Keystone XL Pipeline Project: Key Issues
Paul W. Parfomak
Specialist in Energy and Infrastructure Policy
Neelesh Nerurkar
Specialist in Energy Policy
Linda Luther
Analyst in Environmental Policy
Vanessa K. Burrows
Legislative Attorney
March 4, 2011
Congressional Research Service
7-5700
www.crs.gov
R41668
CRS Report for Congress
P
repared for Members and Committees of Congress
Keystone XL Pipeline Project: Key Issues
Summary
Canadian pipeline company TransCanada has filed an application with the U.S. Department of
State to build the Keystone XL pipeline, which would transport crude oil from the oil sands
region of Alberta, Canada, to refineries in the U.S. Gulf Coast and Midwest region. Keystone XL
would have the capacity to transport 700,000 barrels a day (bpd) and can deliver crude to the oil
market hub at Cushing, OK, and further to points in Texas. The project is expected to cost
approximately $7.0 billion, of which an estimated $5.4 billion would be spent on the U.S. portion
of the pipeline. TransCanada is also planning to build a short additional pipeline so that oil from
the Bakken formation in Montana and North Dakota can be carried on the Keystone XL pipeline.
Facilities such as the Keystone XL pipeline which are intended to import oil from a foreign
country need a Presidential Permit from the State Department. Such a permit requires that the
State Department assess potential environmental consequences, through an Environmental Impact
Statement (EIS), weighing them against potential benefits of the project. The U.S. Environmental
Protection Agency (EPA) found the State Department’s draft EIS on the Keystone XL project to
be inadequate. The State Department is still reviewing comments by the EPA, other agencies, and
the public. The project may not proceed until the State Department publishes a final EIS and
issues a Record of Decision on whether or not to grant a Presidential Permit. Regardless of the
State Department’s decision, legal challenges appear likely.
Opponents to the pipeline, primarily environmental groups and affected communities along the
route, object to the project principally on the grounds that it supports “dirty” Canadian oil sands
development, that it could pose an environmental risk to groundwater, and that it promotes
continued U.S. dependency on fossil fuels. Arguments criticizing the greenhouse gas emissions of
oil sands production are based to some degree on the belief that limiting pipeline capacity to U.S.
markets may limit output from Canada’s oil sands.
Proponents of the Keystone XL pipeline, including Canadian agencies and petroleum industry
stakeholders, point to energy security and economic benefits, such as job creation. Some contend
that the Keystone XL project secures growing Canadian oil supplies for the U.S. market, which
could offset imports from other, less dependable foreign sources. They also claim that if oil sands
output cannot flow to the United States, infrastructure to export it to Asia will develop. Further,
having recently permitted the original Keystone pipeline, the State Department could face a
consistency challenge if it were to come to a different conclusion on similar environmental issues
for the Keystone XL permit.
International pipeline projects like Keystone XL are not subject to the direct authority of
Congress, but numerous Members of Congress have expressed support for, or opposition to, the
pipeline proposal because of its potential environmental, energy security, and economic impacts.
Congress may have an oversight role to play stemming from federal environmental statutes that
govern the pipeline’s application review process.
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Keystone XL Pipeline Project: Key Issues
Contents
Introduction ................................................................................................................................ 1
Pipeline Description and Status ............................................................................................. 2
Keystone XL Extension to Bakken Oil Production .......................................................... 3
Required Federal Permit Approval ........................................................................................ 3
Environmental Impact Statement..................................................................................... 4
Environmental Protection Agency Rating ........................................................................ 5
State Siting and Environmental Approvals............................................................................. 6
Arguments For and Against the Pipeline...................................................................................... 6
Impact on U.S. Energy Security ............................................................................................ 6
Canadian Oil Imports in the Overall U.S. Supply Context ............................................... 7
Impact of Increased Oil Sands Crude Supply to the United States .................................... 9
Economic Impact of the Pipeline......................................................................................... 11
Canadian Oil Sands Environmental Impacts ........................................................................ 11
Possible Risks to the Ogallala Aquifer ................................................................................. 12
Fossil Fuels Dependence ..................................................................................................... 13
Consistency of State Department Review .................................................................................. 14
Figures
Figure 1. TransCanada Keystone Pipeline System Routes ............................................................ 2
Figure 2. U.S. Oil Imports, Selected Sources ............................................................................... 8
Figure 3. Total U.S. Oil Imports .................................................................................................. 9
Figure 4. Keystone XL Pipeline Route Across the Ogallala Aquifer ........................................... 13
Appendixes
Appendix. Presidential Permitting Authority ............................................................................. 15
Contacts
Author Contact Information ...................................................................................................... 16
Congressional Research Service
Keystone XL Pipeline Project: Key Issues
Introduction
In September 2008, TransCanada (a Canadian company) applied to the U.S. Department of State
for a permit to cross the U.S.-Canada international border with the Keystone XL pipeline project.
If constructed, the pipeline would carry crude oil produced from the oil sands region of Alberta,
Canada, to U.S. Gulf Coast refineries. Some Members of Congress have expressed support for the
proposed pipeline’s energy security and economic benefits while others have expressed
reservations about environmental impacts. Though Congress has no direct role in permitting its
construction,1 it may have an oversight role to play stemming from federal environmental statutes
that govern the pipeline’s application review process.
This report describes the Keystone XL pipeline proposal and the process required for federal
approval. It summarizes key arguments for and against the pipeline put forth by the pipeline’s
developers, federal agencies, environmental groups, and other stakeholders. The report discusses
potential consistency challenges faced by the State Department in reviewing the pipeline
application given its recent prior approvals of similar pipeline projects. Finally, the report reviews
the constitutional basis for the State Department’s authority to issue a Presidential Permit, and
opponents’ possible challenges to this authority.
