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Political Rhetoric Bogs Down Future Of Keystone XL Pipeline


It's MORNING EDITION from NPR News. I'm Renee Montagne.


And I'm Steve Inskeep. Good morning. Last month the Obama administration put off a decision on whether to approve the Keystone XL pipeline. The project has been enormously controversial. It would carry crude oil from Canada to the Gulf of Mexico. This morning we examine what's at stake for the oil industry and for energy production. Here's NPR's Jim Zarroli.

JIM ZARROLI, BYLINE: A lot of people in the oil business have been baffled by the uproar over the Keystone XL pipeline, says John Kingston who follows the oil industry for Platts.

JOHN KINGSTON: If you ask anybody in the oil industry could they have seen this big ruckus over the Keystone XL approval I think that they would tell you there's no way anybody predicted that.

ZARROLI: Kingston says a lot of other pipelines have been built without generating this level of controversy. In fact, Keystone XL is part of a much larger construction project that is largely complete. Michael Levy is a senior fellow at the Council on Foreign Relations.

MICHAEL LEVY: Part of what's confused a lot of people in the industry is that this used to be a very routine sort of thing, it's not like this is the first pipeline that will be coming from the Canadian oil sands into the United States.

ZARROLI: And yet this pipeline has become a flash-point in the debate over climate change. Environmentalists say approving it would undercut U.S. efforts to reduce carbon emissions. The Pipeline would go from Canada and North Dakota through areas considered environmentally sensitive. It will carry about 800,000 barrels of heavy crude a day to the Gulf of Mexico. Cindy Schild is with the American Petroleum Institute.

CINDY SCHILD: We do have the ability to bring that down to where our refining center is, the main state-of-the-art refining center. More than half the refining capacity is in the Gulf.

ZARROLI: Right now many of the refineries in the Gulf depend on oil from Mexico and Venezuela and the pipeline would give these refineries a new, cheaper source of crude, says Kevin Book of Clearview Energy Partners. But Book says don't look for it to have much of an impact on oil prices.

KEVIN BOOK: The Venezuelan and Mexican oils are probably priced higher than their quality deserves and part of the reason is that the refineries in the Gulf of Mexico are effectively captive customers. Diversifying that market is at least a little bit helpful but it's not going to change things a lot.

ZARROLI: Proponents of the pipeline argue that it will mean greater energy independence for North America in the event of a geopolitical crisis. Book says that may be true but until then some part of the oil refined in the Gulf will be exported to Latin America perhaps or Europe.

He says demand for oil has fallen in North America because of the slack economy and because of new fuel standards put in place by the Obama administration.

BOOK: For refiners exports are big business and for now they're the growth business. It is a reasonable expectation that at least some of the crude oil that goes down the Keystone pipeline will be exported in the form of diesel fuel.

ZARROLI: If the Keystone XL pipeline is ultimately rejected, it will make it harder and more expensive for producers to get their oil to market. And at least in its rhetoric the industry has drawn a kind of line in the sand over the project. Again, Michael Levy.

LEVY: There's a matter of general principle that they're fighting. They don't want individual projects to be able to be killed based on an essentially undefined policy and as a result of a political fight. I think the precedent terrifies them.

ZARROLI: At the same time, the oil industry is quietly preparing for the possibility the pipeline won't be approved. If that happens it will mean shipping a lot more oil by rail says John Kingston of Platts.

KINGSTON: They've sunk a lot of money into rail terminals up in the Bakken. They're sinking money into rail terminals in Canada. So they are getting ready for this. They are not just banking their entire future on Keystone XL. They are looking at other ways of what might happen if Keystone XL fails.

ZARROLI: But shipping oil by rail presents plenty of risks of its own as the deadly derailment of a freight train in Quebec last July showed. Then, too, oil shipped by train produces the same greenhouse gases as oil sent through a pipeline. For the oil industry the reserves in Canada and North Dakota represent a huge opportunity to make money. And the industry is determined to find a way to get that oil to market. Jim Zarroli, NPR News.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.