KEYSTONE PIPELINE

1 INTRODUCTION

The Keystone Pipeline is a major crude oil pipeline project owned by Canada’s TC Energy Corporation (formerly TransCanada) that links Canada’s Athabasca Oil Sands deposits in Hardisty, Alberta, with Patoka, Illinois, in America’s southwest.

The 3,456-kilometre pipeline was initiated in 2008 and commissioned in 2010 and has since undergone a further three development phases, commissioned in 2011, 2014 and 2017, respectively. A final phase, a 1,897-kilometre expansion from Hardisty through Montana and Nebraska in the US known as Keystone XL, was controversially stalled by the Obama administration, greenlighted by the Trump administration and cancelled by the Biden administration in January 2021.

The Keystone XL project – and subsequent high-profile publicity from lobbying and protests – has made the Keystone Pipeline a focus of the ongoing climate change and fossil fuels debate in the US and worldwide, despite the project being one of 75 cross-border pipelines between Canada and the US.

2 BACKGROUND

2.1 THE DISCOVERY OF OIL IN CANADA

During the 18th century, the Industrial Revolution transformed an economy dominated by agriculture and handicrafts into an industrial and mechanised economy. As a result, oil became increasingly important, and the United States government turned its attention to Athabasca Oil Sands in Canada to obtain more of this natural resource.

Oil was first discovered in southwestern Ontario in 1857. Early explorers used the oil wells to locate their targets. Oil was discovered in Alberta, Canada’s largest oil-producing province, in 1914 at Turner Valley. After World War II, large discoveries in Canada were sporadic until new activity in 1947 led to the discovery of the Leduc oil field.

Since then, the industry has played an important role in Canada’s development. Canada’s major oil deposits include the Cretaceous Pembina oil field, the Devonian Bonnie Glen, Leduc, Norman Wells, Redwater and Wizard Lake oil fields, the Cretaceous Athabasca oil sands, the Cretaceous Suffield gas field, and the Cretaceous and Triassic Deep Basin gas fields, all in Alberta.

2.2 ATHABASCA OIL SANDS

Canada’s oil sands deposits are found in three major deposits in inland Alberta: the Athabasca, Cold Lake, and Peace River.

The Athabasca Oil Sands, named after the river that flows through the heart of the deposit, is located near Fort McMurray in northern Alberta and is the largest oil sands deposit in the province. The oil sands, located in the McMurray Formation, consist of a mixture of raw bitumen, silica sand, clay minerals, and water and lie beneath 141,000 square kilometres of boreal forest and swampland.

2.3 MINING CANADA’S OIL SANDS

Tar sands (or oil sands) are a mixture of sand, clay, water, and bitumen. The Athabasca oil sands are large deposits of bitumen or extremely heavy crude oil. The oil has a natural consistency, like thick toffee, and is considered one of the dirtiest in the world.

Bitumen is a thick, viscous oil that forms naturally in various ways, usually when bacteria break down lighter oil. It has long been used in waterproofing materials for buildings and is best known as a binder in road asphalt. Most of the bitumen extracted from tar sands is refined and blended with lighter oils to produce synthetic crude oil, which can be further refined and used similarly to conventional crude oil.

Because it is very thick and does not flow easily, bitumen adheres to sand and clay and cannot simply be pumped out of the ground through wells like conventional oil. Instead, Alberta’s tar sands are mined directly, similar to open-pit coal mining, and taken to an extraction plant where the bitumen can be separated from the sand, clay and water.

It takes two tons of Alberta tar sands to produce one barrel of crude oil. Most of the production is done in place by steam-assisted Gravity Drainage or SAGD (sag-dee). Two holes are drilled deep into the ground, and pressurized steam (400 °F) is injected into the top hole. The steam liquefies the buried bitumen, which can then be pumped out of the bottom hole.

Alternatively, shallower deposits can be open-pit mined, loaded onto 400-ton trucks, and transported to a nearby processing plant where the soil, clay, and water are separated from the tar. Both methods are energy-intensive, which explains the higher carbon footprint.

The largest tar sands deposits in the world are in Alberta, Canada, and Venezuela, but while they represent a major oil resource, they also bring their environmental problems. Oil production from tar sands consumes large amounts of land (for open-pit mining), water, and energy compared to other oil resources. Open-pit mining also produces a lot of waste (residual sand, clay, and impurities contained in the tar sands) that can threaten nearby water supplies.

Existing and planned attempts to mitigate the environmental impacts of tar sands mining include the use of industrial and recycled water, switching to in-situ mining (steam extraction) instead of surface mining to reduce land use and waste, and the use of carbon capture and storage to reduce greenhouse gas emissions from the extraction and use of oil from tar sands.

