## IHS-CERA concludes “no material impact” on US GHG from Keystone XL; heavy crude from Venezuela most likely replacement

##### 09 August 2013

The proposed Keystone XL pipeline for transporting oilsands-derived crude to Gulf Coast refineries would have “no material impact” on US greenhouse gas (GHG) emissions, according to a new Insight report by IHS CERA. In a June speech at Georgetown University, President Barack Obama said that the controversial Keystone XL pipeline would only be built if the project “does not significantly exacerbate the problem of carbon pollution.” (Earlier post.)

In the absence of the pipeline, alternate transportation routes would result in oilsands production growth being more or less unchanged, IHS CERA found. The study also found that any absence of oil sands on the US Gulf Coast would most likely be replaced by imports of heavy crude oil from Venezuela, which has the same carbon footprint as oilsands crude.

The new IHS CERA Canadian Oil Sands Dialogue study thus basically agrees with the conclusions of the US State Department’s Draft Supplemental Environmental Impact Statement for Keystone XL that says oil sands production is expected to continue at similar levels regardless of whether Keystone XL goes forward. (Earlier post.)

The IHS CERA report notes that pipeline opponents argue that by opening up additional US markets for Canadian oil sands, the Keystone XL project would lead to significant incremental US GHG emissions. A primary dispute with the State Department’s analysis is based on the economics of moving oilsands by rail—assumed to be the alternative method of transportation if Keystone XL or other pipelines are not constructed.

Pipeline opponents assert that rail costs are prohibitively high and that in a scenario in which pipelines are not constructed, oilsands growth (and consequently GHG emissions) will stall for lack of market access.

Critics cite the steep crude oil price discounts for Canadian producers in the past year as further evidence that rail is not economic. On average in 2012, the price of heavy oils sands was $27 per barrel lower than a comparable barrel on the US Gulf Coast (USGC), and for short periods the difference was more than$40 per barrel.

However, these deep discounts were not the result of rail costs but rather due to a severe supply and demand imbalance: constraints in the pipeline and refining systems limited flows, resulting in a prolonged period of surplus supply. In fact, growing rail capacity from western Canada has helped to moderate the price discounts faced by Canadian producers by relieving this oversupply. By the end of the first quarter 2013, approximately 150,000 barrels per day (bd) of crude was leaving western Canada by rail (compared with negligible amounts at the start of 2012). Based on continuing oil sands supply growth and the lack of new pipeline capacity through the next few years, we expect rail movements to increase to about 360,000 bd by the end of 2014.

Even considering new capacity from rail, the balance between western Canadian supply and export capacity remains tight. Future price volatility is to be expected. However, in some periods such as the past three months—with the help of new capacity from rail—the system has been relatively balanced, and a barrel of heavy oil sands crude priced on average $17 per barrel lower than the value of similar quality heavy oil traded on the USGC. This indicates that oil sands can grow using rail; it is already happening. —IHS Cera Insight on Keystone XL IHS currently expects oil sands production to grow from 1.9 million barrels per day (mbd) in 2013 to 4.3 mbd in 2030 and does not expect the Keystone XL decision to have a material impact on the production outlook. The IHS study points out that 3 mbd of additional oil sands pipeline capacity (not including Keystone XL) is currently proposed. 80% of this proposed alternate capacity travels exclusively through Canada—connecting the oil sands with Canada’s west and east coasts—and thus does not require US government approval. Even if pipeline capacity were to lag behind oil sands growth, the study says that transportation by rail is expected to play an ongoing role and that greater investment could make rail more economic to a level approaching that of pipelines.  “...the decision on Keystone XL may ultimately boil down to a determination of oil market share between Canada and Venezuela. Venezuelan heavy oil—and Venezuela—would be the number one beneficiary of a negative decision on Keystone.”—IHS CERA Insight The study found that with sufficient scale and investment the additional cost of transporting oil sands by rail to the US Gulf Coast rather than by pipeline could be lowered from today. If heavy oil sands producers were to invest in improved rail efficiencies, the economics could be within$6 per barrel compared to pipeline (for each barrel of oil sands produced). This would place rail well within the breakeven range for most oil sands production.

One source of improved economics could come from shipping oil sands bitumen in its pure state, the report highlights. A lack of pipeline capacity would incentivize such added investment.

Moving pure bitumen by rail. Although moving crude oil by rail is generally more expensive than by pipeline, the report notes, oilsands heavy oil could be an exception. In its natural form, bitumen is too thick for pipelines, and thus must be thinned by adding light hydrocarbons (typically natural gas condensates) for pipeline transportation. The resulting mixture (called diluted bitumen, or dilbit) is about 70% bitumen and 30% diluents, and is how bitumen is transported today, whether by pipeline or rail.