Keystone XL would have the capacity to transport 700,000 barrels a day (bpd) and will deliver
crude to the oil market hub at Cushing, Oklahoma and further to points in Texas. The project is
expected to cost approximately $7.0 billion, of which $5.4 billion would be spent on the U.S.
component of the pipeline. The project would be an expansion of TransCanada’s
existing Keystone pipeline, which delivers oil from the oil sands region to the U.S. Midwest.
Keystone received approval from the U.S. Department of State in March 2008 and began
operation in June 2010.
Ordinarily, the U.S. federal government does not have permitting authority for oil pipelines,
but the Keystone and Keystone XL pipeline cross the U.S. border, and thus require a Presidential
Permit issued through the State Department. Under the National Environmental Policy Act
(discussed below) federal agencies must assess the environmental impacts of their proposed
actions, in this case permitting a pipeline border crossing, which can require the preparation of an
Environmental Impact Statement (EIS). The State Department’s EIS is subject to review by the
Environmental Protection Agency (EPA). The EPA found the State Department’s draft EIS on
Keystone XL to be inadequate. The State Department is still reviewing comments submitted by
the EPA, other agencies, and the public. The project may not proceed until the State Department
publishes a final EIS and issues a Record of Decision denying or recommending the Presidential
Permit. After that point, legal challenges against the State Department’s permit approval may
move forward, a move that opposition groups appear likely to make if Keystone XL receives its
permit. Apart from obtaining the border crossing permit, TransCanada must also satisfy several
state permitting authorities. State approvals are at various stages of progress for Keystone XL.
1 See, for example, U.S. Senator Max Baucus, Letter to Secretary of State Hillary Rodham Clinton, September 10,
2010, http://baucus.senate.gov/?p=press_release&id=179; U.S. Representative Henry A. Waxman, Letter to Secretary
of State Hillary Rodham Clinton, July 2, 2010, http://democrats.energycommerce.house.gov/documents/20100706/
State.070210.Clinton.Keystone.XL.pdf.
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Keystone XL Pipeline Project: Key Issues
Pipeline Description and Status
The U.S. portion of the Keystone XL pipeline project would pass through Montana, South
Dakota, Nebraska, Oklahoma, and Texas (Figure 1). The pipeline would consist of approximately
1,380 miles of 36-inch-diameter pipe and have the capacity to transport 700,000 barrels per day
(bpd) of crude oil to the United States, delivering crude to an existing oil terminal in Oklahoma
and further to points in Texas. By increasing its pumping capacity in the future, the pipeline could
ultimately transport up to 900,000 bpd.2
Figure 1. TransCanada Keystone Pipeline System Routes
Source: TransCanada, Inc., Keystone Pipeline System, May 2010,
http://www.transcanada.com/docs/Key_Projects/keystone_may_2010.pdf.
Note: Figure 1 shows the preferred alternative for the Keystone XL pipeline
route according to Presidential Permit application documents. For discussion
of alternative routes, see the State Department EIS discussed below.
The Keystone XL project is expected to cost approximately $7.0 billion, with the U.S. portion
accounting for approximately $5.4 billion of that total.3 The Keystone XL pipeline would be an
extension of TransCanada’s existing Keystone pipeline, which links the Alberta oil sands to
2 U.S. Department of State, Draft Environmental Impact Statement for the Keystone XL Oil Pipeline Project, April 16,
2010. p. ES-2.
3 TransCanada Keystone Pipeline, L.P., Application of TransCanada Keystone Pipeline L.P. for a Presidential Permit
Authorizing the Construction, Operation, and Maintenance of Pipeline Facilities for the Importation of Crude Oil to be
Located at the United States-Canada Border, U.S. Dept. of State, September 19, 2008, p. 10,
http://www.keystonepipeline-xl.state.gov/clientsite/keystonexl.nsf/presidentialpermitapplication.pdf?
OpenFileResource.
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Keystone XL Pipeline Project: Key Issues
refineries in Illinois and Oklahoma (Figure 1). The Keystone pipeline received State Department
approval on March 17, 2008, and began commercial operation in June 2010.
Keystone XL Extension to Bakken Oil Production
The Bakken formation is an unconventional oil resource in the Williston Basin, which underlies
parts of North Dakota, eastern Montana, and northwestern South Dakota.4 Current Bakken
production is around 350,000 bpd, much of which is currently taken away by rail and truck.5 In
part, this is because infrastructure has not kept up with rapid production growth in the Bakken
region in recent years. Output is expected to increase significantly in the future.6
TransCanada has signed contracts with Bakken oil producers to carry 65,000 bpd from the region
via the Keystone XL pipeline. While not the full 100,000 bpd TransCanada had offered, this was
enough to justify the Bakken Marketlink Project, a pipeline running from Baker, MT, to the
Keystone XL pipeline, which can then carry crude to the oil hub at Cushing, OK, and on to the
Gulf Coast.7 The Bakken Marketlink would have a 100,000 bpd capacity and is estimated to cost
$140 million. It could start operating in 2013 if it and the Keystone XL pipeline receive
regulatory approvals.8
These new Bakken contracts also improve the economics for Keystone XL, raising its committed
capacity from 75% to near 90%.9 Lower transportation costs and access to new markets may
support investment in the Bakken. And TransCanada is not the only company adding pipeline
capacity. Notably, Enbridge, another Canadian pipeline company, is building a 145,000 b/d
pipeline in the same time frame. According to Enbridge, sufficient pipeline capacity has been
slow to emerge in the region because “they’re smaller players in the Bakken. They are not able to
make the 20-year commitments and it’s been a lot of work to get them to commit to the level that
[is] required to underwrite a major project out of the Bakken.”10
Required Federal Permit Approval
Ordinarily, the U.S. government does not have permit authority for oil pipelines, even interstate
pipelines. This is in contrast to interstate natural gas pipelines, which, under Section 7(c) of the
Natural Gas Act, must obtain a “certificate of public convenience and necessity” from the Federal
Energy Regulatory Commission (FERC).11 However, because the Keystone and proposed
4 Steven G. Grape, Technology-Based Oil and Natural Gas Plays: Shale Shock! Could There Be Billions in the
Bakken?, Energy Information Administration, U.S. Department of Energy, November 2006, http://www.eia.doe.gov/
pub/oil_gas/natural_gas/feature_articles/2006/ngshock/ngshock.pdf.
