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
Adam Vann
Legislative Attorney
December 12, 2011
Congressional Research Service
7-5700
www.crs.gov
R41668
CRS Report for Congress
Pr
epared for Members and Committees of Congress
Keystone XL Pipeline Project: Key Issues
Summary
In 2008, Canadian pipeline company TransCanada 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 on the U.S. Gulf Coast. Keystone XL would have the
capacity to transport 830,000 barrels per day, delivering crude oil to the market hub at Cushing,
OK, and further to points in Texas. The project is expected to cost more than $7.0 billion, of
which at least $5.4 billion would be spent on the U.S. portion. TransCanada plans to build a short
additional pipeline so that oil from the Bakken formation in Montana and North Dakota can also
be carried on Keystone XL. Many Members of Congress have expressed support or opposition to
the pipeline due to its potential environmental, energy security, and economic impacts.
As a facility connecting the United States with a foreign country, the pipeline requires a
Presidential Permit from the State Department. In granting or denying a permit application, the
State Department must determine whether a proposal is in the “national interest.” Such a
determination must be arrived at in consultation with other relevant federal agencies and after
public input. The determination includes an evaluation of factors including the proposed project’s
potential to affect the environment, economy, energy security, or foreign policy.
Potential environmental impacts of the proposed Keystone XL project were identified and
considered in an Environmental Impact Statement (EIS) prepared by the State Department
pursuant to the National Environmental Policy Act (NEPA). Publication of the final EIS on
August 26, 2011, marked the beginning of a 90-day review period for the national interest
determination. According to the State Department, a wide range of public comments both
favoring and opposing the pipeline project were received during this period. In particular, the
department cited concerns regarding the pipeline’s route through the Sand Hills region of
Nebraska, an extensive sand dune formation with highly porous soil and shallow groundwater.
On November 10, 2011, in response to concerns regarding the pipeline route and actions by the
Nebraska legislature applicable to pipeline siting, the State Department announced a delay in its
national interest determination to gather additional information necessary to assess a new pipeline
route avoiding the Sand Hills. On November 14, 2011, TransCanada announced its decision to
work with the Nebraska Department of Environmental Quality to identify an acceptable pipeline
route around the Sand Hills. The State Department estimates that the preparation of supplemental
environmental analysis necessary for a new route alternative may be complete in early 2013.
International pipeline projects like Keystone XL are not subject to the direct authority of
Congress. Nonetheless, several legislative proposals seek to impose deadlines on the permit
process or require a permit to be issued. The Jobs Through Growth Act (H.R. 3400) would require
the President to issue a final order granting or denying the Presidential Permit for the Keystone
XL pipeline within 30 days of enactment. The North American Energy Security Act (S. 1932), the
American Energy Security Act (H.R. 3537), and the Middle Class Tax Relief and Job Creation
Act of 2011 (H.R. 3630) would require the Secretary of State to issue a permit for the project
within 60 days of enactment, unless the President publicly determines the project to be not in the
national interest. The North American Energy Access Act (H.R. 3548) would transfer the
permitting authority over the Keystone XL pipeline project from the State Department to the
Federal Energy Regulatory Commission (FERC), and would require the commission to issue a
permit for the project within 30 days of enactment.
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Keystone XL Pipeline Project: Key Issues
Contents
Introduction...................................................................................................................................... 1
Pipeline Description .................................................................................................................. 2
Keystone XL Extension to Bakken Oil Production............................................................. 4
Presidential Permit Application Requirements and Status ........................................................ 5
Identifying Environmental Impacts of the Proposed Pipeline............................................. 6
Environmental Impacts and the Determination of National Interest................................... 8
Delay in Keystone XL Pipeline Permit Review .................................................................. 9
State Siting and Environmental Approvals.............................................................................. 11
Arguments For and Against the Pipeline ....................................................................................... 12
Impacts to the Nebraska Sand Hills......................................................................................... 12
Impact on U.S. Energy Security .............................................................................................. 14
Canadian Oil Imports in the Overall U.S. Supply Context ............................................... 15
Oil Sands, Keystone XL, and the U.S. Crude Oil Market................................................. 17
Economic Impact of the Pipeline............................................................................................. 20
Canadian Oil Sands Environmental Impacts ........................................................................... 21
Fossil Fuels Dependence and Greenhouse Gas Emissions...................................................... 22
Figures
Figure 1. TransCanada Keystone Pipeline and Original Keystone XL Proposed Route ................. 3
Figure 2. Keystone XL Pipeline Route Across the Ogallala Aquifer............................................. 13
Figure 3. U.S. Changes in U.S. Oil Imports, Selected Sources ..................................................... 16
Figure 4. Gross U.S. Oil Imports ................................................................................................... 17
Appendixes
Appendix. Presidential Permitting Authority................................................................................. 23
Contacts
Author Contact Information........................................................................................................... 24
Acknowledgments ......................................................................................................................... 24
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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. Because the pipeline would connect the United States with
a foreign country, it requires a Presidential Permit issued by the State Department. Issuance of a
Presidential Permit requires a finding that the project would serve the “national interest.”
In the course of gathering information necessary to make its national interest determination, the
State Department identified various concerns raised by the public. On November 10, 2011, the
State Department announced its decision to seek additional information about alternative pipeline
routes before it could move forward with a national interest determination. More specifically,
concerns regarding potential environmental impacts of constructing and operating the pipeline
along the proposed route through the Sand Hills region of Nebraska led the State Department to
decide that an assessment of potential alternative routes that would avoid that area was necessary.
Subsequently, on November 14, 2011, TransCanada announced an agreement with the Nebraska
Department of Environmental Quality to identify a pipeline route that would avoid the Sand Hills.
The State Department estimates that the preparation of supplemental environmental analysis
necessary for a new route alternative may be complete in early 2013.
Members of Congress have expressed support for the proposed pipeline’s potential energy
security and economic benefits while others have expressed reservations about its potential
environmental impacts.1 Though Congress has no direct role in permitting the pipeline’s
construction, it may have an oversight role stemming from federal environmental statutes that
govern the pipeline’s application review process or may seek to influence the State Department
process through other legislative means. For example, the North American-Made Energy Security
Act (H.R. 1938), which was not enacted, would have directed the President to issue a final order
granting or denying the Presidential Permit for the Keystone XL pipeline by November 1, 2011.
The Jobs Through Growth Act (H.R. 3400), which was introduced on November 10, 2011, would
require the President to issue a final order granting or denying the Presidential Permit for the
Keystone XL pipeline within 30 days of enactment. The North American Energy Security Act (S.
1932), which was introduced on November 30, 2011, would require the Secretary of State to issue
a permit for the project within 60 days of enactment, unless the President publicly determines the
project to be not in the national interest. The North American Energy Security Act (H.R. 3537),
introduced on December 1, 2011, and the Middle Class Tax Relief and Job Creation Act of 2011
(H.R. 3630), introduced on December 9, 2011, contain similar provisions for issuing a
Presidential Permit within 60 days of enactment. The North American Energy Access Act (H.R.
