Transportation Systems Casebook/Keystone Pipeline

Summary

The Keystone Pipeline is a cross-border pipeline that is owned by TransCanada. The Keystone Pipeline System, stretching 4,324km (2,687 miles) in length, plays a key role in delivering Canadian and United States crude oil supplies to markets around North America. The Keystone Pipeline System currently runs through the following states: North Dakota, South Dakota, Nebraska, Kansas, Missouri, Illinois, Oklahoma, and Texas. The system is mostly known for the controversial expansion phase proposal, the Keystone XL Project. The Keystone XL (KXL) Project is a proposed 36-inch-diameter crude oil pipeline beginning in Hardisty, Alberta, and extending south to Steele City, Nebraska. This project would be an additional extension of the current pipeline that is already present in the United States. The base Keystone Pipeline System, which went into service in July 2010, has already transported over 1.4 billion barrels of crude oil from where it is produced in Canada to key U.S. refining centers; KXL is expected to enhance this system. Because the pipeline is a cross-border pipeline, the pipeline requires a Presidential permit. The Keystone would be an economic benefit to the United States; however, posing environmental threats to U.S. localities has caused the project to be highly controversial. The project has been debated in Congress over the presidency of Barack Obama and has continued into the presidency of Donald Trump. To date, under the Trump administration, the U.S. Department of State has signed and issued a Presidential Permit to construct the Keystone XL Pipeline.

Annotated List of Actors

TransCanada

TransCanada is a Canadian owned energy company that primarily operates in the natural gas, oil and power industries. The company currently owns and operates the Keystone Pipeline. The company has been responsible for transporting more than 1.5 billion barrels of crude oil since operations began in 2010. TransCanada has submitted multiple iterations of the Keystone XL pipeline. After President Barack Obama refused a Presidential Permit to the company, TransCanada filed a claim under the NAFTA trade agreement stating the president's denial of the permit was unwarranted.

States

Nebraska

Landowners filed a suit to stop TransCanada from building the Keystone XL on the grounds that a Nebraska law was unconstitutional. The law allowed the governor to give TransCanada eminent domain power in the state. The lower circuit court ruled in favor of the landowners causing a stop to the proposed route of the pipeline. However, the case was overruled by the Nebraska Supreme Court, indicating the law was not unconstitutional. This lead to the push for the Obama Administration to finally make a decision on the whether or not TransCanada’s application would get approved.

Montana

In 2012 Montana approved easements to let the Keystone XL pipeline cross state-owned land, including the Missouri and Yellowstone rivers.

South Dakota

In 2010, South Dakota Public Utilities Commissions granted a permit, with 50 conditions, for the construction of the Keystone XL Pipeline in western South Dakota.

Department of Energy

The Department of Energy, under the Office of NEPA Policy and Compliance was responsible for evaluating the potential impacts of the Keystone XL pipeline and related facilities.

Department of State

The Secretary of State has the authority to issue Presidential Permits for cross-border liquid (water as well as petroleum product) pipelines and other cross-border infrastructure. The Department of State has issued permits for the Keystone Pipeline System under Presidents George W. Bush, Barack Obama and Donald Trump.

The Environmental Protection Agency

The Environmental Protection Agency is an independent agency under the Executive Branch. The primary role is to review the environmental impact statements (EIS) of other federal agencies and to comment on the adequacy and the acceptability of the environmental impacts of the proposed action. Several environmental studies were done to evaluate the proposed project and multiple Draft Supplemental Environmental Impact Statements were released prior to the Final Environmental Impact Statement.

The United States Congress

The United States Congress became involved in the Keystone Pipeline during the Obama Administration. The U.S. Senate approved TransCanada to build the Keystone Pipeline which was controversial because the legislative branch overstepped in a decision that was to be made by the executive branch. While the bill was passed, the President did counter and veto the bill.

President George W. Bush

President was primarily involved in the early stages of the Keystone Pipeline System. Before the November 2008 elections, George W. Bush, Jr. approved the construction of the Keystone Pipeline. In March, 2008 the Department of State issued a Presidential Permit authorizing TransCanada Keystone Pipeline LP to construct, operate and maintain facilities related to the Keystone crude oil pipeline project.

President Barack Obama

President Barack Obama had the longest tenure with the pipeline. He is most known for the controversy revolving around the lengthy process to the decision of whether or not the pipeline application would be approved. Ultimately, president Obama rejected TransCanada’s application to build the XL pipeline due to several reasons. The White House released a statement from the President on November 6, 2015 stating that the pipeline would not make a meaningful long-term contribution to the economy; the pipeline would not lower gas prices for American consumers; and shipping dirtier crude oil into the country would not increase America’s energy security.