However, unlike pipelines, rail cars do not necessarily require diluent for moving oil sands. With the appropriate investment, they can transport pure bitumen, using heat to thin the bitumen during railcar loading and unloading.

By railing pure bitumen (instead of dilbit in a pipeline or rail car) oil sands producers can avoid some expense—specifically cost for the diluent—plus there would be fewer barrels to transport (compared with dilbit, shipping pure bitumen decreases the total volume moved by 30%). These savings offset some of the extra costs associated with rail transport.

Assuming sufficient scale and investment, our view is that producer netbacks from the USGC for transporting pure bitumen by rail would be comparable to about $6 lower than for moving with pipeline (for each bitumen barrel produced). This compares favorably with netbacks for railing dilbit to the USGC, which would be in the range of$10 to $15 lower than pipeline for each barrel of bitumen produced. Assuming the comparative economics between pipeline and rail were in this range ($6 per barrel or less), over the longer term, we would expect oil sands growth would not be affected, even if rail is an ongoing component of the transportation options for oil sands.

—IHS CERA Insight

Venezuela. The study also found that, were oil sands not to be shipped to the US Gulf Coast, it would result in little to no change in overall GHG emissions. That region—which contains 50% of total US refining—has a large capacity to process heavy crude. This means that crude oils of similar GHG intensity would continue to be refined in the absence of oil sands, the study says.

Venezuela is currently the largest single supplier of heavy crude to the US Gulf Coast and would be the most likely alternative source of heavy crude supply—which is projected to grow based on ongoing investments (including the Orinoco)—absent crude from the Canadian oilsands. IHS research has found Venezuelan heavy crude to have a similar range of life-cycle GHG emissions as oil sands imported into the United States.

 Source: IHS CERA. Click to enlarge.

IHS CERA is an independent energy strategy analysis firm.

Here's an idea: Instead of replacing the bitumen with heavy crude oil from Venezuela replace it with cleanly generated electricity!

Of course it is much better for Obama to support a dictatorship regime rather than to buy from our friends.

" Instead of replacing the bitumen with heavy crude oil from Venezuela replace it with cleanly generated electricity!"

Show me a economically competitive vehicle that can use clean electricity instead of petrol or diesel. This vehicle must have a none stop range of 400km without recharge and a lifespan of at least 200000km and be on equal terms in total cost of ownership with a identically sized ICE vehicle in payload and passenger capability.

Heavy crudes are not used to make electric power they are visbreaked and hydrocracked to Jet A , #2 Diesel , and Petrol which 90+% of our vehicular fleets use the few true EV on the road all have less than 200km ranges and sacrifice passenger and payload capability. Ok the Tesla but the average person is not going to buy a 80k ev. The 35K price range EV's are all tiny underpowered under ranged glorified golf carts for 35K one could get a new Audi or BMW with no limitations.

Another point is the Canadians are planing pipelines east and west to deep water ports that need no dictator wannabe approval these pipelines will be constructed and when they are this oil is going to China and will be super tankered to the Gulf of Mexico anyway the tanker cost from the St Lawrence ports to the Texas / LA refineries will still be lower than Venezuelan heavy oil. The US side of Keystone to Cushing Ok and from there to the gulf coast is being built regardless of dear leaders approval he has no say in state to state pipelines and the Bakken oil will flow down those pipes regardless.

The biggest benefactor to stalling the keystone pipeline has been the rail companies primarily BNSF...who's owner is also a huge contributer to dear leader go figure. My dad always said follow the money there you will find the truth.

@James Douglas: it always has been about money for the Bamster - and the Chicago way. His fawning lap dog press corps helps too. Don't forget all the companies fracking for crude in the US would probably not want the Keystone XL either.

http://www.theoildrum.com/node/3627

IHS cera seems to be in the old way of thinking about oil. If we are using heavy crude, we are running out of cheap oil and getting into more expensive oil. Plus it just takes more work and energy to use these resources. Our co2 per barrel increases with these oils aggravating climate change at an even faster pace. Energy efficiency should be increases even further to take into account the expense and the increases ghg's that are experiencing.

http://www.scientificamerican.com/article.cfm?id=tar-sands-and-keystone-xl-pipeline-impact-on-global-warming

One of the factors not looked at is pet coke. This is dirtier than the cheapest low grade coal on the market. Somehow this is the businessman's I don't have to count this attitude. GHG's are greatly increased with the burning of pet coke.

Its time to move quickly to get off of fossil fuels and onto clean energy

Curiously, the efficiency of the IGCC plant on the Wabash river in Indiana is marginally higher when it burns petcoke than when it burns coal.

If you want large quantities of clean energy, you want nuclear energy (whether you know it or not).