5 Nathan Vanderklippe, “TransCanada to move U.S. crude through Keystone,” The Globe and Mail, January 26, 2011.
6 Energy Information Administration, U.S. Department of Energy, Annual Energy Outlook 2011 Early Release,
December 16, 2010, p. 8, http://www.eia.gov/forecasts/aeo/pdf/0383er(2011).pdf.
7 Jeffrey Jones, “TransCanada plans U.S. Bakken pipeline link,” Reuters, January 20, 2011.
8 TransCanada, “TransCanada to Transport U.S. Crude Oil to Market Bakken Open Season a Success,” press release,
January 11, 2011, http://www.transcanada.com/5631.html.
9 Vanderklippe, 2011.
10 Lauren Krugel, “TransCanada attracts support for Montana-to-Oklahoma crude pipeline,” The Canadian Press,
January 20, 2011.
11 15 USC § 717f(c).
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Keystone XL Pipeline Project: Key Issues
Keystone XL pipelines both are designed for the importation of oil from another country, their
facilities at the border require a Presidential Permit from the Department of State under Executive
Order 13337 (69 Fed. Reg. 25299) as amended, and Department of State Delegation of Authority
No. 118-2 of January 26, 2006. The source of Permitting Authority for E.O. 13337 is discussed
further in the Appendix.
Environmental Impact Statement
Among other requirements, State Department review of an application for a Presidential Permit
requires the completion of an Environmental Impact Statement (EIS) in accordance with the
National Environmental Policy Act of 1969 (NEPA, 42 U.S.C. §§ 4321-4370f),12 Section 7 of the
Endangered Species Act (16 U.S.C. 1536), and other federal environmental statutes. In complying
with NEPA, the State Department must meet two aims—it must consider the environmental
impacts of the project before proceeding with it; and it must inform the public both that it has
considered environmental concerns in its decision-making process and that it has decided upon a
final action. The State Department, as the “lead agency” under NEPA, is required to get input
from any local, state, tribal or federal agency that has jurisdiction by law or special expertise
regarding any environmental impact involved in the project (referred to as “cooperating
agencies”).13
To document the decision-making process, the EIS must include a statement of the purpose and
need for action by the agency (i.e., application for a Presidential Permit), a description of all
reasonable alternatives to meet that purpose and need, a description of the environment to be
affected by the alternatives under consideration, and an analysis of the impacts to each
environment identified. The EIS must also take into consideration the cumulative impacts of the
project. Preparation of the EIS is done in two stages, resulting in a draft and a final EIS.14 The
final EIS should respond to any cooperating agency comments and address any inadequacies in
the draft EIS. A supplemental draft EIS may be required if the draft EIS is determined to need
substantial changes.
In issuing the final EIS, the State Department is not required to elevate environmental concerns
above others, such as energy supply security or economic impacts. Instead, NEPA requires only
that the agency assess the environmental consequences of an action and its alternatives before
proceeding. If the adverse environmental effects of the proposed action are adequately identified
and evaluated, the State Department is not constrained by NEPA from deciding that other benefits
outweigh the environmental costs and moving forward with the action.
The State Department released for public comment a draft EIS for the proposed Keystone XL
Pipeline Project on April 16, 2010 (75 Fed. Reg. 75). The public comment period for the draft
EIS officially closed on July 2, 2010. Executive Order 13337 also directs the Secretary of State to
refer an application for a Presidential Permit to other specifically identified federal departments
and agencies on whether granting the application would be in the national interest. The State
12 The requirement to obtain a Presidential Permit makes the pipeline project a “federal action” subject to NEPA. The
federal agency taking that action is required to determine the environmental impacts of the project pursuant to NEPA’s
requirements.
13 40 C.F.R. § 1508.5.
14 40 C.F.R. § 1502.9.
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Keystone XL Pipeline Project: Key Issues
Department formally solicited the views of those agencies on June 16, 2010, requesting a
response by September 15, 2010.15
Environmental Protection Agency Rating
In addition to its potential role as a cooperating agency in the EIS process, the Environmental
Protection Agency (EPA) is required to review the EIS itself to rate its adequacy and to rate a
project’s environmental impacts—from “lack of objections” to “environmentally
unsatisfactory.”16 The State Department would be required to respond to EPA’s rating of the EIS
and its assessment of the environmental impacts of the project. Generally, if the EIS or the
environmental impacts of a project need additional attention, EPA will provide the lead agency
with detailed guidance on how to address the concerns. The lead agency would then be required
to respond to those concerns.
