Kinder Morgan quietly plans West Coast pipeline expansion for oil sands

As President Obama weighs the fate of the Keystone pipeline, a similar project connecting Canada’s oil sands to the West Coast is quietly moving forward, little noticed in the United States.

A 60-year-old pipeline already pumps oil from northern Alberta to Vancouver’s busy harbor for shipment to Asia or California. Now the owner, Kinder Morgan Canada, wants to nearly triple the Trans Mountain Pipeline’s capacity, making it even bigger than Keystone.

And unlike Keystone, Trans Mountain’s proposed $5.4 billion expansion doesn’t need the approval of the U.S. government. Canadian authorities will have the final say.

The project would give Canada’s oil industry something it desperately wants — a wide-open conduit between the tar sands and the global market. The existing pipelines that run from northern Alberta are at full capacity, and oil sands operators can’t increase production as a result. Plus, most of the lines run south to the United States, which is in the midst of its own oil boom. Direct access to overseas customers could fetch tar sands oil a higher price.

“The constraints are extremely real,” said Geoff Hill, head of consulting firm Deloitte Canada’s oil and gas practice. “We can’t get our product to market. We need several pipelines leaving Canada, not one.”

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Very little tar sands oil finds its way into California today. But the Trans Mountain expansion could change that, placing the state in the center of the oil sands debate.

Canada now supplies just 2.4 percent of the crude processed in California refineries, according to the state’s energy commission. And one of California’s global warming regulations would make it difficult for those refineries to use tar sands oil in the future. The rule, called the Low Carbon Fuel Standard, requires oil companies to cut the “carbon intensity” of the fuels they sell in the state.

But the standard is under attack in court and has already been ruled unconstitutional by one judge. Should higher courts strike it down, Trans Mountain oil could find eager buyers in California. Oil shipments from Alaska — long one of California’s main suppliers — are falling, making the state more dependent on foreign imports.

“Would it be beneficial to refiners to get this Canadian crude into the refineries in California and the West Coast?” said Charles Drevna, president of the American Fuel & Petrochemical Manufacturers trade group. “The short answer is yes. The long answer is heck yes.”

Delay strategy

Hotly debated in Canada, Trans Mountain hasn’t attracted much attention on this side of the border.

U.S. environmentalists have pushed hard to stop the Keystone XL Pipeline extension, trying to keep the tar sands bottled up. Extracting hydrocarbons from the sands releases more carbon dioxide than conventional oil drilling, adding to global warming.

The $5.3 billion Keystone XL project would connect Hardistry, Alberta, to refineries on the Texas coast, completing a pipeline network that now extends as far south as Oklahoma. The project has touched off a pitched political brawl, pitting an alliance of Republicans, business groups and labor organizations against environmentalists, including some prominent Democratic fundraisers. If Obama approves its construction, the new line could open as soon as 2015.

American environmentalists recognize they don’t have any political leverage to stop Trans Mountain, since the expansion won’t touch U.S. soil. They’ll still try to help their Canadian counterparts any way they can. They see the fight against Keystone as just the first in a series of battles over multiple pipelines proposed for the tar sands, a fight that will involve citizens of both countries.

“The theory has always been delay, delay, delay,” said Michael Marx, director of the Sierra Club’s Beyond Oil campaign. “We know the key to expanding the tar sands is getting the oil to market. So our strategy is to block the infrastructure.”

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Kinder Morgan Canada, a subsidiary of Houston’s Kinder Morgan Inc., plans to submit a formal expansion proposal to Canada’s National Energy Board in October, starting a two-year approval process. The company has been holding meetings in communities along the route, finding both support and opposition.

“The issues around climate are important — they need to be considered,” said Michael Davies, director of marine development for the project. “But a project like this is important to Canada. It’s important to the Canadian economy. And we’ll look to the National Energy Board to weigh the benefits with the risks.”

Delivery advantage

Trans Mountain opened in 1953, years before commercial operations at the oil sands began.

The line snakes 715 miles through forests and mountain passes, starting near Edmonton and reaching the sea on the outskirts of Vancouver. A short spur heads south across the U.S. border, connecting to the refineries of Washington state.

Trans Mountain carries refined petroleum products, such as gasoline and diesel, for use in British Columbia. It also ships a diluted form of bitumen, the thick and viscous hydrocarbon that gave the tar sands their name. (People in the oil industry prefer the term “oil sands.”)

Capable of carrying 300,000 barrels per day, Trans Mountain is the only pipeline linking Alberta to the Pacific coast. And that gives Kinder Morgan an advantage.

Another company, Enbridge, wants to build a second West Coast pipeline well to the north. But Enbridge has run into a wall of resistance from environmentalists and First Nations tribes determined not to see a new line carved through the wilderness.

