Some Environmental Issues Surrounding Keystone XL

From “Keystone XL Pipeline Project: Key Issues,” CRS Report R41668 (Jan. 24, 2013):

For the pipeline project represented in the August 2011 final EIS, approximately 95% of the land
affected by pipeline construction and operation was privately owned, with the remaining 5%
almost equally state and federal land. Private land uses were primarily agricultural—farmers and
cattle ranchers.

The pipeline’s construction and continued operation would involve a 50-foot-wide permanent
right-of-way along the length of the pipeline. Keystone agreed to compensate landowners for
losses on a case-by-case basis. However, a concern among landowners and communities along
the route is the potential for their land or water (used for drinking, irrigation, or recreation) to be
contaminated by an accidental release (spill) of oil. That concern is heightened in areas where the
pipeline will be located near or would cross water or is in a remote location.

A primary environmental concern of any oil pipeline is the risk of a spill. In estimating the
possible impacts of an oil spill, location is generally considered the most important factor—
particularly the potential for the spill to reach surface or groundwater. For example, the potential
impacts of a spill to water is highlighted in the Keystone XL final EIS, as follows:

The greatest concern would be a spill in environmentally sensitive areas, such as wetlands,
flowing streams and rivers, shallow groundwater areas, areas near water intakes for drinking
water or for commercial/industrial uses, and areas with populations of sensitive wildlife or
plant species.118

A release of oil on land would not necessarily result in surface or groundwater contamination.
The potential for a spill to reach water would depend on factors such its proximity to a water
source (e.g., on or near a creek or stream or located on land where the groundwater table is close
to the surface) and the characteristics of the environment into which the crude oil is released (e.g.,
porous underlying soils), and the volume of the spill, the duration of the release, and the viscosity
and density of the crude oil.

The size of potential spills and the type of oil that would likely be released from the Keystone XL
pipeline have been issues of concern to opponents of the project. In its July 16, 2010, comments
on the draft EIS for the Keystone XL pipeline, EPA expressed particular concern over the
potential adverse impacts to surface and ground water from pipeline leaks or spills. That concern
stemmed from two areas—the toxicity of chemical diluents that may be used to allow bitumen to
be transported by pipeline and the lack of risk assessment for potential “serious or significant
spills,” including an evaluation of spill response procedures in the wake of such a spill.

Concerns reflected in EPA’s letter were realized 10 days later when the Enbridge Energy Partners’
Alberta Pipeline ruptured near Marshall, MI. The resulting spill released dilbit crude into a
tributary creek of the Kalamazoo River and traveled approximately 40 miles downstream in the
Kalamazoo River. Initially estimated by Enbridge as a release of approximately 800,000 gallons
of crude, EPA subsequently estimated that over 1.1 million gallons were released. The spill
resulted in over 220 areas of moderate-to-heavy contamination, including over 200 acres of
submerged oil on the river bottom and over 300 solidified oil deposits.119 Enbridge estimates that
cleanup will cost approximately $700 million.

The Enbridge spill highlighted several issues of concern among environmental groups and
communities along the pipeline route—in particular, the nature of the dilbit crude likely carried
by the Keystone XL pipeline. The dilbit crude in the Enbridge spill had been diluted with benzene
and other hazardous constituents. Following the spill, high levels of benzene in the air prompted
the issuance of voluntary evacuation of residents in the area. Concern over the presence of
similarly toxic constituents, particularly the degree to which the level of toxic constituents may be
unknown at the time of a release, has been an ongoing concern among environmental and
community groups.

The Enbridge spill was considered a “very large spill” and not necessarily one that would likely
occur along the Keystone XL pipeline route. However, in its first year of operation,
TransCanada’s Keystone pipeline experienced 14 spills. Although mostly minor spills, one spill at
the Ludden, ND, pump station resulted in the release of 21,000 gallons of oil. Like the Enbridge
release, that release was first reported by local citizens, not as a result of the Keystone’s release
detection equipment. These incidents have made pipeline opponents concerned that, absent a
witness to a spill, a leak in a remote area could potentially go undetected for a long period.

Also as illustrated in the aftermath of the Enbridge spill, cleanup of bitumen crude presents
certain challenges. Dilbit is a relatively heavy crude oil mixture compared to other crude oils. In
general, heavier oils are more persistent and present greater technical challenges in removal after
a spill compared to lighter oils. Almost two years after the Enbridge spill, cleanup efforts
continue. Since the spill, public access to 39 miles of the river system was banned to protect
public health and safety. The first three-mile segment of river reopened to the public on April 27,
2012. Elements of the cleanup are expected to last until 2015.