On July 16, 2010, EPA issued its rating of the draft EIS for the pipeline project. It determined that
the EIS was “inadequate” and identified a host of potential environmental impacts that had not
been sufficiently addressed.17 Among other concerns, EPA determined that the purpose and need
of the project had been too narrowly crafted, that impacts to air and water quality were not fully
analyzed, and that pipeline safety procedures were inadequate. Given the extent of EPA’s
concerns, the State Department may issue a revised draft EIS or a supplemental draft EIS, instead
of a final EIS. In addition to EPA and other cooperating agency comments, the State Department
is currently reviewing public comments on the draft EIS and has not yet decided whether it will
issue a supplemental draft EIS or a final EIS.18
When a final EIS is issued and all related public and agency comments are considered, the State
Department will render its decision regarding the permit application. That decision will be
documented in a public Record of Decision (ROD). Under NEPA, once the State Department
issues the ROD, it may issue the Presidential Permit and the pipeline project may proceed, as long
as approvals from relevant states are received and other statutory requirements are met. It is also
after the ROD is issued that any legal challenges to the NEPA process may occur. Any element of
the State Department’s NEPA compliance may be challenged. Statements made by stakeholders
opposed to the project indicate that challenges to the department’s NEPA compliance may include
charges that State Department officials did not consider all reasonable alternatives to meet their
stated goals; that environmental impacts, including cumulative impacts, of the pipeline were not
fully considered; or that the public was not provided sufficient opportunity for input. Another
possible NEPA challenge relates to public statements made by Secretary Clinton in October 2010
that she was “inclined to” approve the pipeline. At the time, environmental groups charged that
this statement indicated that a final decision had been made, before the NEPA process was
complete.19
15 For more information about oil sands and their environmental impacts, see CRS Report RL34258, North American
Oil Sands: History of Development, Prospects for the Future, by Marc Humphries.
16 For more information on EPA’s role in the NEPA process, see EPA’s “Environmental Impact Statement (EIS) Rating
System Criteria” at http://www.epa.gov/compliance/nepa/comments/ratings.html.
17 EPA’s comments on the draft EIS for the Keystone XL Pipeline are available online at http://yosemite.epa.gov/oeca/
webeis.nsf/%28PDFView%29/20100126/$file/20100126.PDF.
18 The Honorable Hillary Rodham Clinton, U.S. Secretary of State, Letter to U.S. Senator Michael Johanns, January 6,
2011.
19 This issue was reported by various media outlets, including a Washington Post article by Josh Funk, “Groups Ask
(continued...)
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State Siting and Environmental Approvals
In the absence of federal government siting authority (apart from the border crossing), state laws
establish the primary siting authority for the Keystone XL pipeline. These laws vary from state to
state. South Dakota, for example, required TransCanada to apply for a permit for the Keystone
XL pipeline from the state public utility commission, which issued the permit on April 25, 2010.20
Montana requires a certificate from the state’s Department of Environmental Quality, but has not
yet granted one for the Keystone XL project. Nebraska does not appear to have any permitting
requirements that apply specifically to the construction and operation of oil pipelines, although a
state statute does include an “eminent domain” provision, which grants eminent domain authority
to oil pipeline companies that are unable to obtain the necessary property rights from the relevant
property owners.21 A number of additional state and environmental approvals and permits
required by the states along the proposed route are summarized in TransCanada’s Presidential
Permit application.22 All of the aforementioned state approvals are in various stages of review
along the proposed Keystone XL pipeline route.
Arguments For and Against the Pipeline
Proponents of the Keystone XL pipeline, including Canadian agencies and U.S. and Canadian
petroleum industry stakeholders, base their positions primarily on increasing the diversity of the
U.S. petroleum supply and economic benefits to the United States, including job creation.
Opponents, primarily environmental groups and affected communities along the route, object to
the project principally on the grounds that Canadian oil sands development has negative
environmental impacts and that it promotes continued U.S. dependency on fossil fuels. These
issues are further discussed below.
Impact on U.S. Energy Security
In its Presidential Permit application, TransCanada asserts that constructing the proposed
Keystone XL pipeline is in the U.S national interest to maintain adequate crude oil supplies for
U.S. refineries. The application argues that the pipeline will allow U.S. refiners to substitute
Canadian supply for other foreign crude supply and to obtain direct pipeline access to secure and
growing Canadian crude output. In particular, the application asserts that the pipeline would allow
the United States to decrease its dependence on foreign crude oil supplies from Mexico and
Venezuela, the two largest oil importers into the U.S. Gulf Coast.23 In its draft EIS for the project,
(...continued)
Clinton to Recuse Self on Pipeline Bid,” November 4, 2010, available online at http://www.washingtonpost.com/wp-
dyn/content/article/2010/11/04/AR2010110403545.html.
20 South Dakota Public Utilities Commission, Final Decision and Order; Notice of Entry Before the Public Utilities
Commission of the State of South Dakota, In the Matter of the Application by Transcanada Keystone Pipeline, LP for a
Permit Under the South Dakota Energy Conversion and Transmission Facilities Act to Construct the Keystone Pipeline
Project, HP07-001, http://puc.sd.gov/commission/orders/HydrocarbonPipeline/2008/hp07-001.pdf.
21 Neb. Rev. Stat. § 57-1101.
22 TransCanada Keystone, L.P., Keystone XL Project: Preliminary Environmental Report, September 2008, Table 7,
http://www.keystonepipeline-
xl.state.gov/clientsite/keystonexl.nsf/preliminaryenvironmentalreport.pdf?OpenFileResource.
23 TransCanada Keystone Pipeline, L.P., September 19, 2008, pp. 6-8.
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Keystone XL Pipeline Project: Key Issues
the State Department similarly finds that the Keystone XL pipeline “would counteract insufficient
domestic crude oil supply while reducing U.S. dependence on less reliable foreign oil sources.”24
These arguments have taken on additional weight in light of the ongoing political unrest in the
Middle East, which has disrupted oil production in Libya, a significant oil exporter, and has
caused a spike in global crude oil prices.
Canadian Oil Imports in the Overall U.S. Supply Context
Gross U.S. imports of crude oil and petroleum products have averaged 11.7 million barrels a day
(Mb/d) over the last 12 months.25 Exports averaged 2.2 Mb/d, leaving net imports at 9.5 Mb/d.26
U.S. imports declined each year between 2005 and 2010 as a result of lower total oil demand and
higher domestic supply. Domestic demand has decreased by about 1.7 Mb/d versus 2005 levels
due largely to the economic recession. Meanwhile, U.S. production of oil and oil alternatives
(including crude oil, natural gas liquids, and biofuels) has increased by 1.4 Mb/d since 2005. As a
result, net imports fell by roughly 3.1 Mb/d since 2005.27 This decline could be mitigated in the
near term as oil demand recovers from the recession or if domestic supply were to fall. However,
there is increasing consensus among forecasters that U.S. net oil imports have passed their high
water mark already and may remain relatively flat in the long run after the economic recovery.