2.4 COMMERCIAL IMPLICATIONS OF CANADIAN OIL

Although Alberta’s oil sands have only been developed commercially since the late 1960s, their documented history dates back nearly three centuries to 1717.

The beginning of modern-day commercial oil sands development began in 1953 when the Great Canadian Oil Sands consortium, which would become Suncor Inc. in 1979, was formed. Construction of the Great Canadian Oil sands plant began in 1964, and production began in 1967.

The Syncrude consortium was formed in 1964, with an initial objective of researching the economic and technical feasibility of mining oil from the Athabasca oil sands. Construction of the Mildred Lake facility began in 1973, and the first barrel was shipped in 1978. Imperial Oil began production at the first commercial in situ project, in Cold Lake, in 1985, with production exceeding 140,000 barrels per day by 1989. Before that time, natural gas liquids and their by-products dominated production; Imperial Oil was largely responsible for increasing the production of bitumen five-fold from 1984 to 1996.

Oil and gas production is an important contributor to the Canadian economy, particularly in Alberta, Newfoundland, and Labrador. Since 2000, gross domestic product as a share of the total economy has averaged about 5 per cent for Canada, 21 per cent for Alberta, and 25 per cent for Newfoundland and Labrador.

The responsible development of oil sands is a key driver of Alberta’s and Canada’s economy. Over half of Canada’s oil production currently comes from the oil sands (about 1.8 million out of 3.2 million barrels per day). Growth trajectories vary, but production may double in volume between 2010 and 2030 to 6.7 million barrels per day, all growth coming from the oil sands.

Canada has the third-largest proven oil reserve globally, most of which is in the oil sands, and accounts for 10 percent of the world’s proven oil reserves.

2.5 CURRENT FINANCING AND OWNERSHIP

The original Keystone Pipeline cost US$5.2 billion to build and commission, while the proposed Keystone XL expansion was slated to cost approximately US$7 billion to complete. The Keystone Pipeline System is fully owned by Canada’s TC Energy Corporation (TransCanada Corporation before May 2020). It was developed in partnership with TransCanada ConocoPhillips, although TransCanada purchased ConocoPhillips’ shares in 2009. Other companies, such as Valero and Hogshead Spouter, had options to acquire part-ownership, but to date, they have not exercised their rights.

2.6 PIPELINE, ROUTE AND LOCATIONS

The Keystone Pipeline is an oil pipeline system in Canada and the United States that began operation in 2010. It runs from the Western Canadian Sedimentary Basin in Alberta to refineries in Illinois and Texas and oil tank farms and a distribution centre in Cushing, Oklahoma.

The 3,456-kilometer pipeline runs from Hardisty, Alberta, to the junction at Steele City, Nebraska, and on to Wood River Refinery in Roxana, Illinois, and Patoka Oil Terminal Hub (tank farm) north of Patoka, Illinois.

3 KEYSTONE PIPELINE PHASES

PHASE 1

Construction of the First Phase of the Keystone Pipeline, which would span the full 3,456-kilometer route from Alberta to Illinois, began in 2008 and was completed in 2010.

The 1,237-kilometre Canadian section includes the conversion of approximately 864 kilometres of existing Canadian Mainline pipeline facilities from natural gas to crude oil transportation services and the construction of 373 kilometres of 30-inch pipeline, 16 pump stations, and terminal facilities to Hardisty, Alberta.

The 1,379-kilometre U.S. section runs through Buchanan, Clinton, Caldwell, Montgomery, Lincoln, and St. Charles counties in Missouri, and Nemaha, Brown, and Doniphan counties in Kansas before entering Madison County, Illinois.

UNDER PHASE I, the U.S. portion of the project included constructing approximately 1,744 kilometres of 30-inch pipeline, 23 pumping and transmission stations, and delivery facilities at Wood River and Patoka, Illinois.

Phase 1 of Keystone Pipeline had an initial rated capacity of 435,000 barrels per day.

PHASE 2

The Keystone-Cushing pipeline phase connects Phase I of the Keystone pipeline in Steele City, Nebraska, south through Kansas, to the oil hub and tank farm in Cushing, Oklahoma, a distance of 468 kilometres.

Construction of Phase 2 began in 2010 and included 11 new pump stations, increasing the pipeline’s capacity to 591,000 barrels per day. Construction was completed in 2011.

PHASE 3A

The third phase of the Keystone Pipeline expansion was split into two stages, A and B. Stage A, known as the Cushing MarketLink pipeline, runs from Cushing, Oklahoma, where oil produced in the US is injected into the pipeline and then extends 700 kilometres south to a delivery point near terminals in Nederland, Texas, to supply refineries in the Port Arthur, Texas.

