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What's Behind the Confusion Over Oil Sands Pipeline Capacity?

Watchdog groups have questioned why energy giant TransCanada has been using two different figures for the capacity of its proposed Keystone XL pipeline

By Nicholas Kusnetz

Mar 8, 2011
Pipeline

As planning for a controversial new oil sands pipeline through America's heartland intensifies, watchdogs have questioned why the Canadian energy giant seeking to build the project has been using two different figures for the pipe's capacity.

TransCanada's press statements and website material describe the proposed 1,959-mile Canada-to-Texas Keystone XL pipeline as capable of carrying approximately 500,000 barrels per day by late 2012. But its regulatory filings with federal and state governments show that it would be able to hold almost double that amount, as much as 900,000 barrels.

Why the discrepancy?

TransCanada says it is normal business practice: One number is used for permit filings, the other to offer potential customers the commercial capacity that is actually for sale. But for opponents of the $7 billion oil project, the inconsistency raises issues of trust and credibility as a decision nears over whether to greenlight the massive project.

'Commercial' vs. 'Total' Capacity

Shawn Howard, a spokesperson for Calgary-based TransCanada, acknowledged that using two numbers may be confusing, but said the company has not been trying to deceive anyone in the increasingly high-profile debate. 

The disparity, he said, is because the 500,000 number reflects the amount of capacity that TransCanada wants to sell to shippers right now — what it calls "commercial" capacity — not how much oil the pipeline can hold, as some in the media have reported.

Major news organizations such as the Wall Street Journal and Bloomberg have published the lower figure as the total capacity of Keystone XL.

"Some of the wording could have been a little clearer," Howard told SolveClimate News.

Environmentalists at the center of the long-running pipeline controversy say TransCanada is intentionally using the lower figure to mislead the public about the demand that exists for a project they claim is unnecessary.

Of the 500,000 daily barrels being made available, the firm has secured long-term contracts to transport some 380,000 barrels, according to a new Department of Energy (DOE) analysis. That's just over 75 percent of commercial capacity, but only 42 percent of total capacity.

"TransCanada has spun the 500,000 barrels-per-day figure to make it appear that a higher percentage of capacity has been sold," said Susan Casey-Lefkowitz, director of the international program at the Natural Resources Defense Council, in an email.

Casey-Lefkowitz and others have said that oil sands can't flow fast enough to fill the pipe and cite the DOE report as the latest evidence of a possible product shortage.

Is the Pipeline Needed Now?

The study commissioned by the DOE and released by the State Department called "Keystone XL Assessment" found that current pipeline capacity for Canadian heavy crude is already large enough that new piping infrastructure would not be needed until at least 2020.

Further, the report said that if industry forecasts for oil sands production are even slightly lower than expected, among other factors, volumes of the unconventional crude coming out of Alberta may not justify constructing Keystone XL until 2025, or even later.

Paul Blackburn, staff attorney for Plains Justice, an environmental group that opposes Keystone XL, charges that TransCanada's widespread use of the lower figure is masking this reality.

"They use that figure because it makes it sound better," Blackburn told SolveClimate News. "The question is whether the pipeline is needed, or whether the pipeline should be as big as it is."

Government documents associated with Keystone XL, including the State Department's draft environmental impact study from 2010, which will inform the final decision, reveal the official intentions of TransCanada.

"Keystone's goal is to initially transport up to 700,000 bpd (barrels per day) of crude oil by pipeline from the WCSB to the United States," the agency says, using an acronym for the tar sands region. "At maximum capacity … the project would have the potential to transport a total of 900,000 bpd."

A Simple Business Decision

Indeed, Howard says the 900,000 figure can be found in every one of its regulatory filings to Canadian and U.S. government authorities and the six states that fall along the Keystone XL route.

So why use the lower figure at all, especially in materials most accessible to the public and the press? Howard says the company is doing so to show potential customers how much capacity is still for sale.

The data suggests there is still a fair amount.

TransCanada's statements and informational material generally refer to Keystone XL with the other sections of the pipeline that have already been approved — Keystone I, which started deliveries to Wood River and Patoka, Ill., last June, and Keystone II, which began carrying crude into Cushing, Okla., in February. The Canadian National Energy Board approved its 327-mile section of Keystone XL in March 2010.

Together, the full $12 billion Keystone pipeline system would run more than 3,800 miles and be able to carry 1.29 million barrels per day, with the ability to add an additional 200,000 barrels with more pumping capacity, for a total of nearly 1.5 million barrels. In 2009, the U.S. imported roughly 950,000 barrels per day of tar sands crude from the Alberta oil patch.

So far, TransCanada has offered for contract about 1.1 million barrels per day for the full pipeline, and has already secured deals for 910,000 of them — 83 percent of the line's "commercial design," as TransCanada explains on its website, and 60 percent if its full capacity.

Offering up the full capacity is not in the cards right now, Howard said.

Part of the reason for the smaller sale is that it allows TransCanada to offer short-term contracts, known as discretionary volumes, on top of its regular contracts for the crude, he explained. The other part, he admitted, is uncertainty.

"When you're building a new pipeline [and] when you're building new markets, you're testing what the overall demand is," Howard said.

He couldn't say for sure whether the rest of the capacity will be sold in the future. "We certainly hope so. Ultimately that's going to depend on the market."

Due to the international nature of Keystone XL, the U.S. State Department is tasked with approving or rejecting TransCanada's request for a presidential permit to build and operate the pipeline. If okayed, the infrastructure would transport crude from Alberta's oil sands mines and across six states to refineries in the Gulf of Mexico, crisscrossing the Ogallala Aquifer, a massive water source that supports agriculture and provides drinking water for millions in the Midwest.

A final decision is expected sometime in 2011.

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