The Rising Influence of Rising Affluence

[DewDiligence]

Oil-Sands Push Tests US-Canada Ties

http://online.wsj.com/article/SB10001424052748704178004575351381541187628.html

›Pipeline Project Would Double Imports of the Crude From North, but Environmental Worries Fuel Opposition

JULY 7, 2010
By PHRED DVORAK And EDWARD WELSCH

A battle over whether the U.S. should curb its use of oil produced from Canada's oil sands is straining ties between the countries and comes amid a wider debate about the safest and cleanest ways to extract fossil fuels.

Rep. Henry Waxman (D., Calif.), chairman of the House energy committee, this week urged Secretary of State Hillary Clinton to veto the expansion of a giant pipeline that would roughly double the amount of oil-sands crude Canada ships to the U.S., calling it a "multi-billion dollar investment to expand our reliance on the dirtiest source of transportation fuel currently available."

Environmental groups are planning protests Thursday at the Canadian embassy in Washington, consulates and along the route of the proposed extension, sections of which run from Canada to Texas. A spokesman for TransCanada Corp., which is building the pipeline, said TransCanada disagreed with Mr. Waxman's assertions and that the project would create jobs and revenue for states.

The northeastern part of the Canadian province of Alberta is home to a vast deposit of oil sands, also known as tar sands, that produces a densely compacted petroleum called bitumen, which is difficult to extract and energy-intensive to refine. Environmental groups say production of crude from the sludge can emit about three times the greenhouse gas that more conventional operations do. Oil-sands companies counter that when emissions from burning the gasoline refined from the crude are included, their oil is only 5% to 15% more carbon-intensive. [This is a silly and unconvincing use of numbers, IMO—obviously, the % in question will be less if the denominator used in the calculation is greater.]

Mr. Waxman's statement follows a similar letter last week signed by 50 members of Congress, and is the latest volley in a struggle between environmentalists, lawmakers and Canadian oil producers over the rising amount of fuel imported from Canada's oil-sands reserves. The groups are already clashing in U.S. courts over everything from permits to ship or refine oil-sands oil to legislation that could effectively prevent the federal government from buying Canadian oil.

The arguments over future sources of oil for the U.S. are coming to a head amid furor over the Gulf oil spill that has raised scrutiny of all aspects of fuel.

Environmentalists at public hearings last week over the pipeline project—a $7 billion extension of TransCanada's Keystone line—argued that all oil projects are getting riskier and need tighter oversight, as sources of crude get scarcer and companies go to greater lengths to procure it. Others giving testimony said they were worried the pipeline, which would take Canadian oil to refineries on the Gulf Coast, could spring a leak that would threaten the Gulf region—this time on land rather than in water. Oil-sands executives counter that spills are easier to clean up on land than in the water.

"The entire project is being viewed in the context of the ongoing tragedy in the Gulf Coast," said Robert Jones, who oversees the Keystone project, during a conference call last week.

The extension must be approved by the State Department. A decision could come as soon as in the next month, but Mr. Waxman and others are asking for a delay until emissions evaluations are done [i.e. an indefinite delay for all practical purposes]. A spokeswoman for the White House Council on Environmental Quality said Tuesday that the council was reviewing the pipeline proposal and working with the State Department. Other government agencies will weigh in on the plan this month.

Attacks on oil-sands production could complicate relations with Canada, the U.S.'s biggest trading partner, where energy makes up about a quarter of exports. Canadian oil-sands executives and politicians have said if the U.S. doesn't take the fuel, nations like China will. The government of Alberta last week took out a full-page ad in the Washington Post defending the oil sands, stating "A good neighbour lends you a cup of sugar. A great neighbour supplies you with 1.4 million barrels of oil per day."

For years, the processing difficulties made oil from the oil sands too costly to pursue. That has changed during the past decade as refining technology improved and easier-to-use reserves were tapped out, pushing up prices. Most new oil-sands projects can make money at prices of around $50 to $60 a barrel, according to research by BMO Capital Markets. [CVE claims its oil-sands properties can be profitable at $45/bbl (#msg-51491244).] Oil has been trading between $70 and $80 a barrel in the U.S. for the past few months.

Oil-sands production in Canada more than doubled from 2000 levels to 1.5 million barrels a day last year. This year, Canada's oil sands are poised to become the biggest single source of imported crude to the U.S., and volumes could triple or quadruple during the next 20 years, forecasts IHS Cambridge Energy Resource Associates, a consultancy that advises companies and governments on energy matters.

Environmental groups like the Sierra Club are trying to make sure that doesn't happen, with lawsuits aimed at stopping U.S. refineries from processing the oil and pipelines from shipping it. The group last month also sued the Department of Defense, saying it ignored a section of the 2007 Energy Independence and Security Act that prohibits federal agencies from buying "alternative or synthetic fuel" unless it produces the same amount or less greenhouse gas as conventionally produced fuel.

Oil-industry officials and the Department of Defense, the biggest U.S. purchaser of Canadian crude, argue that the section of the law doesn't apply to purchases of commercially available oil-sands fuel. But just in case, industry lobbyists are also pushing to repeal that section.

Some states are also imposing or mulling restrictions on oil from the oil sands, but such moves are being challenged by oil-industry groups who say they pre-empt federal law.‹