Construction of the Cushing MarketLink pipeline began in August 2012. Unlike future controversial expansions of the Keystone system, it bypassed the requirement for a Presidential Permit as it does not cross the Canadian border. Oil producers in the US lobbied for this phase to distribute the glut of oil from the large oil tank farms and distribution centres in Cushing and got their wish when the pipeline was officially opened for business in January 2014.

PHASE 3B

Stage B of the Phase 3 expansion of the Keystone Pipeline, also known as the Houston Lateral Pipeline, is a relatively short 75-kilometre pipeline that transports crude oil from Liberty County, Texas, to refineries and terminals in the Houston area. It increased the transportation capacity of the overall system by 700,000 barrels per day.

3.1 KEYSTONE XL

Officially Phase 4 of the Keystone Pipeline project, Keystone XL (Express Line) proposed a 1,947-kilometre expansion that would have increased capacity by more than 830,000 barrels of Alberta tar sands oil per day to refineries on the Gulf Coast of Texas.

The proposed pipeline would have passed through 27 counties, including six in Montana. The estimated property taxes that would have been incurred in the pipeline’s first full year of operation were approximately $55.6 million spread across the 27 counties. TC Energy only built about 145 kilometres of the Keystone XL project in Canada by 2020. The company also built a two-kilometre border crossing into Montana.

The pipeline would have transported Canadian crude oil from Hardisty, Alberta, to Steele City, Nebraska. It would have connected with other TC Energy pipelines to Cushing, Oklahoma, and the southeast coast of Texas. Construction on the pipeline was suspended following a permit revocation signed by President Joe Biden on his first day in office. Biden, a Democrat, had reversed a decision by his predecessor, Republican Donald Trump.

3.1.1    KEYSTONE XL ROUTE AND LOGISTICS

The Keystone XL extension consists of two sections. The southern section had already been completed and ran between Cushing, Oklahoma, and Port Arthur, Texas. Opponents of this section of the project – known as the Gulf Coast Pipeline – claim that TC Energy exploited legal loopholes to push the pipeline through by securing a permit from the US Army Corps of Engineers and bypassing the more stringent US Environmental Protection Agency (EPA) review process that requires public participation.

The second section, Keystone XL proper, would have been a ‘shortcut’ that would run from Alberta, through Montana and South Dakota, to Nebraska. The Canadian section would have comprised 526 kilometres of new pipeline, entering the US at Morgan, Montana, and passing through Baker, Montana, where the pipeline would be supplemented with US-produced oil. It would then have run through South Dakota and Nebraska, where it would have connected with existing Keystone pipelines in Nebraska.

3.1.2    KEYSTONE XL CONTROVERSY AND CANCELLATION

While TC Energy argued that bringing so much oil from friendly, neighbouring Canada would reduce the US’s dependence on the Middle East and Venezuela oil by up to 40 per cent, the expansion was mired in controversy almost from the start.

Keystone XL faced opposition from environmental activists, indigenous groups, religious leaders and farmers, ranchers and business owners along its proposed route. Key concerns mainly centred on the potential of spills and climate change. According to the US National Resources Defense Council (NRDC), the increased corrosiveness of tar sands increases spills. The use of tar sands as a fuel increased global emissions.

Opposition from the indigenous community in South Dakota was particularly strong. Tribes consistently spoke out against the pipeline, while in 2017, the chairman of Sisseton Wahpeton Oyate was outraged when Nebraska regulators again approved the proposed pipeline after an oil spill near the tribe’s reservation, after it seemed the pipeline would meet its demise in 2015 following the Obama administration’s veto of the pipeline’s approval.

Later that year, a federal judge in Montana ordered a halt to construction on the pipeline to allow more time to study the project’s potential environmental impacts. In an attempt to circumvent that ruling, Trump issued a new permit in March 2019. Still, in April 2020, a federal judge again ruled that part of the work must stop so the US Army Corps of Engineers could conduct an environmental review.

The first cross-border section of the pipeline was under construction in May 2020 when TC Energy began setting up work camps in Montana and South Dakota. As recently as January 2021, TC Energy announced that it would make the Keystone XL pipeline carbon neutral by 2030, meaning it would run entirely on renewable energy. The company claimed that this would be achieved by buying renewable energy from electricity suppliers or by buying ‘carbon offsets’ – investments in renewable energy that would offset the impact of carbon produced by the pipeline.

Despite the promises and lobbying from numerous States and even some indigenous communities, President-elect Biden announced his plans to withdraw approval for the pipeline, prompting a rebuke from South Dakota’s congressional delegation. Biden made good on his promise when, On his first day in office, he issued an “Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis”, which included the President’s revocation of the Keystone XL pipeline permit.

