State Department's New Keystone XL Pipeline Report Proves Battle to Stop Tar Sands Is Probably Already Lost

On Friday afternoon came the unheralded release of a pretty important preliminary analysis from the State Department regarding the proposed Keystone XL pipeline, a conduit for diluted bitumen mined in Alberta and destined for the Texas Gulf Coast petroleum refineries.

The takeaway, however, has to be depressing for the climate-change activists and environmentalists stumping for the pipeline's denial -- the southern half of which, by the way, is being laid through East Texas as we speak. They had hoped that by denying tar sands producers an outlet to Gulf Coast refiners, the crude glut in the Midwest would continue to drive prices down, depressing investment in this carbon-intensive form of hydrocarbon. This, it was posited by opponents, could reduce the amount of heavy crude refined by Valero and the other big players in the downstream oil biz. But will it?

The State Department's answer was deflating and succinct: Nope. Not really. While Keystone is held up, the market has already stepped in with alternative pipelines that don't require presidential approval, like the Seaway line that runs through East Texas. The railroads, meanwhile, see rail transport of oil as a massive industry growth sector. And though rail may not be as cheap as pipeline transportation, the State Department calculates that crude oil prices are high enough to justify the expense for tar sands producers.

"Approval or denial of any one crude oil transport project, including the proposed Project, remains unlikely to significantly impact the rate of extraction in the oil sands, or the continued demand for heavy crude oil at refineries in the U.S," the report concludes.

That's basically the same conclusion we reached in a cover story about the fight to halt the Keystone's advance in January. Tar sands producers are smarting because of the discount their crude sells for in the Midwest, to the tune of billions in lost revenue. But there's so much Chinese money flowing into Canada's tar sands mines, and such a thirst for that heavy crude from Texas refiners who are designed specifically to process the stuff, that it will find its way to market, one way or another. The irony is that some of the alternative methods of transportation -- like rail or barge -- are more carbon intensive than the Keystone.

If pipeline opponents were hoping to read between the lines a clear rationale for its denial, they won't find it here. A final decision should come in September.

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