Keystone pipeline fight: Wall Street is watching

Introduction

Actresses Darryl Hannah and Margot Kidder and hundreds of less well-known activists are ending a two-week civil disobedience campaign focused on preventing Obama administration approval of a pipeline to ferry oil extracted from Canadian tar sands to U.S. refineries. They say it threatens forests, water supplies, and will radically worsen global warming.

But climate scientists and oil industry analysts say more is at stake than the fate of the so-called Keystone XL project. It is among a handful of energy projects in North America whose approval could boost investment and create momentum for unconventional sources of fossil fuels. Many scientists believe increased use of such dirtier energy could make it harder to avert a climate crisis.

While protestors want White House officials and the public to notice, investors already are watching developments closely – and the pipeline’s builder, whose chief lobbyist has deep connections in Washington, is spending heavily to influence the outcome. To Wall Street, approval of extending the pipeline to refineries along the Gulf of Mexico would be more than symbolic.

“It could give a signal that the U.S. isn’t necessarily going to step up regulations” on new and dirtier forms of fossil fuels, said Jacob Correll, a commodities analyst at Summit Energy, a consulting firm. “It might give investors more comfort that it’s going to be a country that’s more conducive to continuing these drilling investments going forward.”

If TransCanada Corp., a Calgary, Alberta-based energy company, receives administration approval to build the $7 billion pipeline expansion, it “could add incentives for refineries” to process dirtier grades of crude, said Sparsh Khandeshi, a refineries law fellow at the Environmental Integrity Project, an advocacy group founded by former Environmental Protection Agency enforcement attorneys. The organization noted in June 2008, before the financial crisis sapped the global demand for oil, that U.S. refineries already were “placing a major bet on a fuel source which is dirtier to mine, process and refine.”

Keystone XL backers in the oil industry claim the pipeline project would create tens of thousands of American jobs while reducing U.S. dependence on foreign oil. The American Petroleum Institute, the oil industry’s lobbying arm, argues that the environment will be better safeguarded if the oil sands crude flows to the U.S. rather than to other nations.

“It could be exported to other countries, many of which do not have the same stringent environmental regulations that are in place here in the United States,” API asserts. “China, for example, has been actively seeking energy resources.”

Environmental groups dispute industry claims that the project will create so many jobs, and also the assertion that the environment will be better off with shipments to U.S. refineries. Pipeline opponents, including some former Obama campaign volunteers, are warning the president that if he does not support them now, they may not be there for him in his 2012 reelection campaign.

Approval of TransCanada’s 1,702 mile pipeline expansion by the Obama administration would for the first time directly connect tar sands in central Alberta with refineries on the Texas coast. Pipelines already stretch from Canada to Oklahoma and Illinois.

Only Saudi Arabia has more recoverable oil than Canada, which has an estimated 175 billion barrels. Most is in tar sands.

Allowing the expansion also would be a tacit embrace of fuel from tar sands and other carbon-intensive sources by the U.S. government, which is currently restricted from purchasing gasoline that produces more greenhouse gases than conventional crude. Refining fuel from the Canada’s viscous “oil sands,” as they’re also known, releases around three times more carbon dioxide, according to research from the University of Ottawa.

Climate scientist James Hansen, who heads NASA Goddard Institute for Space Studies, was among 142 activists arrested on Monday for blocking a so-called “postcard zone” in front of the White House. In a widely circulated June 3 letter, Hansen warned that if tar sands production continues – which the completed Keystone XL pipelines would virtually guarantee – it would be “essentially game over” for efforts to stabilize the climate.

Hansen urged fellow scientists to join the two-week protest, which has led to more than 700 arrests as of early Thursday – the largest act of civil disobedience over an environmental issue in a generation. In Washington, the White House demonstration’s last day is expected to be Saturday.

So far, President Obama is staying out of the fray. On Tuesday, Press Secretary Jay Carney said he hadn’t spoken to the president about the protests. The pipeline approval is “under the purview of the State Department presently,” he said.

The State Department last week issued a final environmental impact statement on the project. The department concluded it would have “no significant impact.” Previous findings have been disputed by Environmental Protection Agency. Secretary of State Hillary Clinton is expected to make a decision before the end of the year.

TransCanada’s chief lobbyist, Paul Elliott, is the former deputy director of Clinton’s failed 2008 presidential campaign. He started representing the company’s interests in Washington in 2009.

Since then, the company has dramatically ramped up its spending on lobbying, from $190,000 in 2008 to $720,000 last year, according to an analysis of lobbying disclosures by the Center for Responsive Politics.

In the first half of this year, TransCanada has already surpassed that amount, spending $790,000.

A coalition of environmental groups and organizations seeking more government transparency sued the State Department in May after it rejected a Freedom of Information Act request for email correspondence between the lobbyist and his former boss.

Environmental organizations are also crying foul over the State Department’s impact assessments. Not only do they discount the project’s potential impact on climate change, they also understate the impact of open pit mining and the risk of pipeline spills. Canadian oil sands mining removes vast swaths of carbon-absorbing boreal forests while leaving behind giant lakes of toxic tailings that can be deadly to migrating birds.

One section of TransCanada’s tar sands pipeline project, though new, has leaked 12 times, as six senators noted in a July letter to Secretary Clinton. The pipeline, Keystone I, which stretches 1,853 miles from Hardisty, Alta., to Patoka, Ill., only went into operation in June 2010.

If the Keystone XL pipelines have similar problems, they could threaten the Ogallala aquifer, environmental organizations say. Ogallala, a California-sized underground water formation also known at the High Plains aquifer, stretches across eight Midwestern states. According to the U.S. Geological Survey, the aquifer provides drinking water for some 2.9 million Americans and sustains more than a quarter of the nation’s agricultural production.

David L. Goldwyn, an energy consultant who was until recently the State Department’s coordinator for international energy affairs, predicted last weekend that after Keystone XL’s pending national interest determination Clinton “will approve it.”

Energy Secretary Steven Chu sent similar signals Wednesday. In an interview with a TV program, energyNOW!, Chu argued the pipeline’s national security benefit. “It’s certainly true that having Canada as a supplier for our oil is much more comforting than to have other countries supply our oil,” he said. “It’s not perfect, but it’s a trade off.”

In the past, Chu has taken a strong stand against dirtier sources of energy. “Coal is my worst nightmare,” he said in speeches before becoming energy secretary.

If the Obama administration gives the project the go-ahead, that could set off a wave of investing in other unconventional fuel projects. Industry analysts believe that a completed Keystone XL will bring tar sand gamblers back to the table and spur billions of dollars in additional wagers on additional dirtier unconventional fuels.

“This pipeline is the hardwiring of Big Oil into the economies of the United States and Canada for next century,” said Clayton Thomas-Muller, an organizer with the Indigenous Environmental Network, a Native American environmental justice group.

Author Bill McKibben, an organizer of the White House protest, said that’s why “this has become the key environmental battle for U.S. environmental community.” McKibben founded Tar Sands Action and the climate campaign 350.org.

High oil prices, driven largely by a diminishing supply of conventional crude, have rekindled commercial interest in tapping U.S. deposits of tar sands and oil shale. More than 1.5 trillion barrels of this oil trapped in rock is technically recoverable, an amount about equal to the entire world’s proven reserves, according to Government Accountability Office estimates. Obama’s Interior secretary, Ken Salazar, announced in February that the Bureau of Land Management would begin considering private development of oil on public lands.

And in Canada, a rival pipeline company is pushing a project that could bring oil produced by the expanded tar sands production Keystone XL would prompt to refineries in China and along America’s West Coast. But the proposed Enbrige Northern Gateway pipeline is facing as much if not more opposition north of the border as the Keystone XL project is in the U.S.

“Enbridge has one hell of a fight if they think they’re going to get that pipeline built,” said Thomas-Muller, an indigenous Canadian. First Nations communities have vehemently opposed the 731 mile pipeline, which would cross parts of their territory and end at the mouth of a narrow channel in the heart of the Great Bear Rainforest. They have planned a similar civil disobedience protest in Ottawa on September 27.

Still Rick Mueller, a principal with Energy Security Analysis, Inc., an energy forecasting firm, is confident that the $5.8 billion project will eventually get built. “If I was betting man, I’d say ‘Yes, it will go through,’” he said. “[Canadian oil companies] need to sell their crude somewhere. The oil sands production is going to grow.”

The scientists and protesters gathered in D.C. hope that won’t happen. “Just as we expect Brazil to guard the rainforest,” said author McKibben, “the world should expect us to guard these tar sands.” Noted Hansen in his letter to scientific colleagues, “we cannot get back to a safe [greenhouse gas] level…if unconventional fossil fuels are exploited.”