3548), introduced on December 2, 2011, would transfer the permitting authority over the
Keystone XL pipeline project from the State Department to the Federal Energy Regulatory
1 See, for example, Juliet Eilperin, “Democratic Lawmakers Pressure Obama Administration on Both Sides of
Keystone Pipeline Issue,” Washington Post, October 19, 2011; House Energy & Commerce Committee, Subcommittee
on Energy and Power, Hearing on The American Energy Initiative, Discussion Draft of H.R. ____, the North American
Made Energy Security Act of 2011, May 23, 2011; U.S. Senator Charles Grassley, Letter to Secretary of State Hillary
Rodham Clinton, May 16, 2011; U.S. Senator Max Baucus, Letter to Secretary of State Hillary Rodham Clinton,
September 10, 2010; U.S. Representative Henry A. Waxman, Letter to Secretary of State Hillary Rodham Clinton, July
2, 2010.
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Keystone XL Pipeline Project: Key Issues
Commission (FERC), and would require the commission to issue a permit for the project within
30 days of enactment.
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. 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.
Pipeline Description
The U.S. portion of the Keystone XL pipeline project, as originally proposed, would pass through
Montana, South Dakota, Nebraska, Oklahoma, and Texas (Figure 1). This route would consist of
approximately 1,380 miles of 36-inch-diameter pipe and have the capacity to transport 830,000
barrels per day (bpd) of crude oil to the United States, delivering up to roughly 200,000 bpd to an
existing oil terminal in Oklahoma with the remainder sent further to delivery points in Texas.2 On
November 14, 2011, TransCanada announced an agreement with the state of Nebraska to make as
yet undetermined changes to the pipeline route in Nebraska to avoid environmentally sensitive
areas.3 These route changes are expected to increase the pipeline mileage through the state,
although the company expects to maintain the original route through the other states, including its
planned delivery points, so the pipeline’s overall capacity should not be affected.
2 U.S. Department of State, Supplemental Draft Environmental Impact Statement for the Keystone XL Oil Pipeline
Project, April 15, 2011. p. 1-4. An initial capacity of 700,000 bpd may be raised to 830,000 bpd by increasing the
pumping capacity. The Keystone XL project had applied to the Pipeline and Hazardous Materials Safety
Administration to operate at slightly higher pressure than permitted in standard regulations, which would have enabled
a 900,000 bpd capacity, but it withdrew its applications for such a Special Permit in August, 2010. The company may
reapply for this exemption in the future, however, even after the pipeline is constructed, should it be approved.
3 TransCanada Corp., “Media Advisory - State of Nebraska to Play Major Role in Defining New Keystone XL Route
Away From the Sandhills,” press release, November 14, 2011.
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Figure 1. TransCanada Keystone Pipeline and Original Keystone XL Proposed Route
Source: U.S. Department of State, http://keystonepipeline-xl.state.gov/clientsite/keystonexl.nsf/map.jpg?
OpenFileResource.
Note: Figure 1 shows the developer’s originally proposed “preferred alternative” for the Keystone XL pipeline
route according to Presidential Permit application documents, however, the route through Nebraska is expected
to change. For discussion of alternative routes, see the State Department EIS discussed below.
As of February 2011, the Keystone XL project along its original route was estimated to cost more
than $7.0 billion, with the U.S. portion accounting for at least $5.4 billion of that total.4 That is
higher than the cost estimate when the initial permit application was filed reportedly due to
currency swings, changing regulatory requirements, and permitting delays.5 A new route would
presumably be longer and cost more. The Keystone XL pipeline would be an extension of
TransCanada’s existing Keystone pipeline, which links the Alberta oil sands to 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.
4 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.
5 “TransCanada Expects $1-Billion Cost Escalation for Keystone XL Pipeline,” Canadian Press, February 17, 2011.
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Keystone XL Extension to Bakken Oil Production
The U.S. portion of the Bakken formation is an unconventional oil resource that underlies parts of
North Dakota and Montana.6 By the end of 2010, U.S. Bakken production was 350,000 bpd.7
Output has climbed further in 2011. The oil is transported to refineries by rail and truck, rather
than by pipeline, which would be more economic. 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, increasing the need for pipeline transportation capacity.8
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 of capacity TransCanada had
offered to oil producers, this was enough to justify adding 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.9 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.10
These new Bakken contracts also improve the economics for Keystone XL, raising the amount of
oil slated to flow through the pipeline.11 Lower transportation costs and access to new markets
may support investment in the Bakken. Furthermore, TransCanada is not the only company
adding pipeline capacity in the region. Notably, Enbridge, another Canadian pipeline company,
has proposed the Bakken Pipeline Project, which will add 120,000 bpd of transport capacity to
move Bakken oil to Midwest markets.12 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.”13 Rail transport capacity
is also expanding.14
6 Richard M. Pollastro et al., Assessment of Undiscovered Oil Resources in the Devonian-Mississippian Bakken
Formation, Williston Basin Province, Montana and North Dakota, 2008, U.S. Geologic Survey, National Assessment of
Oil and Gas Fact Sheet (2008–3021), April 2008, p. 1, http://pubs.usgs.gov/fs/2008/3021/pdf/FS08-3021_508.pdf. The
Bakken formation also stretches into parts of Manitoba and Saskatchewan, Canada.
7 Nathan Vanderklippe, “TransCanada to Move U.S. Crude Through Keystone,” The Globe and Mail, January 26,
2011.
8 For more on Bakken oil production, see CRS Report R42032, The Bakken Formation: An Emerging Unconventional
Oil Resource, by Michael Ratner et al.
9 Jeffrey Jones, “TransCanada plans U.S. Bakken pipeline link,” Reuters, January 20, 2011.
10 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.
11 Vanderklippe, 2011.
12 Enbridge, “Bakken Pipeline Project—Project Overview,” press release, http://www.enbridge.com/
BakkenPipelineProjects/BakkenPipelineProjectUS.aspx.
13 Lauren Krugel, “TransCanada attracts support for Montana-to-Oklahoma crude pipeline,” The Canadian Press,
January 20, 2011.
14 Selam Gebrekidan, “Bakken Rail Terminal Ships First Crude Cargo-Lario,” Reuters, November 9, 2011.
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Presidential Permit Application Requirements and Status
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.15 Generally, the primary siting authority for oil pipelines would
be established under applicable state law (which may vary considerably from state to state).
However, the construction, connection, operation, and maintenance of a pipeline that connects the
United States with a foreign country requires executive permission conveyed through a
Presidential Permit. Since the Keystone and proposed Keystone XL pipelines are designed for the
importation of oil from Canada, their facilities require a Presidential Permit.
Executive Order 13337 delegates to the Secretary of State the President’s authority to receive
applications for Presidential Permits.16 Issuance of a Presidential Permit is dependant upon a
finding that the project would serve the national interest.17 In the course of making that
determination, the State Department is obligated to consider a host of issues related to the
proposed project including its potential impacts to the environment, economy, energy security,
and foreign policy, to name a few. In that capacity, the State Department is required to consult
with relevant federal and state agencies and to invite public comment in arriving at its
determination. Ultimately, however, the State Department has discretion in determining what
factors to examine to inform its determination of whether a proposed project is in the national
interest (i.e., will be granted a Presidential Permit).
Identifying and considering the potential environmental impacts of a proposed project is done
within the context of the State Department’s preparation of an Environmental Impact Statement
(EIS), as required pursuant to the National Environmental Policy Act (NEPA, 42 U.S.C. §4321 et
seq.).18 After issuing a Final EIS, a public review period begins during which the State
Department receives comments from the public and local, state, tribal, and federal agencies. On
November 11, 2011, in response to public review of the Keystone XL pipeline, the State
Department announced its decision that environmental issues identified in the EIS and further
stressed in public comments led it to seek additional information about an alternative pipeline
route before making its final national interest determination.19 Requirements applicable to the
State Department’s obligation to identify the potential environmental impacts of the proposed
15 15 USC §717f(c).