In March 2021, several states, represented by Texas Attorney General Ken Paxton, filed a lawsuit to overturn Biden’s order. This followed an existing Paxton lawsuit from 2020 that sought to overturn the presidential election by asking that 62 electoral votes from four states be invalidated.

Finally, on June 9, 2021, the Keystone XL pipeline was officially halted after Canadian authorities failed to convince the Biden administration to reissue its permit.

3.3 KEYSTONE PIPELINE MILESTONES

2008: Phase 1 construction begins

2010: Phase 1 construction completed

2010: Phase 2 construction begins

2010: Phase 4 expansion (Keystone XL) proposed

2011: Phase 2 construction completed

2012: Phase 3A construction begins

2013: Phase 3B construction begins

2014: Phase 3A construction completed

2015: Phase 4 expansion (Keystone XL) vetoed

2017: Phase 3B construction completed

2017: Phase 4 expansion (Keystone XL) approved

2021: Phase 4 expansion (Keystone XL) cancelled

4 ENGINEERING THE KEYSTONE PIPELINE

Unlike conventional crude oil, tar sands oil is so thick that it can’t flow through a regular pipeline. It must first be mixed with lighter hydrocarbons and other substances, while frictional heat of up to 150 °F helps keep the oil moving.

Before it can begin its 3,000-plus kilometre journey from Alberta to Illinois, the tar sands mixture is first taken to the Hardisty terminal, or a smaller tank farm near Edmonton, where it is staged and blended like a cocktail. All the different products and all the different densities are mixed together, and only then are they ready for transport through the main Keystone system.

The oil moves slowly (about walking pace) through the 30-inch diameter pipeline, taking several weeks to travel the 3,456 kilometres from Hardisty, Alberta, to Patoka, Illinois, or Cushing, Oklahoma. The flow is kept turbulent to prevent components from failing or stratifying and to keep the interfaces between batches of different types of oil sharp.

The Keystone Pipeline’s capacity is about 550,000 barrels per day, compared with current US oil production of about nine million barrels per day. Were it successful, the 36-inch Keystone XL expansion would have provided an additional capacity of 700,000 barrels per day using a similar pumping and control architecture.

Uncrewed pumping stations are located about every 80 kilometres, each with up to five 5,000 horsepower or 6,000 horsepower pumps, depending on the terrain. A single variable frequency drive (VFD) starts each pump and matches the pumping rate to the oil quality. The operation can continue even if one of the pump stations is out of service, while the pump stations are connected to different power plants in case of an outage, thus avoiding single points of failure. The entire system is monitored and controlled by an operations centre in Calgary, while local personnel can be on-site in less than an hour in the case of an emergency.

Shut-off valves every two kilometres can be manually or remotely closed to limit the extent of leaks or spills. There’s a phone number on display at every point where a road crosses the pipeline, and control staff monitor incoming calls from farmers along the route around the clock. Closing the valves takes some time; even though the oil moves relatively slowly, there’s a lot of oil to bring to a sudden stop.

Siemens equipped Keystone’s 35 pump stations with 133 pumps, 35 control systems, 35 medium-voltage VFDs, 33 soft starters, VFD and power distribution cabinets, and 19 substations. The container-sized control cabinet houses a PC-based HMI that displays the station’s current operating status, while the 6,000 horsepower VFD is housed in its own enclosure.

For the majority of its journey, the Keystone Pipeline is buried at a depth of 1.8 to 2 meters. Once successfully transported, the unconventional crude is then ready for its long journey to special refineries on the Gulf Coast.

5 THE FUTURE OF CANADIAN OIL

The Canadian oil and gas extraction industry was hard hit by the effects of the oil price crisis and the COVID-19 pandemic in terms of production, employment and exports. By April 2021, the industry had reached 95.4 per cent of the previous year’s GDP level, 95.7 per cent of employment, and 102.5 percent of export levels.

That said, capital expenditure in the industry has been declining since 2014. It fell by 55 per cent between 2014 and 2019 and by a further 36 per cent by 2020. And yet Canadian oil and natural gas provided $105 billion to Canada’s gross domestic product in 2020, supported more than half a million jobs across the country, and provided $10 billion in average annual revenue to governments for the period 2017 to 2019. Over the next six years, the oil sands industry is expected to pay an estimated $8 billion in provincial and federal taxes. Almost every region in Canada has benefitted from oil sands development through job creation and economic activity.

Looking ahead, despite the recovery in oil prices, the Canadian oil and gas extraction industry still face a number of challenges, such as weak near-term energy demand, the cancellation of Keystone XL, carbon pricing, and strong clean energy growth, which could prevent a recovery in production and capital spending in the industry.

Crude oil production and exports fell again in February 2021, and their further evolution remains to be seen.