With oil prices hitting a five-year low, building the Keystone XL pipeline extension could enable oil companies to expand development of Canada’s tar sands, increasing greenhouse gas emissions that contribute to climate change, the Environmental Protection Agency said in a letter to the State Department this week.
“Construction of the pipeline is projected to change the economics of oil sands development and result in increased oil sands production, and the accompanying greenhouse gas emissions, over what would otherwise occur,” the EPA said.
President Barack Obama has said he would only approve the 1,179-mile pipeline if it did “not significantly exacerbate the problem of carbon pollution.”
The $5.4 billion project requires his approval because it crosses an international boundary. The State Department is conducting a review to determine whether the pipeline is in the country’s “national interest.”
In a January 2014 environmental impact statement, the State Department concluded that Keystone XL would not affect carbon emissions. Oil companies, it said, would develop the tar sands regardless of whether the pipeline is built.
But, the EPA argued in its letter Monday, “given the recent variability in oil prices, it is important to revisit these conclusions.”
From January to June of last year, prices of benchmark West Texas Intermediate and Brent crude oil vacillated between about $90 and $110 per barrel. Then they fell off a cliff, dropping to about $50 per barrel as the U.S. energy boom injected huge amounts of oil into a market already crippled by weak demand from a sluggish global economy.
Developing the tar sands, meanwhile, is a costly endeavor: Turning a profit on a new well requires a market price of $86 to $106 per barrel, according to a July report by the Canadian Energy Research Institute.
Hence, pipeline opponents argue, tar sands companies simply cannot afford anymore to ship crude by rail or truck, which is more expensive than sending it by pipeline. To get anywhere close to making a profit on new tar sands wells, critics add, companies need Keystone XL. And that means approving the pipeline would result in far more greenhouse gases escaping into the atmosphere, thereby causing the project to flunk Obama’s so-called climate test.
“The EPA’s assessment is spot-on,” Danielle Droitsch, Canada Project director at the Natural Resources Defense Council, said in a statement. “There should be no more doubt that President Obama must reject the proposed pipeline once and for all.”
Industry groups disagree. Oil prices, they argue, are volatile and Keystone XL was first proposed when oil was selling for far less.
“Suggesting that the drop in oil prices requires a re-evaluation of the environmental impact of the project is just another attempt to prolong the KXL review,” Louis Finkel, executive vice president for government affairs with the American Petroleum Institute, said in a statement. “Keystone XL was put forward when oil was less than $40 a barrel so price has little impact on the project. American refiners want it; American producers want to get their oil to those Gulf Coast refineries and we believe Americans would rather get a large portion of the 8 to 9 million barrels they import each and every day from Canada rather than Venezuela or the Middle East.”
Shawn Howard, a spokesman for TransCanada – the company hoping to build the pipeline – previously told U.S. News that no companies had canceled their contracts to ship oil through Keystone XL.
“Nobody has walked away from Keystone,” Howard says. “We have a waiting list. So while there’s all kinds of speculation some people like to make of whether it’s needed or not, our customers are the ones who vote with their contracts.”
The Senate voted Jan. 29 to allow construction of Keystone XL. The House is expected to take up the bill next week. Obama has vowed to veto the measure.