Among the largest sources of U.S. gross oil imports are Canada (2.5 Mb/d), Mexico (1.2 Mb/d),
and Venezuela (1.0 Mb/d). Imports from the last two have decreased in recent years (Figure 2).
Mexican production peaked in 2004 and has fallen by about 0.9 Mb/d since then because new
projects have not been able to offset depletion at Mexico’s giant Cantarell field. Venezuelan
production never fully recovered after a strike at its national oil company, Petróleos de Venezuela,
in 2002-2003. Venezuelan production today is nearly 1 Mb/d less than that achieved in 2001. In
both countries, policies on private investment and a broad set of priorities—some of which are
non-commercial—for national oil companies have made sustaining or increasing output difficult.
In addition, Venezuela has been trying to diversify its export markets away from the United
States, for example, by increasing exports to China.28 Oil imports to the United States from the
Persian Gulf have also decreased since 2008-2009. All major Persian Gulf exporters to the United
States are members of the Organization of the Petroleum Exporting Countries (OPEC), which cut
production in 2009. Venezuela is also an OPEC member, but according to U.S. Energy
Information Administration (EIA) data, it did not join other members in voluntarily reducing
output.
24 U.S. Department of State, April 16, 2010. p. 4-2.
25 All data in this section are from the U.S. Energy Information Administration’s (EIA’s) Petroleum Navigator
(http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_m.htm) and International Energy Statistics
(http://tonto.eia.doe.gov/cfapps/ipdbproject/IEDIndex3.cfm).
26 For context, the United States consumes roughly 19 Mb/d, more than 20% of the world’s oil market.
Net imports are gross or total imports less total exports. This section will focus on gross imports, though it should be
noted that among U.S. petroleum exports about 0.2 Mb/d of petroleum products go to Canada and 0.4 Mb/d to Mexico.
27 These data are based on full year 2010 estimates provided by the EIA’s Short Term Energy Outlook (STEO),
http://www.eia.doe.gov/emeu/steo/pub/contents.html. The STEO provides a balance of U.S. supply and demand.
28 U.S. Energy Information Administration, “Country Analysis Brief: Venezuela,” February 2010,
http://www.eia.doe.gov/emeu/cabs/Venezuela/Oil.html.
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Figure 2. U.S. Oil Imports, Selected Sources
Gross imports, Mb/d
2005
Last 12 Months
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Persian Gulf
Venezuela
Canada
Mexico
Source: U.S. Energy Information Administration, “Petroleum Navigator: U.S. Imports by Country of Origin,” U.S.
Department of Energy, December 12, 2010. http://www.eia.gov/dnav/pet/
pet_move_impcus_a2_nus_ep00_im0_mbblpd_m.htm.
Notes: Last 12 months of available data history runs from November 2009 to October 2010.
While Mexican and Venezuelan oil production has decreased, Canadian production has increased,
primarily due to growing production from the Alberta oil sands region. Because production from
Canada’s oil sands currently lacks the infrastructure to be exported from Canada’s west coast,
increased oil sands output is necessarily directed south into the United States through existing and
planned pipeline infrastructure, including the Keystone pipeline. Canadian production has
increased about 0.2 Mb/d since 2005, and exports to the United States increased by 0.4 Mb/d
(Figure 3).29
29 As in the United States, Canadian consumption fell due to economic downturn. This allowed the increment in exports
to be higher than the increment in production.
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Figure 3. Total U.S. Oil Imports
Monthly imports in Mb/d on a 12 month moving average, Jan. 2000 to Oct. 2010
14
12
Other
10
8
Mexico
6
Venezuela
4
Persian Gulf
2
Canada
0
2000
2002
2004
2006
2008
2010
Source: U.S. Energy Information Administration, “Petroleum Navigator: U.S. Imports by Country of Origin,”
December 12, 2010. http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbblpd_m.htm.
Impact of Increased Oil Sands Crude Supply to the United States
Oil sands (also referred to as tar sands) are a mixture of clay, sand, water, and heavy black
viscous oil known as bitumen. Oil sands are processed to extract the bitumen, which can then be
upgraded into “syncrude” that is suitable for pipeline transport. Canada’s oil sands production is
expected to be exported as either a light, upgraded synthetic crude or a heavy crude oil that is a
blend of bitumen diluted with lighter hydrocarbons to ease transport. The bulk of oil sands supply
growth is expected to be in the form of the latter.30 Most oil sands imports into the United States
currently go to the Midwest, where some refineries are investing in complex refining capacity to
process growing volumes of heavy Canadian crude.31 The U.S. Gulf Coast region already has a
large amount of complex refining capacity and is considered to be potentially well suited for
processing Canadian heavy crude oil.32 Gulf Coast refiners currently process heavy crudes from
Venezuela, Mexico, and elsewhere. Complex refineries in the Gulf Cost may be best equipped to
handle a large increase of heavy oil sands crude, though they will still need to adjust processes
and make new capital investments in equipment to accommodate particular crudes’
characteristics,33 especially if the new Canadian crudes will be used in large amounts.34
30 Canadian Association of Petroleum Producers (CAPP), Crude Oil: Forecast, Markets, and Pipelines, June 2010, p.
7, http://www.capp.ca/getdoc.aspx?DocId=173003.
31 CAPP, 2010, p. 13. According to CAPP, refineries adding capacity to process heavy oil in the Midwest include those
in Roxana, IL; Whiting, IN, and Detroit, MI.