Regardless of design, construction, and safety measures, the Keystone XL pipeline will likely
have some number of spills over the course of its operating life. The unique oil spill response
efforts necessary for dilbit crude make an accurate assessment of potential oil spill risk
particularly relevant when addressing concerns expressed by opponents to the Keystone XL
pipeline. The need for more conclusive analysis of potential risks associated with the transport of
dilbit crude was addressed, in part, in the Pipeline Safety, Regulatory Certainty, and Job Creation
Act of 2011 (P.L. 112-90, enacted January 16, 2012). In particular, under Section 16, “Study of
transportation of diluted bitumen,” the Secretary of Transportation is required to conduct an
analysis to determine whether there is any increased risk of a release for pipeline facilities
transporting diluted bitumen. In response to that directive, the PHMSA contracted with the
National Academy of Sciences to conduct a full and independent study of this topic, which is not
yet completed. For further analysis of environmental issues associated with the Keystone XL
project, see CRS Report R42611, Oil Sands and the Keystone XL Pipeline: Background and
Selected Environmental Issues, coordinated by Jonathan L. Ramseur.

Update, 5:15PM Pacific: In response to Steven Kopits characterization of Enbridge, please see “Enbridge Resisting Final Clean-Up of Its Michigan Oil Spill,”:

In October, the U.S. Environmental Protection Agency asked Enbridge Inc., the pipeline’s Canadian owner, to clean up several miles of the river where submerged oil is still accumulating. The proposed order told Enbridge to dredge 80 to 100 acres of the riverbed. The request was based on the results of a yearlong study the EPA conducted with oil cleanup experts, Michigan state regulators and a committee of about 15 scientists.

The dredging is needed, the agency said, because the oil could spread into uncontaminated areas of the river if it isn’t removed.

Steve Hamilton, a Michigan State University professor and a scientist on the committee, said the number of acres could change as the EPA continues to study the situation. “No specifics have been decided…Further recovery actions in the most contaminated sediments—potentially including dredging—are being contemplated.”

Enbridge responded to the request by asking the EPA to delay issuing its final order until the agency completes some ongoing scientific studies. In a Nov. 2 letter obtained by InsideClimate News, the company questioned the EPA’s assertion that the submerged oil is “mobile” and could contaminate sections of the river that are already clean.

And from National Journal:

You may remember Enbridge from the costliest onshore oil spill in U.S. history, caused by a corroded Michigan pipe that leaked more than 800,000 gallons of Canadian oil in 2010. The National Transportation Safety Board found that 81 percent of that oil gushed after Enbridge employees misread alarms along their purportedly state-of-the-art system and twice tried to restart the pipeline.


49 thoughts on “Some Environmental Issues Surrounding Keystone XL

  1. c thomson

    Can’t see where this is going Prof. Chinn? What is the economic point? Is there an economic point?
    Clearly Keystone is more or less certain to go ahead sooner or later – whatever the Sierra Club sniveling and liberal political posturing in the meantime. Reality generally trumps snivel.
    In the event Keystone is permanently blocked, the Canadians will sell the oil elsewhere or by another method. How does that help the US?

  2. Menzie Chinn

    c thomson: I thought the economic implications would be obvious, but clearly it is not for you. So, from a basic microeconomics textbook: the social optimum is attained when the marginal social benefit from an activity is set equal to the marginal social cost. If negative externalities are not internalized, then too much of that activity will be pursued.

    Please consult a textbook.

  3. jonathan

    I hate the word “externalities” because its denseness distracts from the concept of total cost. I remember learning this stuff in law school decades ago: the total cost of remediation, for example, is not just the cleanup but the cascade of foreseeable effects. Foreseeability is a big concept in law; it dates in damages at least back to Hadley v. Baxendale in 1854, with the idea that “consequential damages” must be foreseeable – and that a measure of foreseeability is the price paid for a service.
    In this case, you’re really talking about a foreseeable failure along the pipeline. The rational response would be to require insurance or a set aside from revenue. The problem with insurance only is that the cost has to be high enough to force change – or the insurer has to have the ability to enforce practices which will minimize the insured risks. That argues for both: a mix of a reserve fund specific to this pipeline – because all pipelines have their specific risks – and insurance for this pipeline.
    Does this make sense to you?

  4. Joseph

    It’s amusing to see the conservatives who went absolutely ballistic over the Kelo decision now cheering on a foreign corporation seizing property from American citizens through eminent domain.

  5. Steven Kopits

    Enbridge is paying $700 million to clean up a spill the volume of two Olympic-sized swimming pools. Those costs aren’t internalized?