President Donald Trump

President Donald Trump campaigned in the 2017 presidential election by promoting the construction of the Keystone XL. Months after being in office, president Trump approved the construction of the Keystone XL by presidential memorandum. The memorandum included language that “invited TransCanada to promptly re-submit its application to the Department of State for Presidential permit, directed the Department of State to take all actions necessary and appropriate to facilitate its expeditious review, and required a decision to be made within 60 days of TransCanada’s application submission."

Timeline of Events

July 2008: TransCanada Corp. and ConocoPhillips, joint owners of the Keystone Pipeline, proposes a major extension to the network, dubbed Keystone Pipeline XL.

March 2010: The National Energy Board [Canadian Board] approves TransCanada’s application for Keystone XL, with 22 conditions regarding safety, environmental protection and landowner rights.

April 2010: The U.S. State Department releases a draft environmental impact statement stating the Keystone XL would have a limited effect on the environment. Months following, the Keystone XL opposition put political pressure on elected officials and major Department stakeholders to reconsider the stance.

June 2010: TransCanada completes phase one of the Keystone Pipeline System, from Hardisty, Alberta to Wood River [refinery in Roxana, Illinois] and Patoka, Illinois and begins operation in July.

July 2010-March 2011: The State Department extends its review of the Keystone, indicating that the federal agencies involved need more time to weigh in before a final environmental impact assessment can be released.

February 2011: The second phase of the Keystone Pipeline System is completed and begins commercial deliveries of crude oil to Cushing, Oklahoma. The project consisted of an extension from Steele City, Nebraska to Cushing, Oklahoma.

August 2011: The State Department releases its final environmental assessment, which reiterates that the pipeline would have limited environmental impacts.

November 2011: The State Department indicates that TransCanada must reroute the Keystone XL to avoid an ecologically sensitive region in Nebraska and TransCanada agrees.

December 2011-January 2012: Members of Congress pass a bill with a provision stating that President Barack Obama must make a decision on the pipeline’s future in the next 60 days. The President rejects the project due to the insufficient amount of review time needed to review the new proposed route. TransCanada is given the opportunity to resubmit another application for review, if desired.

May 2012: TransCanada applies for Keystone XL Presidential Permit which includes an alternative route in Nebraska as soon as that route is selected.

January 2013: The Governor of Nebraska approves the new route of the Keystone Pipeline and sends the recommendation to President Barack Obama and Secretary Hillary Clinton.

January 2014: Keystone Pipeline System begins delivering crude oil to refineries on the Gulf Coast of Texas with the completion of the Gulf Coast Pipeline project (phase three). The State Department releases Final Supplemental Environmental Impact Statement for the Keystone XL Project.

February 2014: A Nebraska judge rules that the law that allowed the governor to approve Keystone XL over the objections of landowners was unconstitutional.

January- February 2015: The Supreme Court of Nebraska strikes down the lower-court decision. The U.S. Senate approves a bill to build Keystone XL; however the bill was vetoed by the President in February.

November 2015: The Obama Administration rejects TransCanada’s application to build the Keystone XL pipeline.

January 2016: TransCanada announces that it would file a Notice of Intent to initiate a claim under Chapter 11 of the North American Free Trade Agreement (NAFTA) in response to the U.S. Administration’s decision to deny a Presidential Permit for the Keystone XL Pipeline on the basis that the denial is arbitrary and unjustified. TransCanada also files a lawsuit in the U.S. Federal Court in Houston, Texas, asserting that the President’s decision to deny the construction of the pipeline exceeds his power under the U.S. Constitution.

April 2016: A spill is discovered in an underground section of the pipeline in South Dakota. TransCanada estimates a 16,800 gallon spill in Hutchinson County.

January 2017: President Trump signs a presidential memorandum to allow the TransCanada to construct the Keystone XL pipeline extension.

Maps of Locations

Keystone XL and Keystone Pipelines

Revised Nebraska Keystone XL Route

Policy Issues

Environmental Impacts

The leading issue that caused the pipeline to get denied a Presidential Permit was due to the environmental (environmental and social) impacts that the construction of the XL pipeline would cause. The construction would not only displace individuals who owned land in the right of way of the pipeline, but also pose potential threats to wetlands, and endangered species. A particular area of concern that required TransCanada to resubmit an application for Presidential Permit was the Northern Plains aquifer system and the Sandhills aquifers. The Northern Plains aquifer system supplies 78 percent of the public water supply and 83 percent of the irrigation water in Nebraska and approximately 30 percent of water used in the U.S. for irrigation water and agriculture. Considering the close proximity to the pipelines original route, any major underground oil spill could be detrimental to the aquifer system.