16 See Executive Order 13337, “Issuance of Permits With Respect to Certain Energy-Related Facilities and Land
Transportation Crossings on the International Boundaries of the United States,” 69 Federal Register 25299, May 5,
2004, as amended, and Department of State Delegation of Authority No. 118-2 of January 26, 2006. The source of
Permitting Authority for relevant Executive Orders is discussed further in the Appendix.
17 Executive Order 13337, at Sec. 1(g).
18 In processing Presidential Permit applications, the State Department is also explicitly directed to review the project’s
compliance with the National Historic Preservation Act (16 U.S.C. §470f), the Endangered Species Act (16 U.S.C.
§1531 et seq.), and Executive Order 12898 of February 11, 1994 (59 Federal Register 7629), concerning environmental
justice. In processing the permit application for the Keystone XL Pipeline project, issues associated with NEPA
compliance have drawn the most attention. In large part, that is likely because it is during the NEPA process that
compliance with these, as well as any other environmental requirements, would be identified, documented, and
demonstrated.
19 U.S. Department of State press release, “Keystone XL Pipeline Project Review Process: Decision to Seek Additional
Information,” November 10, 2011, http://www.state.gov/r/pa/prs/ps/2011/11/176964.htm.
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Keystone XL pipeline, as well as the effect that those impacts may have on its national interest
determination, are discussed below.
Identifying Environmental Impacts of the Proposed Pipeline
Broadly, NEPA requires federal agencies to consider the environmental impacts of their actions
before proceeding with them and to inform the public of those potential impacts. To ensure that
environmental impacts are considered, an EIS must be prepared for major federal actions
“significantly” affecting the environment.20 With respect to the application submitted by
TransCanada, the State Department concluded that issuance of a Presidential Permit for the
proposed construction, connection, operation, and maintenance of the Keystone XL Pipeline and
its associated facilities at the United States border would constitute a major federal action that
may have a significant impact upon the environment within the meaning of NEPA.21 For this
reason, the State Department prepared an EIS to address reasonably foreseeable impacts from the
proposed action and alternatives.
Among other requirements, an EIS must include a statement of the purpose and need for an
action, a description of all reasonable alternatives to meet that purpose and need, a description of
the environment to be affected by those alternatives, and an analysis of the direct and indirect
effects of the alternatives, including cumulative impacts.22 Accordingly, the State Department EIS
must review and consider the potential environmental impacts of the entire pipeline (including the
construction, operation, and maintenance of the pipeline and its associated facilities), not just the
facilities at the border crossing.
NEPA regulations require preparation of a Draft EIS that must be circulated for public and agency
comment, followed by a Final EIS that incorporates those comments.23 Preparing the EIS is the
responsibility of a designated “lead agency,” in this case, the State Department. In developing the
EIS, the State Department must rely to some extent on information provided by TransCanada. For
example, TransCanada’s permit application included an Environmental Report which was
intended to provide the State Department with sufficient information to understand the scope of
potential environmental impacts of the project.24
The EIS must also identify any state, tribal, or federal licenses, permits or approvals applicable to
the project in the United States.25 Further, in preparing the Draft EIS, the lead agency must
20 42 U.S.C. §4332(2)(C).
21 U.S. Department of State, “Notice of Intent to Prepare an Environmental Impact Statement and to Conduct Scoping
Meetings and Notice of Floodplain and Wetland Involvement and to Initiate Consultation under Section 106 of the
National Historic Preservation Act for the Proposed TransCanada Keystone XL Pipeline,” 74 Federal Register 5020,
January 28, 2009.
22 In preparing an EIS associated with a Presidential Permit, NEPA regulations promulgated by both the Council of
Environmental Quality (CEQ) and the State Department would apply. CEQ regulations implementing NEPA (under 40
C.F.R. §§1500-1508) apply to all federal agencies. NEPA regulations applicable to State Department actions, which
supplement the CEQ regulations, are found at 22 C.F.R. §161.
23 For more analysis of NEPA requirements, see CRS Report RL33152, The National Environmental Policy Act
(NEPA): Background and Implementation, by Linda Luther.
24 Documents submitted by TransCanada are available online at http://www.keystonepipeline-xl.state.gov/clientsite/
keystonexl.nsf?Open, under the heading “Project Documents.”
25 Any consultation or approval necessary to comply with any additional requirements should occur concurrently and
be integrated with preparation of the EIS.
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request input from “cooperating agencies” which include any agency with jurisdiction by law or
with special expertise regarding any environmental impact associated with the project.26
Cooperating agencies for the Keystone XL project are the U.S. Environmental Protection Agency
(EPA); the Department of Transportation’s Pipeline and Hazardous Materials Safety
Administration (PHMSA), Office of Pipeline Safety (OPS); the Department of the Interior’s
Bureau of Land Management, U.S. Fish and Wildlife Service, and National Park Service; the U.S.
Army Corps of Engineers; the U.S. Department of Agriculture’s Farm Service Agency, Natural
Resources Conservation Service, and Rural Utilities Service; the Department of Energy’s Western
Area Power Administration; and state environmental agencies.
In addition to its role as a cooperating agency, EPA is also required to review and comment
publicly on the EIS and rate both the adequacy of the EIS itself and the level of environmental
impact of the proposed project.27 Rating the EIS takes place after the draft is issued. The EIS
could be rated either “Adequate,” “Insufficient Information,” or “Inadequate.” EPA’s rating of a
project’s environmental impacts may range from “Lack of Objections” to “Environmentally
Unsatisfactory” (EPA rating of environmental impacts is discussed in more detail, below).
The State Department released its Draft EIS for the proposed Keystone XL Pipeline project for
public comment on April 16, 2010.28 The Draft EIS identified TransCanada’s “preferred
alternative” (Figure 1) for the project as well as other alternatives considered. On July 16, 2010,
EPA rated the Draft EIS “Inadequate.”29 EPA found that potentially significant impacts were not
evaluated and that the additional information and analysis needed was of such importance that the
Draft EIS would need to be formally revised and again made available for public review.
Additional criticism of the State Department’s implementation of the NEPA process followed an
October 21, 2010, statement by Secretary Clinton that, while analysis of the project was not
complete and a final decision had not been made, the State Department was “inclined to” approve
the project.30 Critics of the project, including some Members of Congress, stated that the
Secretary’s statement appeared to prejudge its permit approval for the pipeline proposal as a
foregone conclusion.31
The State Department issued a Supplemental Draft EIS on April 15, 2011. In addition to
addressing issues associated with EPA’s inadequacy rating, the Supplemental Draft EIS addressed
26 40 C.F.R. §1508.5. Also, Executive Order 13337 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.
27 For more information, see the U.S. Environmental Protection Agency’s “Environmental Impact Statement (EIS)
Rating System Criteria” at http://www.epa.gov/compliance/nepa/comments/ratings.html.
28 Documents prepared by the U.S. Department of State related to its NEPA requirements are available online at
http://www.keystonepipeline-xl.state.gov/clientsite/keystonexl.nsf?Open, under the heading “State Dept. Documents.”
