CAPP Submission to State Department on National Interest Determination for Keystone XL

Canada and the United States have the opportunity to grow their energy trade between countries with aligned environmental policies through approval of the Keystone XL pipeline. We should seize this opportunity, to the benefit of both countries.
March 05, 2014

The members of the Canadian Association of Petroleum Producers (CAPP) produce about 90 percent of Canada's crude oil and natural gas. Our industry is committed to responsible oil sands development through continuous improvements in environmental performance.

With this extensive environmental review now complete, we encourage the U.S. government to move expeditiously to a favorable decision on Keystone XL. Within this National Interest Determination (NID) period, the purpose of this submission is to provide comments on Keystone XL against the NID criteria set out in the Keystone XL Final Supplementary Environmental Impact Statement (SEIS). You will find these comments to be consistent with our last submission in response to the Keystone XL Draft SEIS.

I. Environmental impacts of the proposed project

The final SEIS found the project will have limited adverse environmental impacts during construction and operation. In particular, we would like to draw your attention to two points about oil sands and greenhouse gas (GHG) emissions.

Recent Projects – New Technology, Lower GHGs

First, producers continue to improve oil sands GHG performance. Since 1990, oil sands GHG emissions associated with every barrel of oil sands crude produced have been reduced by 26%. The GHG emissions of the most recent oil sands in situ and mining projects are, respectively, only 5% and 2% higher than the average barrel refined in the U.S., and lower than heavy oil from California’s Bakersfield (see below graph for U.S.-Kern River) and Venezuela(see below graph for Venezuela–Petrozuata). The trend of oil sands GHG emissions intensity continues to decrease and new technologies set the standard for future projects. Our goal is to further reduce GHG emissions per barrel to be as good or better than competing oil supplies in the North American market.

The Canadian industry continues to make significant progress in improving environmental performance. Among other things, the industry harnesses collaborative effort to accelerate the development and deployment of technology and innovation to improve environmental performance. The most recent example of this collaboration is the creation of Canada’s Oil Sands Innovation Alliance (COSIA),which was launched in March 2012 and has a membership accounting for approximately 90% of oil sands production.

COSIA is a new and unique technology and knowledge sharing model, designed to break down funding and intellectual property barriers to accelerate environmental performance progress. COSIA has four environmental priority areas:water, land, tailings and GHG emissions. To date, companies have shared 560 distinct technologies with associated development costs over $900 million dollars (CDN).

Keystone XL will not impact global GHG emissions

Second, a decision approving Keystone XL will not impact global GHG emissions. The final SEIS report notes that “approval or denial of any one crude oil transport project, including [Keystone XL], is unlikely to significant impact the rate of extraction in the oil sands or continued demand for heavy crude oil at refineries in the U.S….”3 Keystone XL remains a favorable choice for Canadian oil sands producers, but due to its delay, other alternatives are being introduced to transport oil sands products to market. Canadian oil sands producers are pursuing other pipeline expansions to reach markets on Canada’s West and East Coasts and to the U.S. Rail has also emerged as an increasingly available option for crude oil producers to get their product to market. Rail and pipelines are compatible as rail can fill the markets and capacity until pipelines are built, at which point rail can move to other points of constraint to help keep the whole transportation system in balance.


II. Impacts of the proposed project on the diversity of supply to meet U.S. crude oil demand and energy needs

Keystone XL is intended to meet U.S. needs

Oil sands crude being transported through Keystone XL will meet demand from U.S Gulf Coast refineries and will displace or replace declining supply of heavy crudes currently being sourced from countries such as Mexico and Venezuela.The Keystone XL pipeline is intended to meet U.S. needs. The oil is not intended for export. Historically, 99.9% of total crude produced and imported in the Gulf Coast has remained inside the U.S.4

The final SEIS report states, “Rising domestic crude production is predominantly light crude, and it has replaced foreign imports of light crude oil. However, demand persists for imported heavy crude by U.S. refineries that are optimized to process that kind of oil. Meanwhile, Canadian production of bitumen from the oil sands continues to grow, the vast majority of which is currently exported to the United States to be processed by U.S. refineries that want heavy crude oil. North American production growth and logistics constraints have contributed to significant discounts on the price of landlocked crude and have led to growing volumes of crude shipped by rail in the United States and, more recently, Canada.”

Oil sands will replace declining U.S. Gulf Coast heavy oil imports from Mexico and Venezuela. The products derived from Canadian crude oil will similarly simply replace products in the market currently derived from other imports.Mexico’s supplies are declining because their country has reached its peak production level based on available investment. Venezuela has politically chosen to export more of its products to China.

III. The security of transport pathways for crude oil supplies to the U.S. through import facilities constructed at the border relative to other modes of transport

Pipelines have long been recognized as one of the safest,most reliable and well-regulated ways to move crude oil and petroleum products. Keystone XL will be built to the most advanced specifications and will be monitored and maintained by state-of-the-art technologies.

IV. Stability of trading partners from whom the U.S. obtains crude oil

The U.S. and Canada already enjoy the largest trading partnership across one of the longest peaceful borders in the world. Geography makes us neighbors. Social, economic and political ties make us strong allies. Nowhere is this more evident than in our energy trading relationship.