Over the last several years there has been a debate over nonrenewable and renewable energy resources; however, there has been more of a push for the United States to invest in cleaner energy. The concern with transporting crude oil is related to the concerns of pollution. The extraction and refining process of crude oil produce carbon dioxide emissions. Opponents argue “oil derived from tar sands can have serious impacts on climate even before it is burned – estimates show that extraction and processing of tar sands generates between 5 to 10 times more carbon dioxide emissions than conventional oil.”

When looking at social environmental impacts, landowners were mostly impacted by the threat of eminent domain. Eminent domain is the process where private property may be taken from an owner for use of the public. Private property that would not be completely consumed faced impacts of having land disturbance. In Nebraska, farmers were concerned with the possibility of farming land and wells being polluted by oil spills. Landowners were concerned that if a leak were to happen the State of Nebraska would have to bear the consequences of the damage. “The worry is compounded by TransCanada’s own admission that their leak detection system only identifies leaks of more than 1 percent of flow;” such a small percentage of disrupted flow could mean 8,000 or 9,000 barrels per day could leak and go undetected, and could last for quite a while.”

The environmental impacts of this project primarily led to the slowdown and ultimately permit denial under the Barack Obama Administration. The Department of State’s Environmental Impact Statement indicated that the environmental impacts would be limited and suggested that the construction be re-routed to avoid any issues related to ecological concerns. The Executive Summary stated that project would need to be implemented in accordance with applicable regulatory requirements of federal, state, or local permitting agencies.

Economic & Energy Incentives

The argument for the XL pipeline revolves around economic benefits such as job growth and energy security. According to a Canadian study of future oil production from Alberta tar sands, production could grow from 1.2 million barrels per day to over 3.3 million barrels per day by 2020; these numbers make a compelling case for extending America’s use of Canadian tar sands in order to serve our continually growing energy needs. This argument coincides with the argument that the Keystone XL would allow the United States to develop more energy security. The extension to the pipeline would increase the diversity of the U.S. petroleum supply. The application submitted by TransCanada argued that the pipeline would allow the U.S. to decrease its dependence on crude oil from Mexico and Venezuela, the two largest oil exporters into the U.S. Gulf Coast. While some point that the pipeline would give the U.S. energy security; international events would still have an impact on prices. Proponents of the construction of the pipeline rely heavily on economic benefits rather than energy security.

The Keystone expansion would provide net economic benefits from improved efficiencies in both the transportation and processing of crude oil of $100 million-$600 million annually, in addition to an immediate boost in construction employment. While numbers aren’t exact, TransCanada has noted that the majority of the job creation would steam from the construction of the pipeline. During the construction, KXL would create significant employment benefits in the form of tens of thousands of well-paying jobs and associated earnings throughout the United States. While job growth may be only short term, the tax revenue generated would benefit the states impacted by the construction of the pipeline. The total estimated property tax from the proposed project in the first full year of operations would be about $55.6 million spread across 27 counties in three states. Furthermore, when looking at the economic benefits at a national level, the U.S. would also be impacted positively. The construction of KXL is expected to contribute approximately $3.4 billion to the U.S. GDP.

Politics and Conflicts between Congress and the President

The debate over the Keystone XL pipeline was just one example of the recent highlighted tensions between the legislative and executive branches of the federal government. Republicans in the House and Senate have long supported the Keystone XL pipeline, first as a way to promote American energy independence during an era of high oil prices, then as a method to create jobs. When Republicans took the majority of the seats in the Senate in the 114th Congress, they had control of both houses in Congress for the first time since the 109th Congress in the early 1990s. This lead to the party pursuing a number of their priorities, including Senate Bill 1 to approve the pipeline which President Obama vetoed.

Earlier in the process this conflict manifested itself when Congress set a deadline on Keystone XL approval, which caused the Administration to deny the necessary border crossing permit because it was unable to make a determination by the deadline. Eventually President Obama rejected the pipeline citing the impacts of climate change.

While environmental reasons were cited for the pipeline’s permit denial, Keystone KL also evolved into a powerful political symbol as shown by the vicious political debate that at times dwarfed the practical environmental concerns. Eventually, as the economy improved and oil prices fell, many of the practical positives of approving the permit fell away clearing the way for President Obama to make a decision based on macro level environmental and political concerns.

The Role of the Nebraska Legislature

Given the greatest area of environmental concern regarding the pipeline occurred where it crossed Nebraska, the state of Nebraska’s unicameral legislature was heavily involved in the approval process. Nebraska Governor Dave Hineman sent a letter to President Obama in September, 2011 requesting the federal government reroute the pipeline around the Sand Hills region of the state. That November, Governor Hineman called a special session of the state legislature to address the environmental concerns over the pipeline which resulted in a new pipeline sitting law that required TransCanada to apply from the state utility commission. The pipeline, now revived, is still pending approval by the Nebraska Public Utility Commission, which has until November 13, 2017 to make a final decision.

