The stranded oil sands: A worst-case scenario – by Claudia Cattaneo (National Post – October 29, 2011)

The National Post is Canada’s second largest national paper.

The signs are there: the Keystone XL oil sands pipeline has festered into an uncomfortable election issue for the U.S. president, Barack Obama. The upshot for Canada: a decision on whether to grant a Presidential permit, promised by year end, could once again be delayed.

The reality is that anything short of a go-ahead in December for Keystone XL would plunge the oil sands sector into disarray until new solutions move forward. The worst-case scenario? Stranded oil sands — for years.

Keystone XL, with a capacity to carry up to 830,000 barrels a day from Alberta to Texas, was due for startup in early 2013. There is no backup on the same scale or timeline.

“Everybody in the industry is thinking about this,” said Bob Dunbar, president of Strategy West Inc., an oil sands consultancy based in Calgary. “Keystone XL is not the only solution, but it is a very elegant solution and it really would have an impact on the industry if it doesn’t proceed in a timely way.”
Even optimists can’t ignore that the pipeline is becoming politically toxic: Anti-Keystone protesters are dogging Mr. Obama everywhere he goes; donors are threatening to pull campaign funding if he approves it; members of the Democratic party are rallying against it; allegations of conflict of interest have strangely emerged; Nebraska has called a special session of the state legislature to discuss whether to block it.

Rumours and anonymous warnings implying a delay is likely, such as the one from a U.S. government official this week, are making the rounds: “We’re carefully reviewing all of the information we’ve received, including the many comments from the public, and will make a decision only after we have weighed all of the facts,” the official told Reuters.

Meanwhile, Mr. Obama is keeping his distance, despite the pipeline’s promise of huge job creation in a struggling U.S. economy.

“We’re looking at it right now, all right?” is the response he gave this week to an anti-Keystone protester in Denver. “No decision’s been made and I know your deep concern about it, so we will address it.”

David Wilkins, former U.S. ambassador to Canada, said it’s obvious Keystone XL has gotten more political.

After the President failed to deliver key environmental reforms, the environmental lobby and the left wing of the Democratic party have made the pipeline and what it stands for, a proxy for fossil fuels growth and an impediment to renewable energy, their last stand.

“If there is a significant delay, probably the only rational conclusion you can reach is that it’s an effort on the part of the administration to placate the left-wing of the base of his party, and to placate them and to cater to them going into the election 13 months away,” Mr. Wilkins, who still hopes the project will be approved on its merits by the end of the year, said in an interview.

As the clock ticks, Canada’s oil patch has begun to weigh the implications of a lengthy time out.

It has been a long battle already. Calgary-based TransCanada Corp., proponent of the $7-billion project, first filed an application for a Presidential permit in 2008. The approval process has been delayed repeatedly. The most recent delays were caused by the Environmental Protection Agency injecting itself into the process and the State Department deciding to hold hearings in six states directly affected by the pipeline. A decision by the U.S. State Department on whether the pipeline is in the national interest is now due by Nov. 26. After that, eight agencies affected by the decision have 15 days to decide whether to object. If there are no objections, the pipeline is approved. If there are objections, the issue moves to the White House, which can take as long as required to render its decision.

Former Republican Congressman Tom Corcoran, managing director of the Centre for North American Energy Security and one of the pipeline’s top Washington lobbyists, said if a decision is not made by year end, the odds go up that it will be made in late 2012, following the Nov. 6 vote.

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