V. Impact of across-border facility on the relations with the country to which it connects

The Keystone XL pipeline will strengthen America’s trade relationship with a friendly, reliable neighbor by enhancing energy security through increasing capacity to import oil and process it into value-added products in U.S. refineries.In addition, Canadians return up to 89 cents of U.S. goods and services for every dollar the U.S. spends on Canadian products, including oil. There is a clear economic benefit from increasing the energy trade relationship between Canada and the U.S.

VI. Relationship between the U.S. and various foreign suppliers of crude oil, and the ability of the U.S. to work with those countries to meet overall environmental and energy security goals

Canada has the third largest oil reserves in the world with 173 billion barrels of oil that can be recovered economically with today’s technology. Of that number, 168 billion barrels are located in the oil sands. In just over 30 years,Canadian crude oil production has increased by 1.7 million barrels/day due to the growth in supply from oil sands. Today, 56% of Canada’s crude oil production is from the oil sands.

Canada is the largest supplier of crude oil and petroleum products to the U.S. Canada now supplying 1/3 of US imports, more than double from any other country.Even with increased domestic oil supply, the U.S. will need oil imports to meet energy demands. It is not about whether the U.S. uses oil – it’s about the source of the oil. Together, Canada and the U.S. can move towards North American energy self-sufficiency.

VII. Impact of proposed projects on broader foreign policy objectives, including a comprehensive strategy to address climate change

Of the top five suppliers of oil to the U.S. (Canada,Mexico, Nigeria, Saudi Arabia and Venezuela), only Canada has greenhouse gas regulations in place. The Alberta government implemented GHG regulations in 2007 (the first jurisdiction in North America to do so) requiring a mandatory 12% reduction in GHG emissions intensity for all large industrial sectors including all existing oil sands facilities, or a payment in lieu. The current payment is a carbon price of CAD$15/tonne. The required payment goes into Energy Resources Conservation Board, and Oil and Gas Journal 2012 EIA 2013 Canada’s share of U.S. Demand and Sources of Supply Source: U.S. EIA 2013 March 5, 2014 a technology fund that is used for carbon mitigation and management research. Since 2007, these regulations have resulted in GHG reductions of 23 million tonnes, the equivalent of taking 4.8 million cars off the road for one year.

Canada has committed to reduce GHG emissions to 17% below 2005 by 2020 and is working towards that goal. This is aligned with the target set by the U.S. Canada has a greenhouse gas policy that applies to all the oil sands and is working toward national oil and natural gas regulations. In addition, Canada has the same fuel efficiency standards for vehicles as the U.S.

VIII. Economic benefits to the U.S. of constructing and operating proposed projects

Oil sands expansion, pipeline construction and operation,and maintenance of U.S. refineries processing oil sands crude represent billions of dollars of potential investment and thousands of skilled jobs in the United States. An internal survey of our member companies show that there are more than 2,400 companies in the U.S. that currently provide goods or services to the Canadian oil sands industry.

According to Canadian Energy Research Institute, increased investment in Canadian oil sands development can create more than 500,000 new U.S. jobs and generate $775 billion in GDP by 2035. For approximately every two Canadian jobs supporter by oil sands development, one job will be created in the U.S. These numbers do not even include the jobs that will be created by the construction and operation of Keystone XL. As the final SEIS states, spending for Keystone XL will support approximately 42,100 jobs (direct, indirect, and induced), and approximately $2 billion in earnings throughout the U.S.

IX. Relationships between proposed projects and goals to reduce reliance on fossil fuels and to increase use of alternative and renewable energy sources

While alternatives play an important role in meeting future U.S. energy demand, the EIA projections show that oil and natural gas will remain dominant energy sources for decades to come. Even with flat or reducing demand for oil, the U.S. will still need oil imports to meet its energy demands. Again, it is not about whether the U.S. uses oil – it’s about the source of the oil.

In conclusion, we understand that the final approval for Keystone XL is for Americans to decide. With this extensive environmental review now complete, we encourage the U.S. government to move expeditiously to a favorable decision on Keystone XL. As our submission demonstrates, it is our opinion that this project is in the national interest of the U.S. through responsible development and providing benefits to both of our countries.

Canadian oil sands producers continue to advance environmentally responsible oil sands development, particularly as it relates to GHG emissions performance. Canada and the U.S. share common values with respect to environmental protection and both countries are broadly aligned in carbon reduction policies.

Ultimately, the decision on Keystone XL is unlikely to have a substantial impact on the rate of development in the oil sands and thus, GHG emissions from oil sands will not be affected by the decision of Keystone XL. However, Keystone XL is a shovel-ready pipeline that will help build on the already strong Canada-U.S. energy relationship and ensure the U.S. refineries in the Gulf Coast have ready access to secure, reliable crude oil from a friendly and policy-aligned partner in Canada.

Keystone XL is not about GHG emissions or how much oil the U.S. chooses to use, but rather it is about where the U.S. gets its oil. We have the opportunity to grow our energy trade between countries with aligned environmental policies through approval of the Keystone XL pipeline. We should seize this opportunity, to the benefit of both our countries by approving the Presidential Permit for this pipeline.