29 Letter from the U.S. Environmental Protection Agency to the U.S. Department of State regarding the Draft EIS for
the Keystone XL project, July 16, 2010, http://yosemite.epa.gov/oeca/webeis.nsf/%28PDFView%29/20100126/$file/
20100126.PDF.
30 See Secretary of State Hillary Clinton “Remarks on Innovation and American Leadership to the Commonwealth
Club,” San Francisco, CA, October 15, 2010, available at http://www.state.gov/secretary/rm/2010/10/149542.htm. The
statement by Secretary Clinton was actually made in response to a question about the Alberta Clipper pipeline project
which received a Presidential Permit from the State Department in 2009, a State Department spokesman later clarified
that the Secretary was referring to the Keystone XL pipeline permit approval.
31 For example, see the October 21, 2010 letter from Senator Mike Johanns to Secretary Clinton expressing his concern
that her statement gave the appearance that approval of the pipeline was a foregone conclusion
http://johanns.senate.gov/public/?a=Files.Serve&File_id=8b090aa5-76fe-41ca-a674-ae9e37db8d36.
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comments received from other agencies and the public. On June 6, 2011, EPA sent a letter to the
State Department that rated the Supplemental Draft EIS as having “Environmental Objections—
Insufficient Information.”32 EPA acknowledged that the State Department had “worked
diligently” to develop additional information in response to EPA’s comments and the large
number of other comments on the Draft EIS. However, EPA believed that additional analysis
needed to be included in the Final EIS to fully respond to its earlier comments. Among other
items, EPA recommended that the State Department should do the following: improve the
analysis of the potential oil spill risks, including additional analysis of other reasonable
alternatives to the proposed pipeline route; provide additional analysis of potential oil spill
impacts, health impacts, and environmental justice concerns to communities along the pipeline
route and adjacent refineries; and improve its characterization of lifecycle greenhouse gas
emissions associated with Canadian oil sands crude.
In its June 6th letter to the State Department, EPA refers to agreements with the State Department
that certain deficiencies identified in the Supplemental Draft EIS will be addressed in the Final
EIS. Further, in its conclusion, EPA stated that it would carefully review the Final EIS to
determine if it fully reflects those agreements and if measures to mitigate adverse environmental
impacts are fully evaluated.
On August 26, 2011, the State Department issued the Final EIS for the proposed Keystone XL
Pipeline. EPA would generally rate the environmental impacts of the project based on the findings
in the Final EIS. The project may receive a rating of either “Lack of Objections,” “Environmental
Concerns,” “Environmental Objections,” or “Environmentally Unsatisfactory.” The State
Department would be required to respond to EPA’s rating, as appropriate. However, in light of
TransCanada’s decision to change the pipeline’s proposed route through Nebraska, and the State
Department’s need to supplement the final EIS as a result, it is unclear whether EPA will provide
formal comments to the August 26th EIS.
Environmental Impacts and the Determination of National Interest
Publication of the Keystone XL project’s Final EIS was followed by a 90-day review period.
During such review periods, the State Department takes into account issues it deems necessary to
make a national interest determination (e.g., factors related to the environment, economy, energy
policy, and foreign policy, among other considerations). As part of this process for the Keystone
XL project, the State Department held public meetings in each of the six states through which the
proposed pipeline would pass and in Washington, DC.33 The meetings were intended to give
members of the public additional opportunity to voice their opinions on issues they thought
should be taken into account in determining whether granting or denying the Presidential Permit
would be in the national interest.34 During the review period, the State Department received input
from state, local, and tribal officials as well as members of the public.
32 U.S. Environmental Protection Agency, Letter to the U.S. Department of State on the Supplemental Draft EIS for the
Keystone XL project, June 6, 2011 available at http://www.epa.gov/compliance/nepa/keystone-xl-project-epa-
comment-letter-20110125.pdf.
33 U.S. Department of State press release, “Keystone XL Final Environmental Impact Statement Released; Public
Meetings Set,” August 26, 2011, http://www.state.gov/r/pa/prs/ps/2011/08/171082.htm.
34 These additional public meetings are not part of the NEPA process. Considering the strong public interest in the
pipeline proposal (both opposed and in favor), the public hearings were part of the State Department’s national interest
determination.
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On November 10, 2011, the State Department issued a statement regarding the public comments
and its response to those comments. According to the State Department, it received comments on
a wide range of issues including the Keystone XL project’s potential impact on jobs, pipeline
safety, health concerns, the societal impact of the project, and oil extraction in Canada. Concern
regarding the proposed pipeline route through the Sand Hills area of Nebraska was identified as
one of the most common issues raised. Comments regarding that pipeline route were consistent
with the environmental impacts identified in the Final EIS with regard to the unique combination
of characteristics of the Sand Hills region (e.g., a high concentration of wetlands of special
concern, a sensitive ecosystem, and extensive areas of very shallow groundwater, discussed in
more detail in the “Impacts to the Nebraska Sand Hills” section, below). Further, the Nebraska
legislature was convening a special session to consider the legislation that would establish
regulations applicable to pipeline siting within the state. Facing the prospect of new state pipeline
siting regulations applicable to the Sand Hills, generally, together with the concern about the
Keystone XL pipeline’s specific “preferred” route, the State Department determined it is
necessary to examine alternative routes that would avoid this region in Nebraska, further
discussed below.
Ultimately, a final project decision will be reflected in a “Record of Decision and National
Interest Determination,” signed by the State Department. A Record of Decision (ROD) is issued
pursuant to NEPA. It formalizes the selection of a project alternative. For Presidential Permit
applications, a ROD and national interest determination are usually issued as the same
document.35 The State Department’s decision to gather additional information regarding the
alternative pipeline routes illustrates the distinctly different, yet interrelated requirements
applicable to the publication of a ROD and the national interest determination.
Under NEPA, the State Department must fully assess the environmental consequences of an
action and potential project alternatives before making a final decision. NEPA does not prohibit a
federal action that has adverse environment impacts; it requires only that a federal agency be fully
aware of and consider those adverse impacts before selecting a final project alternative. That is,
NEPA is intended to be part of the decision-making process, not dictate a particular outcome. The
State Department’s decision to issue a Presidential Permit, however, dictates a particular
outcome—that a Permit will not be granted unless it is determined that the project is in the
national interest. While NEPA does not prohibit federal actions with adverse environmental
impacts, a project’s adverse environmental impacts (as well as other factors) may lead the State
Department to determine that it is not in the national interest.
Delay in Keystone XL Pipeline Permit Review
Shortly after issuing its Final EIS, the State Department indicated that it expected to reach a final
decision on whether to grant the Keystone XL permit before the end of 2011. The North
American-Made Energy Security Act (H.R. 1938), which passed the House on July 7, 2011,
would have directed the President to expedite the State Department’s permit review process,
requiring a final decision to grant or deny the permit no later than November 1, 2011 (§3(c)).
H.R. 1938 was motivated by the perception among some in Congress that the State Department
was taking too long to review an energy infrastructure project critical to national security and
35 For example, see U.S. Department of State, Record of Decision and National Interest Determination, TransCanada
Keystone Pipeline, LP Application for Presidential Permit, February 25, 2008, http://www.cardnoentrix.com/keystone/
project/SignedROD.pdf.