Trans Mountain’s expansion, in contrast, would string a second pipeline alongside the first. For most of the route, the second line could be installed within the existing right of way. Some detours may be required where the line runs through communities that have grown since 1953.

The second line would boost Trans Mountain’s capacity to 890,000 barrels per day. Keystone’s proposed capacity is 830,000 barrels per day.

Spill worries

Even though the new pipe would largely parallel the old, Trans Mountain’s expansion has already drawn fire.

The Coldwater Indian Band of British Columbia last month sued both Kinder Morgan and the Canadian government’s minister of Indian affairs to block the project. Environmentalists worry that a second line would double the chances of a spill. They’re also alarmed that the number of tanker ships moving through Vancouver’s harbor each month would jump from five to 34, by Kinder Morgan’s estimate. They say that unlike oil, diluted bitumen — known as “dilbit” — sinks in water, making any spill from a tanker hard to clean up. (See accompanying story)

“This is a risk not worth taking,” said Todd Paglia, executive director of the ForestEthics environmental group, which has offices in Vancouver, San Francisco and Bellingham, Wash. “People feel very strongly that this is not the future of British Columbia, that it’s too much risk to put the salmon and the waters in jeopardy.”

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According to Kinder Morgan, the pipeline has suffered 78 spills since record keeping by the National Energy Board began in 1961. About 70 percent occurred at pump stations or terminals, which typically have systems in place to contain leaked oil.

“Let’s be clear: any spill is unacceptable,” Davies said. “We’re very proud of our record. All human endeavor involves some risk, and we work very hard to manage that.”

Oil to California

Unlike Keystone, the U.S. government has no authority over the Trans Mountain project. The only piece of the pipeline that crosses into American territory — the spur into Washington state — would not receive a second, parallel line. As a result, U.S. environmentalists must watch the debate from a distance, even though many of the ships loaded with Trans Mountain dilbit would probably sail through U.S. waters.

“That’s what is really frustrating,” said Elisabeth Keating, with the Sierra Club’s Washington state chapter.  “All this stuff is coming through Puget Sound, and we can’t do anything about it.”

California could be one of the destinations.

At a time when the United States is growing less dependent on foreign oil, California is becoming more. Crude flowing from newly fracked shale rock in North Dakota and Texas doesn’t come here. Oil production within California ticked up last year for the first time in over a decade, but the increase was tiny and followed years of steady decline.

Meanwhile, petroleum shipments from Alaska are shrinking. Alaska once supplied 46 percent of the crude processed in California. Today, it’s 12.5 percent.Last defense line

The Low Carbon Fuel Standard doesn’t bar California refineries from using tar sands oil. But it does pose an obstacle.

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The standard requires oil companies to lower the amount of greenhouse gases associated with each gallon of fuel they sell in the state. State regulators study the emissions produced by extracting oil from the ground, processing it, and burning it in an engine. Different oil fields receive different scores, depending on their production techniques.

Under that system, the tar sands fare badly. The bitumen bound in the sand is too thick to flow into a well, the way crude oil does. So companies strip mine the sand and use hot water to separate out the hydrocarbons. Or they pump steam or solvents underground to make the bitumen less viscous and easier to extract.

Those production techniques require more energy than conventional oil drilling and, therefore, release more greenhouse gases. Environmentalists consider the fuel standard a last line of defense, denying oil sands producers access to California’s large and lucrative market.

But it may not last. In 2011, a U.S. district judge in Fresno ruled that the fuel standard violated the Constitution by interfering with interstate commerce. That decision is still under appeal.

In addition, the companies working in the oil sands have been slowly ratcheting down the carbon intensity of their operations, said Greg Stringham, vice president of the Canadian Association of Petroleum Producers.

Greenhouse gas emissions per barrel have dropped 26 percent over the last two decades, he said. And one of the newer production techniques, which uses a mix of propane and steam, has a carbon intensity just 2 percent higher than the U.S. average, he said. The state’s fuel standard may not be such a barrier after all.

“If it’s done on an oil-by-oil basis, and everyone’s treated the same scientific way, we can actually live with that,” Stringham said.

Meanwhile, other pipeline projects linked to the oil sands are moving forward. Two proposals, for example, would extend or reverse the flow on existing pipelines that stretch between Alberta and Canada’s eastern provinces, giving tar sands oil access to the Atlantic coast. Environmentalists vow to fight those, too.

“There are many efforts to pursue other routes that don’t go south,” said Hill, with Deloitte. “You can assume some of them will be successful. We’re going to get the oil out.”


Read ongoing FuelFix coverage of the battle over the Keystone XL pipeline: