EPA: Oil prices should be part of Keystone XL decision

WASHINGTON — Environmental regulators want the Obama administration to consider the recent crash in oil prices before making a final decision on whether to authorize the Keystone XL pipeline.

In a Feb. 2 letter to the State Department that was released Tuesday, the Environmental Protection Agency suggested that “recent variability in oil prices” throw in doubt previous conclusions that Keystone XL would not drive up greenhouse gas emissions nor speed up development of Canada’s oil sands.

Instead, said EPA Assistant Administrator for Enforcement Cynthia Giles, plummeting crude prices could make the proposed pipeline vital to Canadian oil sands developers who face higher costs to ship their crude by rail.

An earlier State Department analysis of the project found that Alberta, Canada’s oil sands likely would be developed with or without Keystone XL. But the EPA noted that “this conclusion was based in large part on projections of the global price of oil.”

With domestic West Texas Intermediate crude hovering around $50, it’s important to revisit that analysis, Giles said.

“Given recent large declines in oil prices and the uncertainty of oil price projects, the additional low price scenario (in State’s analysis) should be given additional weight during decision making, due to the potential implications of lower oil prices on project impacts, especially greenhouse gas emissions,” Giles said.

The State Department’s environmental impact statement found that at sustained oil prices of $65 to $75 per barrel, the higher transportation costs of shipment by rail “could have a substantial impact on oil sands production levels” by changing the economics of that activity.

The EPA is one of eight federal agencies that were due Monday to weigh in with any views on Keystone XL, informing the State Department’s ongoing analysis of whether the proposed border-crossing pipeline is in the national interest.

State Department spokeswoman Jen Psaki declined to say how many agencies filed recommendations. But she noted that EPA’s letter commented on the State Department’s environmental impact statement, not the national interest question.

The $8 billion TransCanada Corp. Keystone XL pipeline would link oil sands projects in Alberta with a midwest oil hub, ultimately giving bitumen harvested in Canada a new route to Gulf Coast refineries.

Environmentalists quickly cheered the EPA’s assessment, saying it gives the Obama administration new ammunition to reject the project.

Bill McKibben, co-founder of 350.org, and a leading opponent of the project, praised the EPA’s “knife-sharp comments.”

“The president’s got every nail he needs to finally close the coffin on this boondoggle,” McKibben said.

The Natural Resources Defense Council also issued a statement saying the EPA’s comments pave the way for the president to reject Keystone XL.

But some energy insiders weren’t convinced. Kevin Book, managing director of ClearView Energy Partners, said in a research note that the general tenor of the EPA’s comments were “positive” — “particularly when compared to comments the agency has provided regarding other infrastructure projects.”

In addition to raising oil price concerns, the EPA emphasized the State Department’s conclusion that the bitumen extracted from Canada’s oil sands have a higher carbon footprint than alternative crudes.

“Until ongoing efforts to reduce greenhouse gas emissions associated with the production of oil sands are more successful and widespread. . . development of oil sands crude represents a significant increase in greenhouse gas emissions,” Giles said.

TransCanada spokesman Shawn Howard emphasized that the emissions intensity for crudes derived from the oil sands are going down — a trend documented in the State Department’s environmental analysis last year.

Because there are more than 100 blends or grades of crude oils transported and refined in North America, there is no “average crude oil” with which to compare the bitumen or diluted bitumen coming out of Alberta, Howard added. “When we look at the types of oils that Keystone XL will displace — from Mexico, Venezuela and other international sources — the Canadian and American oils produce similar or often lower greenhouse gas emissions.”

The EPA’s comments could prompt the State Department to revise its environmental analysis before issuing a final decision on Keystone XL.

It is not clear whether the Interior Department filed a written recommendation to the State Department. But Interior Secretary Sally Jewell said Monday it has highlighted fears about tribal consultations and the Bureau of Reclamation’s concerns about protecting rural water infrastructure in the pipeline’s path.

“The Department of the Interior encouraged the State Department to give appropriate consideration to comments previously submitted during the Keystone XL permit review process as well as concerns expressed by some tribes in Indian Country about the project,” said Interior spokeswoman Jessica Kershaw.