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economic growth.36 Opponents of the bill argued that the project’s unique and potentially
unacceptable safety and environmental risks, as well as its uncertain impacts on fuel prices,
required more time for analysis and evaluation.37 The bill was not voted upon in the Senate,
however, prior to the proposed November 1 deadline.
The Jobs Through Growth Act (H.R. 3400), which was introduced on November 10, 2011, would
require the President to issue a final order granting or denying the Presidential Permit for the
Keystone XL pipeline within 30 days of enactment (§396(b)). Three subsequent bills, S. 1932,
H.R. 3537, and H.R. 3630, would all mandate that the Secretary of State issue a Keystone XL
permit within 60 days of enactment, unless the President publicly determines the project to be not
in the national interest. The three bills would deem the current FEIS adequate (concluding the
federal environmental review process) but require the permit to recognize an alternative pipeline
route approved in the future by Nebraska, while not delaying construction elsewhere. The North
American Energy Access Act (H.R. 3548), rather than imposing a deadline on the State
Department, would transfer the permitting authority over the Keystone XL pipeline project from
the State Department to the Federal Energy Regulatory Commission (FERC), requiring the
commission to issue a permit for the project within 30 days of enactment. Changing the State
Department’s role in issuing cross-border infrastructure permits may raise questions about the
President’s executive authority, however, as further discussed in the Appendix.
In October 2011, fourteen Members of Congress wrote to the State Department’s Office of
Inspector General requesting an investigation of the department’s handling of the EIS and
National Interest Determination for the Keystone XL project.38 The request was prompted, in part,
by press reports suggesting bias or potential conflicts of interest in the State Department’s hiring
of an outside contractor to perform the EIS and in its communications with the pipeline’s
developer, TransCanada.39 On November 4, the Inspector General’s Office announced that, in
response to this request, it was initiating a special review “to determine to what extent the
Department and all other parties involved complied with Federal laws and regulations relating to
the Keystone XL pipeline permit process.”40 The announcement did not indicate, however, how
long this review would take and what impact it might have on the Presidential Permit application
review schedule.
On November 10, 2011, the State Department announced that it would require additional
information about alternative pipeline routes avoiding the environmentally sensitive Sand Hills
area in Nebraska before moving forward with its National Interest Determination.41 Although the
36 U.S. House of Representatives, Energy and Commerce Committee, “Committee Approves Legislation to Increase
North American Energy Production and Create Jobs,” press release, June 23, 2011.
37 See, for example, Representative Henry A. Waxman, “Opening Statement before the Full Committee Markup on
Semi-Annual Committee Activity Report and H.R. 1938, the North American-Made Energy Security Act,” June 23,
2011.
38 U.S. Senator Bernard Sanders, et al., Letter to The Honorable Harold W. Geisel, Office of Inspector General, U.S.
Department of State, October 26, 2011.
39 See. for example, Elisabeth Rosenthal and Dan Frosch, “Pipeline Review is Faced With Question of Conflict,” New
York Times, October 7, 2011.
40 Harold W. Geisel, United States Department of State, Office of Inspector General, “Information Memo for Deputy
Secretary Burns,” November 4, 2011. http://sanders.senate.gov/imo/media/doc/
Special%20Review%20Keystone%20XL%20Pipeline%20Nov%2020112.pdf.
41 U.S. Department of State, “Keystone XL Pipeline Project Review Process: Decision to Seek Additional
Information,” Media Note, PRN 2011/1909, Office of the Spokesperson, November 10, 2011.
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State Department did not decide that environmental issues led to a determination that the
proposed project was not in the national interest, environmental issues identified in the Final EIS,
and further stressed in public comments, led to its decision to delay that determination until it
gathered this information. In a concurrent press release, President Obama stated
Because this permit decision could affect the health and safety of the American people as
well as the environment, and because a number of concerns have been raised through a
public process, we should take the time to ensure that all questions are properly addressed
and all the potential impacts are properly understood.42
Although no new decision deadline has been established, State Department officials suggested
that it would be “reasonable to expect that this process including a public comment period on a
supplement to the final EIS consistent with NEPA could be completed as early as the first quarter
of 2013.”43 In a recent press interview, President Obama also appeared to suggest that,
notwithstanding the delegation of Presidential Permit authority to the State Department, he would
be personally involved in the final decision on the Keystone XL Pipeline permit application.44
Whatever the outcome of the State Department’s permit review, legal challenges appear likely.
However, in the event of a challenge based on an environmental issue, the distinction between
State Department actions required under NEPA and those required under its authority to issue a
Presidential Permit would be relevant. NEPA does not create a private right of action. Instead,
judicial challenges to a federal agency action under NEPA are brought pursuant to the
Administrative Procedure Act (APA, 5 U.S.C. §§706 et seq.). Presidential actions, however, are
not subject to judicial review under the APA.45 So the final EIS associated with the Keystone XL
Pipeline may be subject to judicial review, but the State Department’s national interest
determination, made under its authority to issue a Presidential Permit, is not. For more
information regarding the State Department’s authority to grant a Presidential Permit, see the
Appendix.
State Siting and Environmental Approvals
As noted above, the federal government does not exercise siting authority over oil pipelines.
Siting for the Keystone XL pipeline still must comply with any applicable state laws. 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, 2010.46 Montana requires a certificate from the state’s Department of Environmental
42 The White House, Office of the Press Secretary, “Statement by the President on the State Department’s Keystone XL
Pipeline Announcement,” November 10, 2011.
43 U.S. Department of State, November 10, 2011.
44 KETV NewsWatch 7, “Uncut: KETV’s Rob McCartney Interviews President Obama,” Omaha, NE, November 1,
2011, http://www.ketv.com/video/29652519/detail.html.
45 While the APA’s definition of “agency” does not specifically exclude or include the president, the Supreme Court
has held that exercises of presidential authority are not subject to judicial review because the president is not an agency
(Dalton v. Specter, 511 U.S. 462, 470 (1994)). The Court has also held that the APA does not apply to the president
based on separation of powers principles (Franklin v. Massachusetts, 505 U.S. 788, 800-01 (1992)).
46 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.
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Quality,47 but has not yet granted one for the Keystone XL project. At the time of TransCanada’s
application for a Presidential Permit, Nebraska did not have any permitting requirements that
applied 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.48 Due to the controversy surrounding the Keystone XL project, Nebraska called a special
session of its legislature to enact legislation to assert state authority over pipeline siting.49 A
number of additional approvals and permits required by the states along the proposed route are
summarized in TransCanada’s Presidential Permit application.50 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 arguments supporting the pipeline primarily on
increasing the diversity of the U.S. petroleum supply and economic benefits to the United States,
including job creation. Environmental groups object to the project on the grounds that Canadian
oil sands development has negative environmental impacts—particularly that development of oil
sands releases more greenhouse gases than development of alternatives, like conventional oil or
renewable fuels (discussed in greater detail below). Also, they argue that it promotes continued
U.S. dependency on fossil fuels and affected communities along the route. Some members of the
public are opposed to the selection of the proposed pipeline route. Opposition generally stems
from concerns regarding potential impacts associated with the pipeline’s construction and
operation in communities along the proposed route—particularly potential impacts to land use
(e.g., cattle grazing) and groundwater contamination in the event of a release. As mentioned
above, concern that ultimately delayed the State Department’s decision to make a national interest
determination stemmed from concern regarding a segment of the route that crossed the Sand Hills
region of Nebraska.
