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Oil sands production expected to be similar regardless of pipeline's approval or rejection due to other transportation options; Imports of Venezuelan heavy oil likely take place of oil sands on U.S. Gulf Coast if Keystone XL does not go forward
(August 8, 2013) –The proposed Keystone XL pipeline would have “no material impact” on U.S. greenhouse gas (GHG) emissions, according to a new IHS study. In the absence of the pipeline, alternate transportation routes would result in oil sands production growth being more or less unchanged, the study says. The study also found that any absence of oil sands on the U.S. Gulf Coast (the destination for Keystone XL) would most likely be replaced by imports of heavy crude oil from Venezuela, which has the same carbon footprint as oil sands.
The pipeline's potential impact on GHG emissions has been the subject of increased focus. President Barack Obama's June 25 climate address indicated that the relative emissions related to increased Canadian oil sands processing in U.S. markets resulting from the pipeline are a key criteria for the United States' decision whether to approve the project.
The new IHS CERA Canadian Oil Sands Dialogue study agrees with the conclusions of the U.S. State Department's Draft Supplemental Environmental Impact Statement for Keystone XL that says oil sands production is expected to continue at similar levels regardless of whether Keystone XL goes forward. IHS currently expects oil sands production to grow from 1.9 million barrels per day (mbd) in 2013 to 4.3 mbd in 2030 and does not expect the Keystone XL decision to have a material impact on the production outlook.
The IHS study points out that 3 mbd of additional oil sands pipeline capacity (not including Keystone XL) is currently proposed. Eighty percent of this proposed alternate capacity travels exclusively through Canada—connecting the oil sands with Canada's west and east coasts—and thus would not require U.S. government approval.
Even if pipeline capacity were to lag behind oil sands growth, the study says that transportation by rail is expected to play an ongoing role and that greater investment could make rail more economic to a level approaching that of pipelines.
The study found that with sufficient scale and investment the additional cost of transporting oil sands by rail to the U.S. Gulf Coast rather than by pipeline could be lowered from today. If heavy oil sands producers were to invest in improved rail efficiencies, the economics could be within $6 per barrel compared to pipeline (for each barrel of oil sands produced). This would place rail well within the break even range for most oil sands production. One source of improved economics could come from shipping oil sands bitumen in its pure state. A lack of pipeline capacity would incentivize such added investment.
The study also found that, were oil sands not to be shipped to the U.S. Gulf Coast, it would result in little to no change in overall GHG emissions. The region—which contains 50 percent of total U.S. refining—has a large capacity to process heavy crude. This means that crude oils of similar GHG intensity would continue to be refined in the absence of oil sands, the study says.
Venezuela is currently the largest single supplier of heavy crude to the U.S. Gulf Coast and would be the most likely alternative source of heavy crude supply absent oil sands. IHS research has found Venezuelan heavy crude to have a similar range of life-cycle GHG emissions as oil sands imported into the United States.
“Venezuelan heavy oil—and Venezuela—would be the number one beneficiary of a negative decision on Keystone,” the study says.
The complete study is available at the oil sands dialogue Web site, www.ihs.com/oilsandsdialogue.
About the IHS CERA Oil Sands Dialogue
Since 2009, the IHS CERA Oil Sands Dialogue has brought together policymakers, industry representatives, non-governmental organizations—including environmental groups—and other related stakeholders to advance the conversation surrounding Canadian oil sands development. The objective is to enhance understanding of critical factors and questions surrounding industry issues and foster a fact-based discussion.
About IHS (www.ihs.com)
IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today’s business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs approximately 8,000 people in 31 countries around the world.
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