  6. CoRev

    Canada is mining its own oil sands? We in the US are also mining our own oil sands. Getting that crude oil the most efficient way to a US market is via pipeline. We will continue to process the US crude oil in US refineries. So the remaining issue is do we want the Canadian crude oil to be processed in a US or in a foreign refinery?
    That also leaves a few questions? Do we need the jobs? Do we need to be less dependent on OPEC oil? Do we need the additional economic impacts that cheaper oil brings? Is the climate actually still warming?
    The answers are obvious. Yes! Yes! Yes! NO!!!
    Most folks do not know that warming has stopped. From here:
    we have:
    “On all data sets below, the different times for a slope that is at least very slightly negative ranges from 8 years and 3 months to 16 years and 1 month:
    1. For GISS, the slope is flat since May 2001 or 11 years, 7 months. (goes to November)
    2. For Hadcrut3, the slope is flat since May 1997 or 15 years, 7 months. (goes to November)
    3. For a combination of GISS, Hadcrut3, UAH and RSS, the slope is flat since December 2000 or an even 12 years. (goes to November)
    4. For Hadcrut4, the slope is flat since November 2000 or 12 years, 2 months. (goes to December.)
    5. For Hadsst2, the slope is flat since March 1997 or 15 years, 10 months. (goes to December)
    6. For UAH, the slope is flat since October 2004 or 8 years, 3 months. (goes to December)
    7. For RSS, the slope is flat since January 1997 or 16 years and 1 month. (goes to January) RSS is 193/204 or 94.6% of the way to Ben Santer’s 17 years.”
    If not a climate issue then what are the remaining environmental issues? Do they over ride the economic benefits?

  7. john jansen

    There has never been a project which produces energy in the conventional manner which satisfies or placates the leftist elite (of which you seem to be a card carrying member). The left favors higher prices for energy via taxes but howls when market forces drive prices higher. you cant have it both ways.

  8. TripleHash

    Now I’d like to see the same analysis done for trains carrying the same amount of oil. What impact would trains have on the air we breath and CO-2 levels? How about derailments and their cleanup? If the pipeline isn’t built it will go via train. Let’s discuss that impact too.

  9. Ricardo

    The greatest blindness of radical environmentalists is that a cleaner environment can only happen when a society is prosperous. All you have to do is visit those countries that have very low average incomes and you will see environmental disasters.
    I have a little experiment form you. Tonight when you watch TV count the number of advertisements that promote environmental products: deoderant, dish and cloths soap (consider those poor peasants washing in a polluted stream), energy efficient windows, efficient appliances. Then consider the transportation of goods and services via trains and trucks versus burros or horses.
    In the US all of the environmentalists do is fight prosperity. If they had their way we would all be polluting streams with our personal waste products rather than having a society rich enough to use septic tanks and sewerage.
    The ignorance of radical environmentalists would be laughable if it did not cause so much harm to the environment.

  10. westslope

    Agree with the thrust of Steven Kopits’ argument: pipeline companies generally pay for all upfront cleaning costs and take care of all impacted parties when there is a spill even if it is the fault of a third party.

  11. westslope

    Besides, all of you are focusing on the wrong side of the equation: the demand side. Call them what you like: green taxes, carbon, taxes or just plain vanilla fuel excise taxes, US taxes on dirty fuels should increase by several multiples. At the current levels–the lowest fuel taxes among the rich OECD countries –it is tough to imagine the price facing consumers to be sufficient to cover all socio-economic costs.

    Be smart like Nancy Reagan. Just say NO to cheap fuel policies.

  12. CoRev

    westslope asserts: “US taxes on dirty fuels should increase by several multiples. At the current levels–the lowest fuel taxes among the rich OECD countries –it is tough to imagine the price facing consumers to be sufficient to cover all socio-economic costs.” Strangely, there is no mention of the socio-economic costs of those high energy prices. Look across the Atlantic to see fuel poverty in action. Why? Because they have followed westslope’s preferred path
    And he continues: “Be smart like Nancy Reagan. Just say NO to cheap fuel policies.” Live with all the unneeded economic impacts solely to live a Green life style which in the end is unstainable.