Impacts to the Nebraska Sand Hills
In the process of examining factors necessary to determine whether the Presidential Permit for the
Keystone XL pipeline is in the national interest, the State Department decided that it needs to
assess potential alternative pipeline routes that would avoid the Sand Hills region of Nebraska.
Unique characteristics of the Sand Hills, including its high concentration of wetlands, extensive
areas of very shallow groundwater, and its sensitive ecosystem, were identified as factors that
resulted in increasing public concern over the proposed pipeline location. Subsequently,
TransCanada announced that it would work with the Nebraska Department of Environmental
Quality to identify a potential pipeline route that would avoid the Nebraska Sand Hills.51
47 Montana Major Facility Siting Act, Title 75, Chapter 20.
48 Nebraska Rev. Stat. §57-1101.
49 Kevin O’Hanlon, “Governor Signs Two Bills Into Law,” Lincoln Journal Star, November 23, 2011.
50 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.
51 TransCanada Corp., November 14, 2011.
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To understand the concerns associated with potential environmental impacts of the construction
and operation of a pipeline that crosses the Sand Hills (also referred to as the Sandhills) an
understanding of the unique size and structure of the region is useful. The Sand Hills region is a
19,600 square mile sand dune formation stabilized by native grasslands that cover 95% of its
surface. The surface is highly susceptible to wind erosion if the grassland is disturbed.52 Below its
surface lie hundreds of feet of course sand and gravel. Essentially, the porous soil acts like a giant
sponge that quickly absorbs precipitation, allowing very little to run off. In some areas, the water
table reaches the land surface—a characteristic that creates lakes that dot the region as well as 1.3
million acres of wetlands.
Figure 2. Keystone XL Pipeline Route Across the Ogallala Aquifer
Source: Natural Resources Defense Council, Say No to Tar Sands Pipeline,
November, 2010, p. 3.
The loose, porous soil and sensitivity to wind erosion have been factors contributing to a lack of
development on the Sand Hills. As a result, the region contains the most intact natural habitat of
the Great Plains of the United States. The porosity of the soil is also relevant because the Sand
Hills sits atop the Ogallala Aquifer—one of the largest aquifer systems in the world.53 In the Final
EIS, the preferred pipeline route through Nebraska would be located entirely above the Ogallala
Aquifer (Figure 2).
52 For more information, see the Department of the Interior’s U.S. Fish and Wildlife Service web page on the Sand
Hills at http://www.fws.gov/mountain-prairie/pfw/ne/ne4.htm.
53 The entire Ogallala Aquifer system stretches across eight states generally from north to south to include South
Dakota, Nebraska, Wyoming, Colorado, Kansas, Oklahoma, New Mexico, and Texas and underlies about 174,000
square miles.
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The highly porous soil of the Sand Hills make it a significant recharge zone in the northern region
of the Ogallala Aquifer system. That is, the sandy, porous soil of the Sand Hills allows a
significant amount of surface water to enter (recharge) the aquifer system. Water from the aquifer
also accounts for a significant amount of water use—78% of the region’s public water, 83% of
irrigation water in Nebraska, and 30% of water used in the U.S. for irrigation and agriculture.
Potential impacts to the Ogallala Aquifer and the Sand Hills identified in the Final EIS include
potential groundwater contamination after a release (e.g., a spill or leak from a hole or damaged
portion of the pipeline) of crude oil during the construction or operation of the proposed pipeline.
Along the preferred route of the proposed pipeline, areas in the Sand Hills region were identified
as locations where the water table may be close to the surface. The depth to groundwater is less
than 10 feet for approximately 65 miles of the preferred pipeline route in Nebraska. Both the soil
porosity and the close proximity of groundwater to the surface increase the potential that a release
of oil from the pipeline could contaminate groundwater in the region.54
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.55 In its Draft EIS for the project,
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.”56
These arguments have taken on additional weight in light of the recent political unrest in the
Middle East and North Africa. However, it is worth noting that even if Keystone XL is built,
prices for the crude oil it carries as well as domestically produced oil from elsewhere will
continue to be affected by international events. The oil market is globally integrated and events in
major producer and consumer countries can affect prices everywhere.57 For example, the
disruption of Libyan supply in early 2011 contributed to higher crude oil prices in the United
States, even though the United States imported almost no oil from Libya before the unrest broke
out.58
54 Generally, a release of crude oil to land would not necessarily result in groundwater contamination. In addition to the
depth from the land surface to groundwater and the characteristics of the environment into which the crude oil is
released (e.g., characteristics of the underlying soils), the potential for crude oil to reach groundwater would depend on
factors such as the volume of the spill, the duration of the release, and the viscosity and density of the crude oil.
55 TransCanada Keystone Pipeline, L.P., September 19, 2008, pp. 6-8.
56 U.S. Department of State, Draft Environmental Impact Statement for the Keystone XL Oil Pipeline Project, April 16,
2010, p. 4-2.
57 This is the case unless the oil is stranded due to transport bottlenecks. Ironically, the bottleneck for crude oil flowing
south from the Midwest to the Gulf Coast—which Keystone XL would help alleviate—helped insulate Midwestern
crude oil prices from the impacts of unrest in the Middle East and North Africa. However, as is discussed below, this
may have benefited Midwestern refiners but probably did not significantly reduce costs for U.S. consumers.
58 For more about this, see CRS Report R41683, Middle East and North Africa Unrest: Implications for Oil and
Natural Gas Markets, by Michael Ratner and Neelesh Nerurkar.
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Canadian Oil Imports in the Overall U.S. Supply Context59
Gross U.S. imports of crude oil and petroleum products averaged 11.8 million barrels per day
(Mbpd) in 2010.60 Exports averaged 2.3 Mbpd, leaving net imports at 9.4 Mbpd.61 U.S. net
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 Mbpd 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) increased by 1.4 Mbpd between 2005 and
2010. As a result, net imports fell by roughly 3.1 Mbpd since 2005.62 Some of 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.63
Among the largest sources of U.S. gross oil imports are Canada (2.5 Mbpd), the Persian Gulf (1.7
Mbpd), and Mexico (1.3 Mbpd). Imports from the latter two sources have decreased in recent
years in part due to lower need for imports described above and in part due to developments in
those countries (Figure 3). All major Persian Gulf exporters are members of the Organization of
the Petroleum Exporting Countries (OPEC), which cut production in 2009 to support oil prices.
Mexican production has been falling since 2004 because new oil developments have not been
able to offset depletion at Mexico’s giant Cantarell field. Imports from Venezuela, another key
source of U.S. imports, have also fallen. 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 Mbpd less than that achieved in 2001. In recent years, Venezuela has also been
trying to diversify business away from the United States, for example, by increasing exports to
China.64
59 For a primer on the oil market, see CRS Video Brief Introduction to the Oil Market, at http://www.crs.gov/analysis/
Pages/WVB00002.aspx.
60 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).
61 For context, the United States consumes roughly 19 Mbpd, 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 Mbpd of petroleum products go to Canada and 0.4 Mb/d to Mexico.
62 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.
63 For more analysis, see CRS Report R41765, U.S. Oil Imports: Context and Considerations, by Neelesh Nerurkar.
64 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 3. U.S. Changes in U.S. Oil Imports, Selected Sources
Gross imports from four sources, Mbpd
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.
