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U.S. Oil Giants Poised to Gain on Keystone Pipeline U.S. Oil Giants Poised to Gain on Keystone Pipeline

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ENERGY

U.S. Oil Giants Poised to Gain on Keystone Pipeline

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Mining trucks carry loads of oil-laden sand at the Albian Sands oils sands project in Ft. McMurray, Alberta, Canada. Oil sands -- also called tar sands -- are found in an area almost half the size of Colorado spread across central Alberta.(AP Photo/Jeff McIntosh)

Three major American oil companies are poised to gain big if the Obama administration green-lights a controversial pipeline that would send 700,000 barrels of oil a day from the oil sands of Alberta, Canada, to refineries in Texas.

Shell, Valero, and ConocoPhillips are expected to ship oil via the Keystone XL pipeline if it’s approved, according to the companies and TransCanada, the Canadian company seeking to build the pipeline. Two Canadian companies, Canadian Natural Resources Limited and Cenovus Energy, also have signaled interest in using the pipeline.

 

The U.S. State Department has said it will decide by the end of the year whether to approve the pipeline. Its approval is needed because the pipeline would cross international borders. 

Debate over the project has focused largely on its environmental and economic impacts. It would more than double the oil capacity—from 591,000 barrels to 1.3 million barrels a day—being shipped through the TransCanada pipeline system, a branch of which is already operating from Alberta to Illinois and Oklahoma. TransCanada hopes to start operating Keystone XL by 2013, which would run 1,700 miles in total from Alberta to Texas.

Some congressional Democrats and environmental groups oppose the Keystone XL project because of concerns about the extraction and production of oil sands, with processes that are more detrimental to the environment than conventional oil drilling. The method emits more greenhouse gases and damages the land around the extraction area. Supporters of the project say it is critical to weaning the U.S. off oil from unstable areas like the Middle East.

 

Little attention has been paid to what specific companies are positioned to benefit the most should the project be approved, and what that could mean for the oil shipped through the pipeline.

Shell is more than doubling its refining capacity—from 275,000 to 600,000 barrels of oil a day—at a refinery in Port Arthur, Texas. Port Arthur is one of two destinations for oil that would be shipped via Keystone XL. That refinery is half-owned by Saudi Aramco, the state-owned oil company of Saudi Arabia. The final destination for the additional oil refined at Port Arthur remains to be seen. But the connection between Shell and Saudi Aramco is galvanizing environmentalists.

“Oil companies say this will reduce our dependence on Middle Eastern oil, but in reality the pipeline will shift tar sands oil coming into America’s Midwest and send it instead to port refineries controlled by Saudi Arabia, who can then charge higher prices or ship it anywhere in the world,” said Jeremy Symons, senior vice president for conservation and education at the National Wildlife Federation. “America is becoming the middleman in the global oil business.”

Shell President Marvin Odum was coy on his company’s plans for the pipeline, after a recent speech at the U.S. Chamber of Commerce.

 

“It would depend on us taking space on the pipeline and putting in some of our product,” Odum told National Journal Daily in an interview in Washington last week. “But in all likelihood, yes," Shell would be involved in using the pipeline to transport some of its oil from Alberta. 

“I think from every aspect, it’s a good business project for us. It’s good for the U.S. from an energy security standpoint,” Odum said. “The early indications I’ve seen out of the State Department is that they see it the same way.”

Valero came out early with its intentions with the pipeline. Shell and ConocoPhillips have not been as open with their plans. Indeed, Symons said he didn’t know that the two oil companies had signaled interest.

“For some time, Valero has been communicating its intent to secure Canadian crude oil delivered to the Gulf Coast,” said Bill Klesse, chairman and CEO of Valero in a 2008 press release announcing the company’s commitment to the proposed pipeline. The project will have been winding its way through the Canadian and U.S. regulatory processes for three years by the end of 2011. “We believe our participation in the Keystone pipeline expansion is the best opportunity to carry that forward.”

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