  13. 2slugbaits

    Steven Kopits Those costs aren’t internalized?
    No, they are not. If you rob a bank and only have to pay back what you robbed if you’re caught, that is not internalizing the cost of bank robbing. Only paying for the direct costs of cleaning up a spill is not internalizing all costs. For one thing, some of those clean-up costs get dumped back onto the taxpayer as operating expenses that offset tax liabilities. But internalizing costs means more than just cleaning up the immediate mess. It means fully compensating all those people whose lives were upset due to the spill. It means fully compensating people for future health risks. Internalizing costs means including all costs and risks in the selling price. The reason all costs should be internalized is that it constrains the production quantities. In other words, internalizing costs is supposed to affect the output quantity.
    And today we learned just how willing oil companies are to step up to the plate:
    The obvious solution is to reroute the pipeline around the most sensitive parts of the aquifer. And I suspect that’s exactly what will end up happening. Obama will agree to a modified pipeline route in exchange for some GOP concessions on stuff like coal, methane, etc.
    CoRev No, the slopes are not flat. And you might want to learn about leverage points. But in claiming the slopes are flat, at least you are now conceding that the slope is not downward. It was only a few years ago that you were guaranteeing that we would be going into a cooling stage.

  14. 2slugbaits

    CoRev Our consumption of fossil fuels does not reduce the cost of fossil fuel consumption for poor countries. Our consumption not only increases the cost of fossil fuels for poor countries, but it also increases the climate costs for those poor countries. Almost every economic model shows that less developed countries are hit the hardest by unchecked global warming. If you’re really concerned about less developed countries, then turn down the thermostat, put on a sweater and tell your congress critter to support green energy like solar, wind and 4G-nuclear.

  15. benamery21

    I doubt many here are in the “no impact is acceptable–all feasible energy projects must be banned” camp. That doesn’t mean that multi-billion dollar projects with clear environmental risks should be rushed, or allowed to stampede regulators and ignore the rights of the public and private property owners to see reasonable concerns reasonably addressed. My experience, from the point of view of both a proponent and a regulated utility charged with enforcing certain regulations, with infrastructure projects from a few thousand dollars to a few billion dollars, is that working thru the details takes time, and that, while trivial issues often take far more time than reasonable, to a certain breed of proponent, all issues not directly concerned with improving their profitability and timeline are to be deemed trivial.

  16. Tenney Naumer

    Increases in global average temperature have not stopped.
    Aerosols from Asia are dampening larger increases in global average temperature, but the ocean is absorbing roughly 90% of the energy imbalance caused by way way too high levels of CO2 in the atmosphere.
    If you pull out from the temperature data natural variations such as volcanic eruptions, ENSO, solar cycles, etc., the trend is quite clear — temperatures are still going up.
    We have had 335 consecutive months of global average temperatures above the 20th century average.

  17. CoRev

    2slugs claims without any evidence: ” No, the slopes are not flat. And you might want to learn about leverage points. But in claiming the slopes are flat, at least you are now conceding that the slope is not downward. It was only a few years ago that you were guaranteeing that we would be going into a cooling stage.” Really!?
    Tell that to the data. Are you actually in denial of the data? If you dispute the data run your own. Wood for Trees can be used to create your own graphic evidence. Or you could use the SKS trend calculator:
    Do the work before you make crazy unsupported claims.

  18. CoRev

    Tenney Naumer claims that the natural influences to temperature can be cleanly removed from the data, but then only listed a hand full of those influences. Moreover, there is no consensus on what are the various impacts.
    As I said, few actually realize that the temp data has stabilized for a significant period.
    As 2slugs noted skeptics have been predicting this for some years. What it does show is that Anthropogenic CO2 (ACO2) is not as significant as predicted when it can be overwhelmed by natural heating/cooling factors. It also means those natural factors were also significant in the previous warming period.
    Mitigating ACO2 is clearly not as impactful as we have been assured. And, ACO2 from the Bakken reserves is the main reason for most of the protests.

  19. Jeremy

    And your point is what?
    Do you drive a car, do you use a laptop and do you travel by airplane to conferences, and do heat or air condition your home?
    Look around your office and home and try to imagine what it would be like without any plastics and cheap fossil fuel energy?
    There is a cost/risk to every industrial activity…be it cutting down forests, raising chickens in coops, spreading fertilizers, emitting pollutants etc.
    It is never a black and white issue.
    The key is to find a balance.
    A small oil spill from time to time may be expected and at a certain low enough level becomes an acceptable risk considering the benefits that a pipeline brings. Thousands of fisherman risk their lives daily at sea in order to bring home their catch and as long as the risks are low and the benefits are high enough then it makes economic sense to do it.
    Of course, it also makes sense to use technology as much as possible to protect those fisherman and prevent costly spills and continuously improve safety by setting stringent yet economically viable regulations/restrictions on these activities. Absolutely – go EPA go!!!
    We also know that restricting energy supply will ultimately result in higher energy costs and higher food prices which hurt the American poor most – both in terms of how increased costs hit their wallets and through industrial jobs lost to economies with lower energy input costs – this all needs to be considered very carefully and pragmatically without the emotional language in the above article. There is an extremely strong correlation between fossil fuel consumption (industrialization), GDP and living standards that is extremely hard to deny.
    To continue the fishing analogy, the occasional terrible emotional accident at sea where an entire crew is lost (and a lot of diesel is spilled) does not on balance appear to justify to ban fishing or shipping. A pipeline is not so very different: there are equally tragic risks from an accident as well as huge economic benefits from its use.
    An economist should demand that the benefits clearly outweigh the risks, if the Victorians had focused only on the risk of train wrecks then we certainly would never have built railroads…
    I would really like to see a more balanced economic discussion here….