Meanwhile, Canadian production and exports to the United States have increased, primarily due
to growing output from the oil sands in western Canada. Energy markets in the United States and
Canada are well integrated by pipeline infrastructure, and nearly all Canadian energy exports go
to U.S. consumers.65 Canadian oil production has increased about 0.2 Mbpd since 2005, and
exports to the United States increased by 0.4 Mbpd (Figure 4).66 Canadian oil production is
expected to grow by as much as 1.6 Mbpd between 2009 and 2025, mostly through increased
output from the oil sands.67
65 For further analysis of U.S.-Canada energy trade, see CRS Report R41875, The U.S.-Canada Energy Relationship:
Joined at the Well, by Paul W. Parfomak and Michael Ratner.
66 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.
67 Canadian Association of Petroleum Producers (CAPP), Crude Oil: Forecast, Markets, and Pipelines, June 2010, p.
2, http://www.capp.ca/getdoc.aspx?DocId=173003.
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Figure 4. Gross U.S. Oil Imports
Monthly imports in Mbpd 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.
Oil Sands, Keystone XL, and the U.S. Crude Oil Market
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 require more processing than conventional crude oil. Oil
sands are processed to extract the bitumen, which can then be sent to refineries in one of two
forms. Bitumen can be upgraded into “syncrude,” a light crude that is suitable for pipeline
transport and is relatively easy to refine. Alternatively, bitumen can be blended with lighter
hydrocarbons to form a heavy crude that can be transported by pipeline. The bulk of oil sands
supply growth is expected to be in the form of the latter.68
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.69 The U.S. Gulf Coast region already has a large amount of complex refining capacity and
is considered potentially well suited for processing Canadian heavy crude oil.70 Gulf Coast
refiners currently process heavy crudes from Venezuela, Mexico, and elsewhere. Complex
refineries in the Gulf Coast may be best equipped to handle a large increase of heavy oil sands
crude, though they may still need to adjust processes and make new capital investments in
equipment to accommodate particular crudes’ characteristics,71 especially if the new Canadian
crudes will be used in large amounts.72 There are 15 refineries within Keystone XL’s proposed
68 CAPP, 2010, p. 7.
69 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.
70 CAPP, 2010, p. 14.
71 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.
72 For a description of which units refineries may need to add (or have added) to be able to process more Canadian oil
(continued...)
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delivery area in Texas that currently process heavy crude oil which is similar in composition to
the oil that Keystone XL pipeline would carry.73
Oil production from the oil sands is increasing as is production from the Bakken and other areas
of the U.S. Midwest.74 Transport options to ship crude from the Midwest to the Gulf Cost are
limited. (Traditionally, crude oil had been shipped up from the Gulf Coast to Midwestern
refineries). The resulting abundance of crude oil in the Midwest has driven down crude oil prices
in that region relative to Gulf Coast and international crude prices. Midwestern refiners benefit
from the lower cost of crude. This, however, does not translate to substantially lower gasoline or
other products prices for consumers in the Midwest. The Midwest still brings in refined products
from other regions which keeps refined products prices in line with national and international
levels.75
Oil sands producers are interested in Keystone XL because it would expand their market reach
into the Gulf Coast region. This would increase the number of refineries they could sell their
crude to because Gulf Coast refineries have more upgrading capacity which is better suited to run
heavy crude. Reaching a larger market and one with more upgrading capacity could increase the
price these producers receive for their crude. Gulf Coast refiners are interested in the Keystone
XL pipeline because it increases the supply of heavy sour crude in the Gulf region, potentially
bringing down their input costs relative to the options they currently have available. Canadian
Natural Resources Limited, an oil sands producer, and Valero Energy Corporation, a large U.S.
refiner, are among those that contracted for shipping capacity on the Keystone XL pipeline.
With expanded pipeline capacity extending to the U.S. Gulf Coast, Canadian oil sands crude may
compete with other heavy crudes such as those from Mexico, Venezuela, and elsewhere.76 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.77 It may 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.
There is concern that this increased supply of crude to the Gulf Coast may result in larger refined
product exports rather than contributing to lower domestic fuel cost. Although the United States is
a net importer of oil and oil products, it does export some refined products.78 U.S. refined product
(...continued)
sands supply, see Praveen Gunaseelan and Christopher Buehler, “Changing US Crude Imports Are Driving Refinery
Upgrades,” Oil and Gas Journal, August 10, 2009.
73 U.S. Department of State, April 15, 2011. p. 1-4.
74 See increased U.S. crude oil production in the Midwest under the PADD2 heading at the following source: Energy
Information Administration, U.S. Department of Energy, Crude Oil Production (by PADD), Petroleum & Other
Liquids, http://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_a.htm.
75 Adjusted for transport costs and other regional differences.
76 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.
77 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.
78 For an explanation of why the United States exports refined products when it is a large (crude) oil importer, see CRS
Report R40120, U.S. Oil Exports, by Robert Bamberger.
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exports rose when domestic demand declined in the wake of the recession and as foreign demand
for certain fuels, like diesel, has remained relatively robust. If Keystone XL secures growing oil
sands output to flow into the United States, it could push out seaborne crudes from elsewhere,
regardless of where the product is ultimately sold. If the absence of the pipeline encourages
Canadian oil sands producers and pipeline companies to find an alternate export route through the
Canadian West Coast, Canadian supplies may displace heavy oil supplies in other markets and
potentially allow relatively more overseas imports coming into the Gulf Coast. This possibility is
discussed further below.
Other Pipeline Projects
Apart from Keystone XL, several other pipeline proposals could help carry growing Canadian
crude oil supplies to the U.S. Gulf Coast. On October 16, 2011, Enbridge announced it would
purchase ConocoPhillips share of the Seaway pipeline and reverse its direction to bring crude oil
from the Midwest to the Gulf Coast. ConocoPhillips had kept the pipeline running northward to
serve its refinery in Ponca City, OK. However, the glut of oil in the Midwest had resulted in the
pipeline running at low volumes. Nonetheless, ConocoPhillips had been uninterested in reversing
the pipeline. ConocoPhillips, which is spinning off its refining business,79 is now selling its share
of Seaway to Enbridge. Enbridge and Seaway shareholder Enterprise Products Partners L.P.
immediately announced that they would reverse the direction of crude oil flows on the Seaway
pipeline to enable it to transport oil from Cushing, OK, to the U.S. Gulf Coast. Pending
regulatory approval, the line could operate in reversed service with an initial capacity of 150,000
barrels per day by second quarter 2012.80
Prior to the Seaway sale, Enbridge has reported it has significant commitments for two new
pipeline projects, Flanagan South and Wrangler, that would carry oil from Illinois to Oklahoma
and then from Oklahoma to Texas.81 According to Enbridge, the project would duplicate existing
routes and does not cross an international border, in which case it does not require a Presidential
Permit. Enbridge already has cross border pipeline capacity connecting Alberta to Illinois.
However, according to reports, Wrangler has been canceled in light of the Seaway purchase and
reversal.82 Like Keystone XL, these projects would also have facilitated increased flow of
Canadian crude to the U.S. Gulf Coast.
