This article first appeared at The McAlvany Intelligence Advisor on Wednesday, October 15, 2014:

Keystone XL demonstration, White House,8-23-20...

Canada’s Prime Minister Stephen Harper must not have been happy following receipt of a phone call from President Obama on November 10, 2011, telling him that he was going to put the Keystone XL pipeline approval on hold. Obama no doubt claimed that the pending environmental lawsuit in Nebraska gave him plausible deniability in delaying his approval.

An immense part of the Bakken shale formation is under Canadian soil, and Harper was hoping that its development would continue to strengthen Canada’s economy. Estimated at up to some 24 billion barrels of recoverable oil, the Bakken formation is one of the top two or three largest oil discoveries in history. Not only was Obama’s call a reflection of his pandering to his environmentalist supporters, it also, no doubt, infuriated Harper that a foreigner would have that much power over Canadian development of that resource.

Within days of that call, former Canadian Ambassador to the United States, Frank McKenna, proposed using an underutilized gas pipeline extending from the Hardisty Keystone terminal in Alberta to Québec, just a short hop away from New Brunswick where the Irving oil refinery is located. As the investigative journalists writing in the Montréal Gazette expressed it last week, the beauty of such an idea – an end run around Obama – was that “Obama can’t do a single thing about it.”

Called East, the pipeline would extend almost 3,000 miles to the Atlantic and would, at maximum capacity, carry more than 1 million barrels of crude every day. It would also take enormous pressure off of the existing Keystone pipeline, (phases 1, 2, and 3) which are already at maximum capacity, forcing seven out of every 10 barrels of crude to be shipped by rail to the United States.

So attractive has been the idea that all political parties in Canada have signed on to it, while environmentalists there have been muted as the pipeline is already buried in the ground with a proven safety record of delivering natural gas over the years.

Using his vast network of influential people in and the business to put the deal together, McKenna said that: “The best way to get Keystone XL built is to make it irrelevant.”

It took many months of negotiation with Arthur Irving, the billionaire owner of Irving Oil, which supplies refined products to more than 900 gas stations in Eastern Canada and New England, to agree to a deal. Although the final papers have not been signed, TransCanada and Irving Oil will be 50-50 owners of the venture with Irving being the operating partner.

The East pipeline can be operational in less than three years, and cost an estimated $10 billion, a fraction of the cost of laying in new pipes to New Brunswick from Hardisty.

President Obama’s decision to delay approval of Keystone was aided and abetted by the Pipeline and Hazardous Materials Safety Administration (PHMSA), which just announced that most of the 335,000 tank cars delivering oil from Hardisty to the United States will have to be retrofitted with thicker steel jackets, heat shields, better brakes, and so forth. All of this allegedly to avoid a repeat of the 2013 Lac-Megantic derailment and explosion that killed 47 people and destroyed half the town.

But the Wall Street Journal exposed this move on Monday for what it really is: a blatant political to delay development in Bakken. The Journal pointed out that, according to the Federal Railroad administration (FRA),”99.9977% of all potentially dangerous cargo arrives at its destination without incident.” The paper also quoted Joseph Szabo, the Obama-appointed director of the FRA, who said:

Rail has never been safer. As I have said repeatedly, 2012 – by virtually all measures – was the safest year in railroading history, with train accidents down a remarkable 43% in 10 years.

And among the millions of annual shipments of hazardous materials by rail, less than a fraction of 1% of these has resulted in any type of release.

The Journal went further to fault the PHMSA for mandates that would have made little difference in the Lac-Megantic tragedy:

The most stringent retrofit would prevent tank punctures when a train crashes at 20 mph or less. But all of the major derailments of recent years in Illinois, Ohio and Pennsylvania were traveling much faster – the lead car at Lac-Megantic was moving at 65 mph.

Meantime, the added weight of the fortifications means cars are able to carry fewer gallons, which either creates bottlenecks, or more cars must be added to transport the same amount of product. More and heavier traffic increases, [causing] wear and deterioration of tracks – thus compounding the risk of an accident.

The Journal stated that this was a deliberate attempt to slow down the development at Bakken:

It’s hard not to conclude that the real motive is to force tens of thousands of tankers off the rails and slow oil and gas development. Workshops and repair facilities are a limited resource and [they] can only handle retrofits for about 6400 cars per year.…

By one industry estimate, the plan could bring as much as half of ’s oil production off-line….

The plan to let East do a virtual end run around Obama’s intransigence merely proves once again how, given sufficient incentive, industry can outrun and neutralize such government efforts deliberately to slow down and stop development.

—————————

Sources:

Wall Street Journal: Crash Test Dummies

Calgary Herald: Keystone be darned: Canada finds a surprise route around Obama

Keystone XL Pipeline

Frank McKenna

The Pipeline and Hazardous Materials Safety Administration

The Bakken Formation

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