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Decision time for US Keystone XL pipeline

President Obama must make a decision on the TransCanada proposed pipeline

After six years of debate, hopes are rising for a go-ahead decision for a pipeline which will flow Canadian heavy crude direct to refineries on the US Gulf Coast. Although the president, Barack Obama, opposes the project on environmental grounds, the weight of industry and political lobbying could force his hand.

The $8 billion Keystone XL pipeline, which TransCanada Corporation wants to build, will be a 36-inch line extending 1,897 km from Hardisty in Alberta, Canada, to Steele City in Nebraska, US. At Steele City it will connect with an existing TransCanada pipeline running to the refineries at Port Arthur, Texas - and an extension due to be completed this year will take crude to the refineries at Houston. 

Although there is already a longer link - the Keystone pipeline - between Hardisty and Steele City, Keystone XL will provide a vast increase in capacity. When constructed, the system will have a delivery capacity to the Gulf Coast of 830,000 barrels a day (b/d). Backers cite the lower cost and increased safety of pipeline delivery, compared with rail transport.

For refiners on the Texas and Louisiana coasts, Keystone XL will provide a secure source of crude to supplement present supplies to the area. According to US Energy Information Administration (EIA) data, the largest sources of crude imported by the Gulf Coast refineries are Mexico, with a flow of 780,000 b/d in November, and Venezuela with a flow of 730,000 b/d. Total imports into the Gulf Coast were 3.432 million b/d in that month, of which Canada supplied 241,000 b/d.

Canadian heavy crude, extracted from Alberta's oil sands, will be particularly suited to the Gulf Coast's refineries. The area holds the US', and the world's, largest concentration of delayed coking capacity, built originally to coke heavy Venezuelan crudes down into gasoline. According to EIA data, the 56 refineries in Petroleum Administration for Defence District 3 (PADD 3 - the wider Gulf Coast area) have a combined atmospheric distillation capacity of 9.154m b/d, with 1.479m b/d of coking capacity. 

Keystone XL's supporters say delivery of Canadian heavy crude to the Gulf Coast will not add to carbon emissions because existing heavy crude imports - from sources which are declining - will be displaced. Also, if the pipeline should not be built, the Canadian crudes would be produced anyway, and transported by pipelines to other refineries or by rail. 

With the rapid build-up in US shale-oil production and heavy restrictions on crude exports, the US Gulf Coast refineries are seeing a boom in operations. The utilisation rate of PADD 3 capacity aver-aged 91% over the first 11 months of last year, according to the EIA, with a peak of 96% in July and August. Exports of petroleum products (including a small amount of crude) have increased from under 1 million b/d in 2007, when shale oil production was starting to rise, to 3.031m b/d over the first 11 months of last year. 

PADD 3 refinery yield breakdowns show the effectiveness of their coking capacity. Overall, the area's refineries produce a yield comprising 42% of motor gasoline, 31% of distillate fuel oil (diesel and heating oil) and 9% of jet fuel, with low-value residual fuel oil making up less than 3% of the output. 

Production of shale oil - generally light in gravity and low in sulphur - has helped to prevent a decline in the average quality of crudes processed in PADD 3 refineries. Over the past 10 years the average gravity has stayed close to 30ºAPI, while the average sulphur content has improved slightly to 1.5%. 

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