  20. Menzie Chinn

    Jeremy: When one uses as a criterion the equation of marginal social cost equal marginal social benefit, then one is balancing factors. I didn’t say there were zero benefits; merely that one wants to assess the costs and benefits accruing to the United States.

  21. Anonymous

    The CRS was very disappointing. I would expect the “Ecnomic Analysis” to be that, an attemo to determing the discounted present bvalue of all costs and benefits. Instead it just referred to a few claims which seem to consider “jobs” as a benefit and did not appear to include any of the environmental costs.

  22. CoRev

    Menzie says: ” I didn’t say there were zero benefits; merely that one wants to assess the costs and benefits accruing to the United States.” My own history is that I did Cost/Benefit analyses for a then new technology, office automation/personal computers. After doing just a few of these studies and finding the same results, they7 paid for themselves in months versus the multi-year life cycles we were accustomed. We recommended that the regulation be changed/dropped.
    The XL pipeline has that same feel. We have generational history that shows overwhelming inherent benefits. Pick you target to measure. Those fighting it have picked a target that is today nonexistent. Worse they are ignoring all the other benefits to emphasize what is today a nonexistent risk.
    Compare the before oil history to today and accept that an incremental increase of more oil compared to that pre-oil reality. The answer is blindingly, intuitively obvious unless you are just fighting a nonsensical and pointless political battle.

  23. Menzie Chinn

    Steven Kopits: No, I did not recommend any policy actions. But now that you mention it,my question are (1) given the record of Enbridge, is there a way to further reduce the likelihood of spills; (2) what are the costs and benefits of alternative means of getting the oil to world markets, where costs and benefits are viewed through the perspective not of the firms and workers, but of national welfare. So, for the United States, after incorporating environmental costs, do marginal social benefits match or exceed marginal social costs?

  24. jtf

    Menzie, your second question is easy to deal with. Truck and rail transport are astronomically more expensive and more hazardous to the public than pipeline transport. It should be obvious why trucking and rail are both more expensive to the parties involved, but less obvious is the infrastructure cost of additional cargo rail and highway maintenance.
    In addition, despite your figures for pipeline accidents – which do occur, but at a far lower rate than in other forms of transportation when compared to the volume transported – trucking accidents and rail accidents are far more common. Not only that, but pipelines are unlikely to cause as much damage as trucking or rail because they do not generally pass through heavily populated areas. Actually, just a few months ago a major chemical spill from rail transport went largely unreported when compared to the furore over the minor Enbridge pumping station spill:
    Imagine if that had been oil instead of vinyl chloride monomer, and you begin to see what the impact of shifting transport to rail or truck would be.
    This is particularly true for trucks, especially when you consider the far higher likelihood of truck accidents than pipeline accidents (on the basis of volume transported) and the fact that most trucking accidents occur in heavy traffic proximate to populated areas.

  25. Menzie Chinn

    jtf: There is yet another alternative; that is Canada sell its oil through Canadian ports; that means Canada bears the bulk of the environmental costs (just as it is likely that Canada garners most of the gain).

  26. Jeffrey J. Brown

    Once the Canadians are able to start shipping large volume of bitumen and upgraded crude oil to their West and/or East Coasts, I suspect that it will be much more difficult, and expensive, to get the oil to US refineries, especially since I assume that a good deal of oil will be contractually committed to east-west running pipelines.
    Given the price differential between Western Canadian crude and global prices, Western Canadian producers may start a bucket brigade to get the oil to coastal markets.

  27. CoRev

    Manzie, you have referenced the environmental costs several times now. How about a short list of the environmental impacts. Are they so scary?
    Just as jtf has identified the intuitiveness of the costs for alternative transportation, I believe the gains are also intuitive, but I have yet to see anything but vague emotional responses.