Canadian Oil to Alternative Markets
In 2010, 98% of Canada’s oil exports went to the United States, mostly through north-south
pipelines. One major oil pipeline extends from Alberta to Canada’s west coast: the Trans
Mountain Pipeline, which is owned by Houston-based Kinder Morgan and has a capacity of
300,000 bpd. Some of the oil from the Trans Mountain Pipeline is loaded onto tankers and
79 ConocoPhillips, “ConocoPhillips Pursuing Plan to Separate into Two Stand-Alone, Publicly Traded Companies,”
press release, July 14, 2011, http://www.conocophillips.com/EN/newsroom/news_releases/2011news/Pages/07-14-
2011.aspx.
80 Enbridge, “Enbridge and Enterprise Agree to Reverse Seaway Crude Oil Pipeline From Cushing to U.S. Gulf Coast,”
press release, November 16, 2011, http://www.enbridge.com/MediaCentre/News.aspx?yearTab=en2011&id=1530773.
81 Bradley Olson , “Enbridge Pursuing Alternative to Transcanada’s Keystone XL,” Bloomberg, November 9, 2011.
82 Ben Lefebvre, “Enterprise Products Cancels Wrangler Pipeline,” November 16, 2011.
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shipped from Vancouver. Currently, about 90% of the crude shipped out by sea goes to California,
with the remainder shipped to the U.S. Gulf Coast and Asia.83
There are proposals to increase the capacity for oil from Alberta to reach the Canadian west coast.
Kinder Morgan is considering expanding the Trans Mountain Pipeline to 700,000 bpd, more than
doubling its existing capacity, and expanding west coast shipping facilities. Enbridge has
proposed a new pipeline: the Northern Gateway project would have a 525,000 bpd capacity to
send oil from Edmonton to Kimat, British Columbia.84 These projects reflect anticipated growth
of western Canadian oil production and an interest by Canadian oil producers to diversify their
available markets beyond U.S. customers. Both proposals have received criticism from
environmentalists. Because it would require construction of a completely new pipeline, Northern
Gateway in particular has been criticized by some environmental and First Nations groups.85
If export capacity to the west coast is expanded it could increase the amount of Canadian crude
oil going to non-U.S. markets. Canadian interests assert that Canadian oil sales to Asian markets,
where oil demand is growing rapidly, are more likely if greater shipments to the United States are
not possible.86 A study commissioned by the U.S. Department of Energy suggested 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.87
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.”88 A 2009 report from the Canadian Energy
83 Lucretia Cardenas, “Kinder Morgan Says Eyes Fall Open Season For Trans Mountain Pipeline Expansion,” Platts,
March 24, 2011.
84 Enbridge, “Northern Gateway at a Glance,” press release, 2011, http://www.northerngateway.ca/project-info/
northern-gateway-at-a-glance. The project would also include a pipeline to allow the import of 193,000 bpd of
condensate, a light hydrocarbon that can be blended with bitumen to allow pipeline transport.
85 Derrick Penner, “Opposition to Enbridge Northern Gateway pipeline grows,” Vancouver Sun, December 2, 2010.
86 Edward Welsch, “TransCanada: Oil Sands Exports Will Go to Asia if Blocked in U.S.,” Dow Jones Newswires, June
30, 2010.
87 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.
88 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,
(continued...)
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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 2025.89
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.90 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.91 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.92 Large amounts of water and natural
gas are also required (for heating) during the extraction process.93 The magnitude of the
environmental impacts of oil sands production, in absolute terms and compared to conventional
oil production, has been the subject of numerous, and sometimes conflicting, studies and policy
papers.94 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.95
(...continued)
November 29, 2010, p. 2, http://www.eprinc.org/pdf/oilsandsvalue.pdf.
89 Canadian Energy Research Institute, The Impacts of Canadian Oil Sands Development on the United States’
Economy, Final Report, Calgary, Alberta, October 2009, p. vii.
90 See, for example, Cornell University Global Labor Institute, Pipe Dreams? Jobs Gained, Jobs Lost by the
Construction of Keystone XL, September 28, 2011; 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.
91 For more analysis of oil sands and their environmental impacts, see CRS Report RL34258, North American Oil
Sands: History of Development, Prospects for the Future, by Marc Humphries.
92 U.S. Bureau of Land Management, “About Tar Sands,” web page, January 11, 2011, http://ostseis.anl.gov/guide/
tarsands/index.cfm.
93 Cecilia Jamasmie, “The Challenges and Potential of Canada’s Oil Sands,” Mining, September-October 2010, pp. 7-8.
94 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.
95 For more analysis of oil sands, including the environmental effects of its extraction, see CRS Report RL34258, North
American Oil Sands: History of Development, Prospects for the Future, by Marc Humphries.
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Fossil Fuels Dependence and Greenhouse Gas Emissions
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.96 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.”97 Critics of the State Department’s draft and Supplemental 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. To address
those potential emissions, EPA recommends that the final EIS include discussion of mitigation
approaches for greenhouse gas emissions from extraction activities that are either currently used
or could be employed to help lower lifecycle greenhouse gas emissions.98 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 locations.99
96 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.
97 See footnote 30.
98 See EPA letter referenced in footnote 29, p. 7.
99 EnSys Energy & Systems 2010, p. 116.
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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 1968.100 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. 11423.101 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 States of America, including Section 301 of title 3,
United States Code.”102 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 Sisseton v.
United States Department of State, the plaintiff Tribes filed suit and asked the court to suspend or
revoke the Presidential Permit issued under E.O. 13337 for the TransCanada Keystone
Pipeline.103 The U.S. District Court for the District of South Dakota found that the plaintiffs
lacked standing because they would be unable to prove their injury could be redressed by a
favorable decision.104 The court determined that even if the plaintiff’s injury could be redressed,
“the President would be free to disregard the court’s judgment,” as the case concerned the
President’s “inherent Constitutional authority to conduct foreign policy,” as opposed to statutory
authority granted to the President by Congress.105
The court further found that even if the Tribes had standing, the issuance of the Presidential
Permit was a presidential action, not an agency action subject to judicial review under the
Administrative Procedure Act (APA).106 The court stated that the authority to regulate the cross-
border pipeline lies with either Congress or the President.107 The court found that “Congress has
failed to create a federal regulatory scheme for the construction of oil pipelines, and has delegated
this authority to the states. Therefore, the President has the sole authority to allow oil pipeline
border crossings under his inherent constitutional authority to conduct foreign affairs.”108 The
President could delegate his permitting authority to the U.S. Department of State, but delegation
did not transform the permit’s issuance into an agency action reviewable under the APA.109
100 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.
101 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.
102 Ibid.
103 659 F. Supp. 2d 1071, 1078 (D. S.D. 2009).
104 Ibid. at 1078.
105 Ibid. at 1078, 1078 n.5.
106 See ibid. at 1080-81.
107 Ibid. at 1081.
108 Ibid.
109 Ibid. at 1082.
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In Sierra Club v. Clinton,110 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).111 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.”112 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.113 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.”114 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.
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
Adam Vann
Specialist in Energy Policy
Legislative Attorney
nnerurkar@crs.loc.gov, 7-2873
avann@crs.loc.gov, 7-6978
Acknowledgments
The authors would like to acknowledge the contributions of Kristina Alexander and Vanessa Burrows to
the content of this report.
110 689 F.Supp.2d 1147 (D. Minn. 2010).
111 Ibid. at 1162.
112 Ibid.
113 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.
114 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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