In today’s final article I want to discuss the logistics involved in getting the oil sands to market. There is a narrative widely promoted by some environmental groups that they can successfully stall oil sands development by shutting off new routes to market.
On my trip to the oil sands, the logistical issues of getting the bitumen to market were a major topic of discussion. The issue has received especially widespread attention in recent years as a result of the high-profile battle over the Keystone XL pipeline extension, which many view — incorrectly as I will show — as essential in enabling future oil sands growth.
Keystone XL Review
To review, the Keystone Pipeline is owned by TransCanada (TSE: TRP, NYSE: TRP). The pipeline already has the capacity to move 590,000 barrels per day (bpd) of crude oil from the Athabasca oil sands to hubs and refineries in the US. The first phase of the pipeline began operating in 2010 and connects Alberta to refineries in Illinois. In 2011, the second phase of Keystone connected Steele City, Nebraska to the major oil hub in Cushing, Oklahoma.
There are two proposed expansions of the Keystone Pipeline that are collectively called Keystone XL (“XL” stands for export limited). The southern leg of the pipeline has been built and is due to begin regular operations next month. This Keystone-Cushing extension will have an initial capacity to transport 700,000 barrels of oil per day from the Cushing hub to Gulf Coast refineries. Because it didn’t cross an international border, the southern leg of the pipeline did not require federal approval.
The northern leg, however, would cross the US-Canadian border. Therefore the State Department is required to determine that the project is in the national interest in order to grant a permit. This proposed 1,180-mile addition would extend from Hardisty, Alberta to Steele City, Nebraska, and would transport up to 830,000 bpd of crude from the oil sands in Alberta and the Bakken oil fields in North Dakota to refineries on the US Gulf Coast.
The Keystone XL pipeline project has probably been the most discussed pipeline project in US history since the Trans-Alaska pipeline of the mid-1970s. Opponents of the Keystone pipeline generally hold the view that the Keystone XL is the key to the expansion of Alberta’s oil sands, and that stopping the pipeline will substantially slow the rate of oil sands development. Such views demonstrate a general lack of understanding about how logistics projects are executed.