  28. jtf

    Menzie, I am aware of that possibility and do not like it.
    You are suggesting that it actually matters whose environment is despoiled more – the United States’ or the Canadians’ – when the actual debate should be over the least damaging method of transport. And either way, no matter what country the oil transport infrastructure is built in the same people – the pipeline owners – are liable for the damage incurred. Petty nationalistic or sentimental concerns aside, I am indifferent to the outcomes in terms of environmental impact, unless there is a way to conclusively prove that one route will be more dangerous than the other. Considering the proposed Northern Gateway pipeline passes through much more environmentally sensitive land in Alberta and Northern BC than does Keystone XL, I’m inclined to believe it’s probably even better for the oil to flow through the US.
    It’s also worth noting that while the Canadian producers will be capturing the bulk of the gain, an American pipeline gives a not inconsiderable economic advantage to American refiners, to say nothing of the intangible strategic value of local oil supplies or the US Gulf Coast remaining the pre-eminent location for North American petroleum.
    I am honestly trying to think of a more sympathetic interpretation of that sentiment than “better to let the dirty oil makers keep their filth” but it is very difficult.

  29. Steven Kopits

    In general, pipelines are pretty safe and cost effective. They are, as jtf points out, much safer than trucks, trains or barges.
    Now, is this particular project safe enough or as safe as it could reasonably be expected? I don’t know the answer to that. I assume a degree of competence from TransCanada, but clearly they weren’t competent enough to anticipate route problems in Nebraska.
    There are things you can do to increase safety, for example, more remote monitoring and a closer spacing of valves in sensitive areas. But pipes aren’t exactly rocket science, and most of the time they work fine.
    The bigger risk, to my mind, remains the Gulf of Mexico. Our industry is moving progressively to higher pressure wells–that’s where the geology takes us. Everyone knew Macondo was a nasty well. The question is, what was BP doing there? Well, that’s the best thing they could find to drill. That’s a thought worth contemplating.
    Ask me my subjective sense of where things could go wrong on a company level, and it’s Petrobras. The risk factors: delays, cost overruns, inexperienced crew, difficult projects and locations–that’s Brazil offshore today.

  30. Steven Kopits

    As for social cost benefit.
    I gave a luncheon speech at HSBC today, and it provided me an opportunity to review a few macro oil figures (some of which I have noted here before):
    - US shale oil provide all of global net oil supply growth in the last two years. Oil sands and Iraq have only been enough to offset the decline in Iranian production. That’s pretty scary. It’s not that unconventionals are a nice addition to the conventional supply, they appear to be the only real upside we have.
    - Petrobras. The Brazilian oil company was supposed to be the engine of offshore oil production. Instead, its oil production fell 2% last year, and might fall as much this year again. It’s finances are a mess.
    - ExxonMobil. ExxonMobil production fell much faster, 6% last year, and upstream earnings were off 13%. At present, it looks like Exxon is caught in the price-cost vice, with cost increases outpacing selling price increases.
    - Rig counts are off about 20% in both the Bakken and the Eagle Ford. While this does not preclude further production rises, it’s hard to see how US oil production can continue to increase at recent rates if rig counts are falling.
    - Goldman Sachs reports that unproductive capital as a share of capital employed for oil majors will increase from 4% in 2004 to 23% in 2015. This will have a material impact on their net WACC.
    The oil supply is not in good shape. That’s another factor to consider when thinking about social benefit.

  31. 2slugbaits

    Steven Kopits So what’s wrong with just rerouting the pipeline around the most sensitive areas of the aquifer? Would it cost TransCanada a few more bucks? Yes, but so what?
    Back in 1970s the Ogallala Aquifer added about $26B in land values to the farms on top of it. I don’t know what the current value is, but about 10 years ago that figure had fallen to something like $9B. The main reasons were falling water levels and because farmers had moved to more drought tolerant crops. But over the last 10 years we’ve seen diminishing ability to engineer what are basically tropical plants and increase their drought tolerance. Since the 1970s the climate zones have essentially moved about 120 miles north. All this means that the Aquifer will probably increase in value.
    Now I agree that barges and offshore oil rigs are environmental monstrosities. And in general pipelines are cleaner and safer. But…in this case the Aquifer is especially vulnerable to leaks and spills (not to mention providing terrorists with a great opportunity to scare hell out of Nebraskans). In some places the water table is only a matter of inches below the surface. A spill from Keystone won’t just float on top of the water, but will sink to the bottom of the Aquifer. As a practical matter it would be next to impossible to clean it up.
    Finally, at some point we’re going to have to accept the fact that 80% of the known carbon is going to have to stay in the ground. Time to think outside the oil drum.