32 CAPP, 2010, p. 14.
33 Baker Hughes, Planning Ahead for Effective Canadian Crude Processing, Baker Petrolite White Paper, 2010,
http://www.bakerhughes.com/assets/media/whitepapers/4c2a3c8ffa7e1c3c7400001d/file/28271-
canadian_crudeoil_update_whitepaper_06-10.pdf.pdf&fs=1497549.
34 For a description of which units refineries may need to add (or have added) to be able to process more Canadian oil
sands supply, see Praveen Gunaseelan and Christopher Buehler, “Changing US Crude Imports Are Driving Refinery
Upgrades,” Oil and Gas Journal, August 10, 2009.
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With expanded pipeline capacity, Canadian supplies are expected to compete with other heavy
crudes such as those from Mexico, Venezuela, and elsewhere.35 It is difficult to predict precisely
how this competition will play out, but it may take place through shifting discounts or premiums
on crude oils from various sources.36 Because oil sands output can be transported only to
Canadian and U.S. refiners currently, it could be possible for Canadian oil supplies to effectively
“push out” waterborne shipments from other countries, although this depends on a wide range of
market conditions. Waterborne crudes may more easily go to other destinations than Canadian
crudes, though like Canadian crudes they can be tied to specialized refining capacity, as is true for
Venezuelan heavy crudes.
Although Canada currently lacks pipeline capacity to transport oil sands production to the Pacific
coast, there has been some interest in building such capacity. If this were to occur, Canadian
crudes could access other markets by sea, especially in Asia, and would no longer be as tied to the
United States. The commercial viability of such pipelines is unclear, but some have claimed a
western pipeline could be economic if greater U.S. shipments were not possible. 37 Indeed, a study
commissioned by the Department of Energy concluded that
if pipeline projects to the BC [British Columbia] coast are built, they are likely to be utilized.
This is because of the relatively short marine distances to major northeast Asia markets,
future expected growth there in refining capacity and increasing ownership interests by
Chinese companies especially in oil sands production. Such increased capacity would alter
global crude trade patterns. Western Canadian Sedimentary Basin (WCSB) crudes would be
“lost” from the USA, going instead to Asia. There they would displace the world’s balancing
crude oils, Middle Eastern and African predominantly OPEC grades, which would in turn
move to the USA. The net effect would be substantially higher U.S. dependency on crude
oils from those sources versus scenarios where capacity to move WCSB crudes to Asia was
limited.38
Crude oil prices are generally set in a global market. Increased supply from anywhere can,
therefore, contribute to keeping oil prices lower than they would otherwise be, all other things
being equal. Accordingly, building any new pipeline can lower the cost of oil and oil products in
associated markets if (1) it enables lower transport or refining costs and (2) not building the
pipeline would reduce global supply. The latter assumes that without the pipeline, resources
would be left stranded. Some have argued that Canadian oil sands production would be the same
regardless of whether the Keystone XL pipeline is built.39 Then, the pipeline itself may not make
a significant contribution to increasing global oil supply. However, if an alternative transport
route to market—for instance, via a west coast pipeline and then tanker to Asia—raises transport
costs above an economic threshold, it could prevent certain marginal oil sands projects from
being built. The validity of these alternative scenarios, as in most debates about proposed energy
infrastructure projects, depends largely on complex assumptions about oil market structure and
35 Center for Energy Economics and Bureau of Economic Geology, Overview of the Alberta Oil Sands, University of
Texas at Austin, 2006, p. 16, http://www.beg.utexas.edu/energyecon/documents/overview_of_alberta_oil_sands.pdf.
36 For more about the U.S. refining system, see CRS Report R41478, The U.S. Oil Refining Industry: Background in
Changing Markets and Fuel Policies, by Anthony Andrews, Robert Pirog, and Molly F. Sherlock.
37 Edward Welsch, “TransCanada: Oil Sands Exports Will Go to Asia if Blocked in U.S.,” Dow Jones Newswires, June
30, 2010.
38 EnSys Energy & Systems, Inc., Keystone XL Assessment: Final Report, Prepared for the U.S. Department of Energy,
Office of Policy & International Affairs, December 23, 2010, p. 118.
39 Welsh 2010; EnSys Energy & Systems 2010.
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economics about which fair-minded analysts may disagree. Consequently, stakeholders evaluating
the oil supply and price impacts of the proposed Keystone XL Pipeline may need to rely on their
own judgment based on the best facts available at the time.
Economic Impact of the Pipeline
In addition to supply diversity arguments, some Keystone XL pipeline proponents support the
project based on economic benefits associated with expanding U.S. pipeline infrastructure. A
recent study by the Energy Policy Research Foundation, for example, concludes that “the
Keystone expansion would provide net economic benefits from improved efficiencies in both the
transportation and processing of crude oil of $100 million-$600 million annually, in addition to an
immediate boost in construction employment.”40 A 2009 report from the Canadian Energy
Research Institute (CERI) commissioned by the American Petroleum Institute similarly concludes
that
As investment and production in oil sands ramps up in Canada, the pace of economic activity
quickens and demand for US goods and services increase rapidly, resulting in an estimated
343 thousand new US jobs between 2011 and 2015. Demand for US goods and services
continues to climb throughout the period, adding an estimated $34 billion to US GDP in
2015, $40.4 billion in 2020, and $42.2 billion in 2025.41
These CERI estimates apply to the entire oil sands industry, however, not only the Keystone XL
project, and they are derived from a proprietary economic analysis which has not been subject to
external review. Some stakeholders point to State Department and other studies reporting much
lower anticipated economic benefits.42 Consequently, it is difficult to determine what specific
economic and employment impacts may ultimately be attributable to the Keystone XL pipeline.
Nonetheless, given the physical scale of the project, it could be expected to increase employment
and investment at least during construction.
