone, said the $13 billion extension will play a key role in linking a "secure and growing supply" of Canadian crude oil to refining markets in the United States. But another pipeline, the Bakken Crude Express, planned from extensive oil deposits in the Northern Plains, will service similar U.S. refining markets for about 10 percent of the cost of Keystone XL. And Canadian pipeline company Enbridge may beat TransCanada to the punch with its plans to reverse the flow on the Seaway pipeline, which would ease the glut of Canadian and North Dakota crude. Enbridge also wants to build its Flanagan South project to trading hubs in Cushing, Okla., and expects an in-service date of 2014. That's a full year ahead of Keystone XL, assuming TransCanada gets the federal approval it needs to build the entire pipeline.

While U.S. politicians were exchanging blows over the presidential permit needed for Keystone XL, TransCanada announced it was moving ahead with the Gulf Coast project, a 485-mile domestic leg of Keystone XL. Of the pipelines mentioned, only Keystone XL needs a laborious presidential permit and Enbridge said Seaway's reversal was already month ahead of schedule. Meanwhile, the U.S. Energy Department said the country was moving away from at least some foreign crude oil reserves because Bakken crude was so cheap. In the Oval Office, though much of that is because of existing legislation, Obama is quick to note that domestic oil and natural gas production is at historic highs.

By the time the theoretical in-service date for Keystone XL rolls around, whoever the next U.S. president is will be halfway through their tenure and at least one of TransCanada's rival projects will be up and running. Looking back to 2012, Romney, wherever he is in three years, may prove to be prophetic when he said the U.S. can't get a pipeline built because, given recent developments, there might not be anything to build.

By. Daniel J. Graeber of Oilprice.com