  32. 2slugbaits

    CoRev Just for yucks I pulled the “woodfortrees” Hadley data set. The “calculator” at the skepticalscience site looked a little flakey, so you’ll forgive me if I used real time series software. I spent like 5 minutes with the data, so this is hardly a sophisticated analysis. And I’m almost embarrassed to mention it at JDH’s site. Anyway, a quick ADF check in levels found that the null of a unit root is soundly rejected with a constant and trend term. A correlogram of the residuals from a simple trend model showed geometric decay and the partial ACFs showed two orders of autocorrelation. So I ran a siimple ARMAX model with a Kalman filter using a simple time trend and two AR lags based on AIC & SBC reports. The residuals were a little kurototic and there was some soft evidence of GARCH errors at lag 7. But this wasn’t a research project, so good enough is good enough. Anyway, all of the parameter coefficients were statistically significant, with the lowest t-value being 5.6. The simple linear trend had a t-value of 13.42, which is significant by anyone’s standard.

  33. Andrew

    KXL is all about moving bitumen from the tar sands. As Jeremy Grantham put it…

    “I believe anyone investing in tar sands is very likely to end up with stranded assets in the next decade or two.”

    From this interview…

    Jeremy Grantham to join Keystone pipeline protest

    Fund manager Jeremy Grantham will march in the Sierra Club’s first-ever act of civil disobedience against a controversial pipeline.

  34. CoRev

    2slugs, just for yucks why didn’t you just show your own trend line with confidence bars.
    BTW, you just trashed the Rahmsdorf & Foster 2011 paper with your comment re: SkS’s trend line estimator.

  35. Menzie Chinn

    CoRev: Not that I mentioned anthropogenic climate change in my post, you really should refer to this paper, coauthored by James Stock, who all econometricians and economists will know and respect: Robert K. Kaufmann, Heikki Kauppi, Michael L. Mann, and James H. Stock, “Reconciling anthropogenic climate change with observed temperature 1998–2008,” Proceedings of the National Academy of Sciences of the United States, 108 (29).

    Given the widely noted increase in the warming effects of rising greenhouse gas concentrations, it has been unclear why global surface temperatures did not rise between 1998 and 2008. We find that this hiatus in warming coincides with a period of little increase in the sum of anthropogenic and natural forcings. Declining solar insolation as part of a normal eleven-year cycle, and a cyclical change from an El Nino to a La Nina dominate our measure of anthropogenic effects because rapid growth in short-lived sulfur emissions partially offsets rising greenhouse gas concentrations. As such, we find that recent global temperature records are consistent with the existing understanding of the relationship among global surface temperature, internal variability, and radiative forcing, which includes anthropogenic factors with well known warming and cooling effects.

  36. CoRev

    Menzie, you claim to not have mentioned anthropogenic climate change, but any reference to the environmental factors re: XL pipeline are primarily based upon this concern. Moreover, your own reference does discuss it: “…Pipeline opponents are generally environmental organizations and community groups. Their
    concerns stem from issues that can be broadly ca
    tegorized as the pipeline’s global or community
    impacts. “Global” impacts stem primarily from concern regarding the lifecycle greenhouse gas
    (GHG) emissions associated with the development of Canadian oil sands, compared to
    conventional oil or renewable fuels. Although the concern regarding GHG emissions is focused
    primarily on the extraction process, opponents also
    argue that use of the oil sands crude promotes
    continued U.S. dependency on fossil fuels….” in terms of why it is being protested. Couple that with the recent news to say it was not mentioned is disingenuous.
    I’m not sure what your point was in referencing the climate paper. It recognizes what was my point that warming is at a hiatus. In their own words: “Given the widely noted increase in the warming effects of rising greenhouse gas concentrations, it has been unclear why global surface temperatures did not rise between 1998 and 2008. We find that this hiatus in warming coincides with a period of little increase in the sum of anthropogenic and natural forcings….”
    They then go on to list some natural causes which are too few and too poorly defined while ignoring other more important natural causes.
    Are you arguing the reality of the warming hiatus? Or that anthropogenic warming is/is not overwhelmed by natural factors causing cooling? If it is the latter, explain how those factors affected temperatures during the warming.
    Perhaps you and 2slugs can tease a valid signal from each factor to determine the actual anthropogenic versus natural portions of the fraction of a degree warming observed in the 130+ to 150+ year data.