Canadian Oil Sands Environmental Impacts
Oil production from oil sands is controversial because it has significant environmental impacts,
including emissions of greenhouse gases during extraction and processing, disturbance of mined
land, and impacts on wildlife and water quality. Because bitumen in oil sands cannot be pumped
from a conventional well, it must be mined, usually using strip mining or open pit techniques, or
the oil can be extracted with underground heating methods.43 Large amounts of water and natural
gas are also required (for heating) during the extraction process.44 The magnitude of the
environmental impacts of oil sands production, in absolute terms and compared to conventional
40 Energy Policy Research Foundation, Inc., The Value of the Canadian Oil Sands (….to the United States): An
Assessment of the Keystone Proposal to Expand Oil Sands Shipments to Gulf Coast Refiners, Washington, DC,
November 29, 2010, p. 2, http://www.eprinc.org/pdf/oilsandsvalue.pdf.
41 Canadian Energy Research Institute, The Impacts of Canadian Oil Sands Development on the United States’
Economy, Final Report, Calgary, Alberta, October 2009, p. vii.
42 National Wildlife Federation, “TransCanada Exaggerating Jobs Claims for Keystone XL,” November 9, 2010,
http://www.dirtyoilsands.org/files/Keystone_XL_Jobs_11-09-10.pdf.
43 U.S. Bureau of Land Management, “About Tar Sands,” web page, January 11, 2011, http://ostseis.anl.gov/guide/
tarsands/index.cfm.
44 Cecilia Jamasmie, “The Challenges and Potential of Canada’s Oil Sands,” Mining, September-October 2010, pp. 7-8.
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oil production, has been the subject of numerous, and sometimes conflicting, studies and policy
papers.45 Some stakeholders who object to oil sands projects oppose the Keystone XL pipeline
because it expands access to new markets for the oil produced by those projects, thereby
encouraging what they consider to be further environmentally destructive oil sands development.
As discussed earlier, however, if oil sands production can be diverted to other markets (e.g.,
Asia), preventing the Keystone XL project may not necessarily limit oil sands development. 46
Possible Risks to the Ogallala Aquifer
The proposed route of the Keystone XL pipeline passes across significant portions of the Ogallala
Aquifer (Figure 4), one of the world’s largest known aquifers and the primary source of
groundwater for approximately 20% of U.S. agricultural production.47 Because the aquifer is
relatively close to the surface, some stakeholders are concerned that a release from the pipeline
could potentially contaminate the aquifer with oil, jeopardizing its use for farming and drinking
water and causing significant ecosystem damage. These concerns have been heightened in the
wake of the 2010 spill from an Enbridge oil pipeline in Marshall, MI, which released 819,000
gallons of crude into a tributary of the Kalamazoo River. Furthermore, a recent report by the
Natural Resources Defense Council (NRDC) argues that the Keystone XL pipeline could be more
likely to fail and cause environment damage than other crude oil pipelines because the bitumen
mixture it would carry is “significantly more corrosive to pipeline systems than conventional
crude,” among other reasons.48 Canadian officials and other stakeholders have rejected these
arguments, however, citing factual inaccuracies and a flawed methodology in the analysis, which
compares pipeline spill rates in Canada to those in the United States.49
In its draft EIS for the Keystone XL pipeline project, the State Department states that “there is the
possibility that a release could migrate through the overlying surface materials and enter a
groundwater system.”50 Nonetheless, the department concludes that “the probability of a large
spill occurring is very low, and, consequently, risk of environmental impacts is minimal.”51
Because the probability of a pipeline spill and subsequent groundwater contamination cannot be
known with certainty, however, debate as to the groundwater risk potentially posed by the
Keystone XL pipeline will likely continue.
45 For an example of contrasting views, see IHS CERA Inc., Oil Sands, Greenhouse Gases, and US Oil Supply, Getting
the Numbers Right, 2010; and Natural Resources Defense Council, “Setting the Record Straight: Lifecycle Emissions
of Tar Sands,” November 2010.
46 For more information about oil sands and their environmental impacts, see CRS Report RL34258, North American
Oil Sands: History of Development, Prospects for the Future, by Marc Humphries.
47 Jane Braxton Little, “The Ogallala Aquifer: Saving a Vital U.S. Water Source,” Scientific American, March 30, 2009.
48 Anthony Swift, Susan Casey-Lefkowitz, and Elizabeth Shope, Tar Sands Pipelines Safety Risks, Natural Resources
Defense Council, February 2011, p. 6.
49 Canadian Energy Resources Conservation Board, “ERCB Addresses Statements in Natural Resources Defense
Council Pipeline Safety Report,” Press release, Calgary, Alberta, February 16, 2011.
50 U.S. Department of State, Draft Environmental Impact Statement for the Keystone XL Oil Pipeline Project,
Appendix P, “Risk Assessment,” April 16, 2010. p. 4-6.
51 Ibid. p. 6-1.
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Figure 4. Keystone XL Pipeline Route Across the Ogallala Aquifer
Source: Natural Resources Defense Council, Say No to Tar Sands Pipeline,
November, 2010, p. 3.
Fossil Fuels Dependence
Some stakeholders object to the Keystone XL pipeline because it would increase U.S. supplies of
oil, and thereby perpetuate the nation’s dependence on imported fossil fuels and increase carbon
emissions from the transportation sector.52 Acknowledging this concern, in a public forum on
October 20, 2010, Secretary of State Clinton reportedly remarked that “we’re either going to be
dependent on dirty oil from the [Persian] Gulf or dirty oil from Canada … until we can get our act
together as a country and figure out that clean, renewable energy is in both our economic interests
and the interests of our planet.”53 Critics of the State Department’s draft EIS assert that the
environmental review overlooks the pipeline project’s overall impact on greenhouse gas
emissions, for example, from the extraction and refining processes. However, others have argued
that whether the Keystone XL Pipeline is constructed would have little bearing on greenhouse gas
emissions as there are likely to be other export routes available for Canadian oil sands crude, and
therefore, the same crude oils would still be transported and refined, albeit in different
geographies (e.g., China).54
52 See, for example: Natural Resources Defense Council, Tar Sands Invasion: How Dirty and Expensive Oil from
Canada Threatens America’s New Energy Economy, May 2010.