Climate change is a technological problem not a behavioral (or ethical) problem. There is no amount of behavior modification (energy use and GHG production and probably soon fresh water) that will allow all 7B people on this planet to live dignified American low-mid-class+ / European mid-class lifestyles, which they all deserve and which will save them, especially if temperatures and water level rise cause mass modification in lifestyle or infrastructure need over the next 50-100 years. Therefore, it is all about creating as much low cost energy to stoke the fires of innovation and productivity that will save us all that is essential. High energy costs are one of the greatest impediments to innovation and productivity. We are not technologically ready to take on climate change in a meaningful and sophisticated way, and provide the basic worldwide lifestyles that everyone deserves - basic economic stability before environmental luxuries always. Producing and delivering energy at the lowest cost must be continued in the short term including fossil fuels as available. This is not to say that reducing costs on solar, battery tech, and wind is not welcome - though, i would argue that it is the availability of wealth from the petro-industry that enables much of this clean energy to be developed - what? you think it was mostly happening in the labs of enviro-profs at leading universities and public research centres? All else is just feel-good greenwashing and short-term environmental sentimentalism.

“Heavy crudes are not used to make electric power ”

Are you sure?

“Climate change is a technological problem not a behavioral (or ethical) problem. ”

How wrong is that? I can produce all the energy the world needs with fission at very low, essentially zero ghg emissions.

I can also cut Jer's and all the California loons emissions by 50% over night. Rationing has been shown to be a very effective way to change behavior. The problem is that AGW is not really a problem but more of a theory. People will change their behavior for a short period of time during emergencies like war. What we see is AGW crowd promoting solar panels to close down coal plants and charge batteries. This might work for one rich dude in San Diego, California.

People of modest means drive less or carpool to save money, they do not spend $45k on a new car. Those who do spend$45k on a new car live in big houses and drive lots of miles. I will not mention any names but his initials are E,P.

It is up to three times cheaper to introduce ways to use energy more efficiently than to 3X energy production.

However, higher energy efficiency is not compatible with our throw away society. We have been brain washed (by you should know who) to believe that consuming more and more (of about everything) is the only way to demostrate that we are good Americans?

That BS also applies to too much junk food leading to gross over weight/related deseaes etc.

Over consumption, with current 15 mpg vehicles instead of 100+ mpg vehicles should be addressed.

The same applies to the current consumption of electricity. It could be reduced by 3X in most places without adverse effects on our standartd of living.

Those who do spend $45k on a new car live in big houses and drive lots of miles. I will not mention any names but his initials are E,P. I find the Twït amusing when he gets 3 strikes out of 3. I spent quite a bit less than$45k, my house is a 3 BR ranch with small bedrooms and inadequate closets and I've covered less than 4700 miles in the last 4 months.

About 7 billion people would think that E-P lives in a big house, drives an expensive car, and drives lots of miles.

When it comes to energy use there is the cloths line class and the airline class.

I do most of my clothes drying on the deck railing.

“I do most of my clothes drying on the deck railing. ”

Again failing to grasp the basic concept. We have a class of people who use lots of energy and are free to make choices to use that energy to improve there life. A good thing.

Then these people brag about conserving a small amount of energy. A silly thing.

Another BEV owner brags about his new car being maintenance free for the first month and his power being 100% renewable energy. Next thing you know he is posting about his family vacation to Hawaii. His BEV power also comes from a coal plant.
I have long commutes therefore I I live close to work. Since I spend little time in my car, I do not care if it is a POS. When I hear that 'less than 4700 miles in the last 4 months' in the context of saving I got to think that the grasp the basic concept of saving has been replaced by the drum beat of spending lots of money so you can save money to spend on something else.

Let me quote you again, Twït:

Those who do spend \$45k on a new car live in big houses and drive lots of miles. I will not mention any names but his initials are E,P.

It has been most amusing to watch your back-pedalling and evasions as those assertions have been debunked with facts.  It would be less damaging to "your" reputation to just admit you were wrong, but since "Kit P" is a sock puppet, there is no "you".

We have a class of people who use lots of energy and are free to make choices to use that energy to improve there [sic] life. A good thing.

Never said that was my goal.  My purpose was to cut petroleum consumption and achieve a measure of independence even in the case of outright lack of petroleum supply.  I have achieved that.

Then these people brag about conserving a small amount of energy.

You were the one who divided people into "airline class" and "clothesline class".  I haven't been on an airliner since my employer's business took me from North Carolina to SEATAC back in 2007, and I do air-dry my clothes when possible.  Not bragging, just pointing out that you got the category wrong... again.

You can't get anything right, so why don't you just give it up?

"BTW, President Obama said he’ll put the brakes on KXL if it has a significant impact on the climate -- but the company hired to assess the climate impact of KXL lied about deep ties to Big Oil, especially its relationship with KXL’s owner, TransCanada.";