  37. Enviro Equipment Blog

    “However, a concern among landowners and communities along the route is the potential for their land or water (used for drinking, irrigation, or recreation) to be contaminated by an accidental release (spill) of oil. That concern is heightened in areas where the pipeline will be located near or would cross water or is in a remote location.”
    Oil spills also occur at sea, albeit usually far away from populated areas. So the way I see it, the question becomes are spills more likely to occur at sea (via sending it to the coast through British Columbia) or on land (via the XL pipeline down to the Gulf Coast). As an American, I would like to see us get all the jobs from the building and maintenance of the pipeline but if it’s safer to ship it in oil tankers, then let Canada take all the environmental risks.

  38. CoRev

    Menzie and 2slugs: “The UN’s climate change chief, Rajendra Pachauri, has acknowledged a 17-year pause in global temperature rises, confirmed recently by Britain’s Met Office, but said it would need to last “30 to 40 years at least” to break the long-term global warming trend. Dr Pachauri, the chairman of the UN’s Intergovernmental Panel on Climate Change, said that open discussion about controversial science and politically incorrect views was an essential part of tackling climate change….”
    The biggest environmental issue (at least in terms of headline grabbing attention) is nonexistent, so why are we having environmental issue over the pipeline?

  39. Jeremy

    I’d be interested in the “social cost” of the catestrophic global warming scam.. Will Econbrowser look into the billions of taxpayer money and needless subsidies and onerous increases in electricity rates on the poor – all in the name of a still unproven hysterical supposition! My money is that natural factors dwarf Manmade CO2 and climate feedbacks are negative rather than the strongly positive values needed by alarmists to grab headlines and scare people.

  40. 2slugbaits

    CoRev Menzie, you claim to not have mentioned anthropogenic climate change, but any reference to the environmental factors re: XL pipeline are primarily based upon this concern.
    I’m not sure this is right. It’s probably true that many people oppose the Keystone pipeline on grounds of climate change; but in that case their complaint is with fossil fuels in general and not with the Keystone pipeline in particular. But in many cases (myself included) the Keystone pipeline has unique environmental problems beyond just the climate change issue. The Keystone pipeline traverses a very fragile freshwater source. Nebraska without the Ogallala Aquifer is just Colorado without the mountains…dry dust.
    As to the temperature pause, let me remind you that only a few years ago you were predicting not just a pause, but an actual drop in global temperatures and you promised a new era of global cooling. How’s that prediction working out for you? You might want to read the James Stock paper. If global warming isn’t manmade and if your side is right, then we should be experiencing a bigtime cooling.
    As to the skepticalscience calculator, I’m curious. Would you trust someone who doesn’t appear to know the difference between confidence bands and prediction intervals?

  41. CoRev

    2slugs asks: “As to the skepticalscience calculator, I’m curious. Would you trust someone who doesn’t appear to know the difference between confidence bands and prediction intervals?” Better take it up with Grant Foster (Tamino). Do you consider yourself a better statistician? You have cited him in the past.
    Perhaps you are not aware the pipeline’s route has changed. One article describes the change this way: “Heineman has supported the pipeline project but opposed TransCanada’s original proposed route that crossed the environmentally sensitive Sandhills region. TransCanada altered the pipeline’s path to avoid the Sandhills and a couple towns’ water wells.
    The completed review of the new route said there’s potential for damage to groundwater if there were a spill, but said the effects would be local rather than regional.
    Read more:
    You have repeated the you said …. What do you think w3ill happen if the other natural factors change to their cool modes as skeptics predict? Whatg makes you thin the cooling is not in the data? The cooling is there just not for the period of stability, which due to NOAA falsifies the models. Dr Santer is on record saying a 17 year period without warming obviates the predictions based human influence of warming. (Ergo the reason for the comment: “For RSS, the slope is flat since January 1997 or 16 years and 1 month. (goes to January) RSS is 193/204 or 94.6% of the way to Ben Santer’s 17 years.”)
    As an issue GW is dying. As a science climatology is proving to be terribly imprecise.

  42. m ellenberger

    i have a simple question to ask proponents, similar to other such related energy issues, like oil refineries and nuclear power plants: would you live next to the pipeline, or, more accurately, would you want to see your water supply put in danger by the pipeline? what would it take for you to accept the risk, however you evaluate it? would you minimize the risk if your own or your family’s welfare were at stake?

  43. CoRev

    m ellenberger, what’s the risk factor? I live within miles of a Nuke plant. Even closer is a LNG storage facility. Even closer is the pipeline feeding the LNG plant. My family homestead had/s an oil well on it.
    If you live in an eastern city you already receive much of the Midwestern air pollution. If you live in the N. Eastern RGGI region your electric energy costs are higher than almost every where else in the country, and your politicians want to make them higher. And you are concerned about?????
    Worse, you probably do not believe this is happening. (Note: the CO2 offset is there to show better the divergence from temps.)

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