53 Darren Goode, “Clinton Seems Poised to Approve TransCanada Pipeline,” The Hill, October 20, 2010.
54 EnSys Energy & Systems 2010, p. 116.
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Consistency of State Department Review
In addition to the specific arguments surrounding the Keystone XL pipeline project summarized
above, the State Department faces a consistency issue in reviewing the Presidential Permit
application. As Figure 1 and Figure 4 show, the Keystone XL pipeline follows a similar route,
starting in the Alberta oil sands and crossing the Ogallala aquifer, as the earlier Keystone pipeline,
which the State Department approved. In 2009, the State Department also approved the Alberta
Clipper pipeline, designed to carry crude oil from the Alberta tar sands region to Wisconsin.
Because of its prior approvals of the Keystone and Alberta Clipper pipelines, it might be difficult
for the State Department to reach different conclusions on certain environmental issues in its
review of the Keystone XL pipeline, and reject the permit application on that basis. Doing so
could create political, and potentially legal, challenges to either its earlier environmental review,
or the current one. Some observers maintain that, in its ultimate decision whether to grant the
Keystone XL pipeline a Presidential Permit, the State Department may, to some extent, be
constrained by its recent precedents approving similar projects.
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Appendix. Presidential Permitting Authority
The Executive Branch has exercised permitting authority over the construction and operation of
“pipelines, conveyor belts, and similar facilities for the exportation or importation of petroleum,
petroleum products” and other products at least since the promulgation of Executive Order 11423
in 1968.55 Executive Order 13337 amended this authority and the procedures associated with the
review, but did not substantially alter the exercise of authority or the delegation to the Secretary
of State in E.O. 11423.56 However, the source of the Executive Branch’s permitting authority is
not entirely clear from the text of these Executive Orders. Generally, powers exercised by the
Executive Branch are authorized by legislation or are inherent presidential powers based in the
Constitution. E.O. 11423 makes no mention of any authority, and E.O. 13337 refers only to the
“Constitution and the Laws of the United Sates of America, including Section 301 of title 3,
United States Code.”57 3 U.S.C. Section 301 simply provides that the President is empowered to
delegate authority to the head of any department or agency of the executive branch.
The legitimacy of this permitting authority has been addressed by federal courts. In Sierra Club v.
Clinton,58 the plaintiff Sierra Club challenged the Secretary of State’s decision to issue a
Presidential Permit authorizing the Alberta Clipper pipeline. Among the plaintiff’s claims was an
allegation that issuance of the permit was unconstitutional because the President had no authority
to issue the permits referenced in E.O. 13337 (in this case, for the importation of crude oil from
Canada via pipeline).59 The defendant responded that the authority to issue Presidential Permits
for these border-crossing facilities “does not derive from a delegation of congressional authority
... but rather from the President’s constitutional authority over foreign affairs and his authority as
Commander in Chief.”60 The U.S. District Court for the District of Minnesota agreed, noting that
the defendant’s assertion regarding the source of the President’s authority has been “well
recognized” in a series of Attorney General opinions, as well as a 2009 judicial opinion.61 The
court also noted that these permits had been issued many times before and that “Congress has not
attempted to exercise any exclusive authority over the permitting process. Congress’s inaction
suggests that Congress has accepted the authority of the President to issue cross-border
permits.”62 Based on the historical recognition of the President’s authority to issue these permits
and Congress’s implied approval through inaction, the court found the Presidential Permit
requirement for border facilities constitutional.
55 Providing for the performance of certain functions heretofore performed by the President with respect to certain
facilities constructed and maintained on the borders of the United States, 33 Fed. Reg. 11741 (August 16, 1968).
56 Issuance of Permits With Respect to Certain Energy-Related Facilities and Land Transportation Crossings on the
International Boundaries of the United States, 69 Fed. Reg. 25299 (May 5, 2004).
57 Ibid.
58 689 F.Supp.2d 1147 (D. Minn. 2010).
59 Ibid. at 1162.
60 Ibid.
61 Ibid. at 1163 (citing 38 U.S. Atty Gen. 162 (1935); 30 U.S. Op. Atty. Gen. 217 (1913); 24 U.S. Op. Atty. Gen. 100;
and Natural Resources Defense Council (NRDC) v. U.S. Department of State, 658 F.Supp.2d 105, 109 (D.D.C. 2009)).
The court in NRDC held that the State Department’s issuance of a presidential permit under Executive Order 13337
was not subject to judicial review under the Administrative Procedure Act for abuse of discretion because “the issuance
of presidential permits is ultimately a presidential action.” 658 F. Supp. 2d at 109, 111-12. The court said that to allow
judicial review of such decisions would raise separation of powers concerns. Ibid. at 111.
62 Ibid; see also Youngstown Sheet and Tube Co. v. Sawyer, 343 U.S. 579 (1952) (establishing a three-part test for
analyzing the validity of presidential actions in relation to constitutional and congressional authority).
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Author Contact Information
Paul W. Parfomak
Linda Luther
Specialist in Energy and Infrastructure Policy
Analyst in Environmental Policy
pparfomak@crs.loc.gov, 7-0030
lluther@crs.loc.gov, 7-6852
Neelesh Nerurkar
Vanessa K. Burrows
Specialist in Energy Policy
Legislative Attorney
nnerurkar@crs.loc.gov, 7-2873
vburrows@crs.loc.gov, 7-0831
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