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Inside the Canadian Tar Sands, Keystone XL Debate: Why Political Forces Are Pitting Jobs Against the Environment


Proponents of the pipeline believe Canada's crude bitumen to be a significant pillar of America's quest for energy independence, despite the ecological risks and costs of production.

Did you know that the State Department is permitted to provide analysis on environmental risk? Well, apparently they are. Back in late August, they released a statement that TransCanada's (TRP) proposed 1,700-mile Keystone XL pipeline posed little possibility of environmental hazard in terms of oil spills and refinery emissions. After many members of Congress severely criticized the department's approach to the analysis -- they supposedly hired a consulting firm with ties to TransCanada to perform the review -- the Environmental Protection Agency (EPA) will also release a statement regarding the project. Now, that makes more sense; let the EPA make decisions that have to do with environmental matters. Lisa Jackson, currently serving as head of the EPA, mentioned to a group of students at Howard University on Thursday that she expects her department to release their opinion and supplemental review soon.

Over the past few years, we've been hearing non-stop debate about the Canadian tar sands, but what exactly are they? A new brand of cigarettes?

The Canadian tar sands (more specifically known as the Athabasca oil sands) are located in Alberta. Some estimates for the total reserves are in the range of 2 trillion barrels. Yes – the "t" is not a typo. Yet despite the enormous supply (that would trump Saudi Arabia's proven reserves several times over), the oil is difficult to recover as it's extremely thick and full of water, sand and clay -- a mixture known as bitumen. The Government of Alberta states, "Bitumen cannot be refined into common petroleum products like gasoline, kerosene, or gas oil without first being upgraded to crude oil." As of now, there are only a few mining operations in place to obtain the substance, the biggest of which are owned by Shell Canada (RDS.A), Suncor Energy (SU) and Syncrude Canada, a joint venture in which Canadian Oil Sands (COS) owns a 36.74% stake. Each of the three largest entities produces approximately 150 to 300 thousand barrels per day.

Despite the difficulty in drilling and pumping this oil, proponents of the pipeline believe it to be a significant pillar of America's quest for energy independence.

However, its bituminous and thick quality is of major concern for those who resist the project's completion. Unlike the lighter and sweeter WTI crude oil, the bitumen will require significantly more effort to ultimately yield distillates, resulting in additional greenhouse gasses.

Keystone XL will first transport the oil from Hardisty, Alberta, to Steele City, Nebraska (Phase 4), from where it will then run parallel with the already completed Phase 2 of the first Keystone pipeline to Cushing, Oklahoma. Then, the proposed Phase 3 will move the substance all the way to Houston and Port Arthur, Texas.

Even if the EPA does not release a positive report on the pipeline, don't expect the issue to be taken off the table any time soon. With two departments at odds with each other on the same issue, the final decision may well be left up to President Obama and a special White House council focused on the environment. In an election year, and with unemployment still hovering above the crucial 9% level, jobs are at the forefront of any political discussion. And with oil supplies in the United States at a 20-month low -- a culprit for the WTI crude forward curve that is now in backwardation -- the Keystone XL pipeline may be found to have enough of a beneficial economic impact to offset the possible externalities as a result of environmental effects. Wait and watch.

(Also see: Should Obama Approve the Keystone XL Pipeline? Six Differing Views)

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