EPA Calls for Further Study of Keystone XL

CALGARY (Dow Jones)

The environmental impact of crude production from Canada's oil sands should be studied more closely before the U.S. approves a new pipeline from its northern neighbor, the U.S. Environmental Protection Agency said Wednesday.

The State Department is reviewing TransCanada Corp.'s (TRP) plans to expand a pipeline that would roughly double the amount of oil-sands crude shipped from Canada to the U.S. A decision on whether to approve the project could come within weeks. The EPA's letter, however, comes amid growing opposition to the pipeline from U.S. lawmakers concerned about the climate impact of emissions-heavy oil-sands production, posing a threat that a permit could be delayed, altered or rejected.

Earlier this month, Rep. Henry Waxman (D., Calif.) joined 50 other Democratic members of the House of Representatives in writing Secretary of State Hillary Clinton to criticize the State Department for failing to analyze "the most significant environmental impacts" of the Keystone XL pipeline.

In a letter released Wednesday, the EPA's enforcement division recommended that the State Department conduct a more comprehensive review of several environmental impacts before approving the $7 billion Keystone XL expansion project, which would bring oil-sands crude to refineries on the Gulf Coast. In particular, the agency suggested greater scrutiny of the project's impact on greenhouse-gas emissions, air pollution, pipeline safety, wetlands and migratory-bird populations.

The EPA said in its letter that the U.S. government should more closely evaluate alternatives to Canadian oil-sands crude, production of which the agency estimates generates about 82% more greenhouse-gas emissions than production of the "average" crude oil consumed in the U.S. The agency suggests that the State Department consider only approving a smaller pipeline expansion, or delaying approval of the project until oil-sands producers can cut their emissions through technological improvements or energy efficiency.

A TransCanada spokesman said the company disagreed with the EPA's criticism of the State Department's environmental review. "We believe the [State Department] did a thorough and complete job," the spokesman said.

A State Department spokeswoman wasn't immediately available to comment.

Although they admit that oil-sands production emits more greenhouse-gas emissions than conventional oil output, Canadian producers say that since 80% of emissions from oil are created when fuel is consumed, oil-sands oil is only 5% to 15% more carbon-intensive than conventional crude.

The expansion of TransCanada's Keystone pipeline would increase the export capacity of the pipeline to 1.1 million barrels a day by 2013 and extend it to Gulf Coast refineries that are specifically designed to handle heavy crude grades similar to those produced in Canada.

The first phase of the Keystone project was approved by regulators in 2008, and began shipping 435,000 barrels of oil sands crude a day to refineries in Illinois on July 1.

Production of crude from Canada's oil sands, most of which is shipped to the U.S., is expected to double to more than 3 million barrels a day by 2020.

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