Nebraskans are fiercely opposed to the pipeline based on concerns that it will impact their soil quality, hurt their property values, and endanger the Ogallala aquifer beneath the Sand Hills region. The aquifer stretches beneath most of the state, running from South Dakota to Texas, and serves as one of the world’s largest underground sources of fresh water. While there was some contention in the state of Nebraska, the state’s congressional delegation largely supported the measure.

Narrative of the Case

Presidential Permitting

Executive Order 11423 grants the Secretary of State the authority to receive applications for Presidential permits for land border crossing facilities. The order states “. . . the proper conduct of the foreign relations of the United States requires that executive permission be obtained for the construction and maintenance at the borders of the United States of facilities connecting the United States with a foreign country.” This authority applies to all new border crossings and to all substantial modifications of existing crossings at the international border.

The Department of State coordinates with the relevant federal agencies to evaluate proposed crossings and make a recommendation to the president whether the crossing would be in the national interest. This is known as a National Interest Determination (NID). In Keystone XL’s case this included evaluation of the potential effects the pipeline would have on energy security; environmental and cultural resources; the economy; foreign policy, and other factors. The environmental and cultural impact are determined based on the Environmental Impact Statement issued by the Environmental Protection Agency pursuant to the National Environmental Policy Act (NEPA).

TransCanada initially applied for a Presidential Permit in 2008. At that time concerns were expressed regarding the pipeline’s impact on the Sand Hills region of Nebraska, which lead the state to implement new requirements that would change the pipeline’s route. Faced with a Congressionally imposed deadline to make a decision, the State Department denied the initial permit in January 2012 due to lack of information regarding the impact on the Sand Hills region.

A second permit application was made by TransCanada in May, 2012 which triggered a new NEPA process and the issuance of a new Environmental Impact Statement (EIS).

Environmental Impact Statement (EIS)

The National Environmental Policy Act (NEPA) requires the development of an Environmental Impact Statement (EIS) for certain actions “significantly affecting the quality of the human environment”. The role of the EIS is to provide federal agencies with detailed information concerning significant environmental impacts of federal actions.

In 2010 letter to the State Department, EPA said that the draft EIS released for public comment was not thorough enough and suggested significant revisions prior to the State Department making a National Interest Determination (NID). The final EIS was released in August 2011 and said the revised pipeline with the new route avoiding the Sand Hills region would have no significant impact to most resources in the region. In November, 2011 the State Department said it would postpone the NID until it could further evaluate the impact on the environment. In December, 2011 Congress passed legislation requiring President Obama to issue a decision on the pipeline within 60 days. In January, 2012 President Obama rejected the permit application saying that the deadline prevented a full assessment of the pipeline’s impact.

Revised Route

In May 2012 TransCanada submitted a new permit request containing a revised route. The new route was devised in consultation with Nebraska citizens and the state legislature, as well as the company’s desire to minimize disturbance to the area. A supplemental EIS was developed and issued, which found there would be no significant impact to regions along the revised route. Attempts were made by the House of Representatives in 2013 and 2014 to force approval of the pipeline, but were rebuffed by the Democratically controlled Senate. In January, 2015 the House and Senate passed a bill approving the pipeline, which President Obama vetoed in February, 2015 citing that he decision was within the purview of the executive branch. In November, 2015 President Obama rejected the pipeline’s application citing the impacts of climate change.

A New Administration

On January 24, 2017, shortly after his inauguration, President Trump signed a presidential memorandum clearing the way for the Keystone XL pipeline. The memorandum invited TransCanada to re-submit their application for a presidential permit and directed the Secretary of State to issue a NID within 60 days of receiving the application. The memorandum also directed the Secretary to consider the last Supplemental EIS completed to meet the requirements of NEPA. Two days after the issuance of the memorandum, TransCanada resubmitted their application.

On March 24, President Trump approved the pipeline’s application. TransCanada however has not indicated whether they intend to go forward with the pipeline. Citing changing oil markets from when their initial application was submitted in 2008, the company says they plan to make a decision before the end of 2017 as to whether they will move forward with the project. Crude prices have dropped from nearly $140 a barrel at the time of the initial application to $51 a barrel today. Part of this price fall was driven by the development of domestic oil production in the United States creating a glut in the market.

Discussion Questions

Engagement with state and local stakeholders was relatively limited at the beginning of the project, how would earlier external stakeholder engagement have permitted some of the difficulties Keystone XL experienced?

What role do you think the NEPA process played in the political machinations that occurred? Do you think a more streamline NEPA process would have resulted in less political battles?

Frustrated with the Executive branch, Congress tried to approve the pipeline against President Obama’s wishes and faced a veto. Should Congress have a role to play the National Interest Determination process?