Keystone XL Could Boost Global Oil Consumption By 500K Barrels A Day

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A new study from the Stockholm Environment Institute (SEI) focuses on a greenhouse gas impact of the Keystone XL pipeline that hasn’t received much attention: how the pipeline could affect the global oil market by increasing supply, decreasing prices and therefore driving up global oil consumption.

Even if those effects are small in global terms, they could be significant in relationship to Keystone XL and U.S. climate policy, argue Peter Erickson and Michael Lazarus, senior scientists in SEI’s U.S. Center, in a new paper, Greenhouse gas emissions implications of the Keystone XL pipeline.

The more suppliers there are in the market for oil, the more they compete and that drives down prices for consumers,” Erickson said.

Climate policy and analysis often focuses on energy production and consumption, but rarely considers how energy infrastructure might shape energy use and the resulting greenhouse gas emissions.

The Keystone XL pipeline proposal to connect Canadian tar sands production with the Gulf of Mexico’s refineries and ports have brought these questions to light. U.S. President Barack Obama has said he will only approve Keystone XL if it “does not significantly exacerbate the problem of carbon pollution.”

To gauge the pipeline’s potential impact, Erickson and Lazarus built a supply-and-demand model using publicly available supply curves and peer-reviewed demand elasticities (the extent to which changes in oil consumption respond to changes in oil prices).

They examined three possibilities — 1) That the Keystone XL permit is rejected, and the same amount of oil would reach the market by other means; 2) if half of the oil reaches the market anyway; and 3) that none reaches the market.

For the last two cases, the researchers found the pipeline’s impact on global oil prices, though modest (less than one percent), would be enough to increase global oil consumption by hundreds of thousands of barrels per day.

The cheaper oil and fuels are, the more people will consume them,” Erickson said. “The cheaper it is, the more people drive. The more expensive it is, the less people drive. In economic terms, that’s called an elasticity of demand.”

The scientists looked at these variations in demand over the longer term.

People don’t tend to, on a day-to-day basis, pay a lot of attention to gas prices in terms of how much they drive,” Erickson said. “But over time, if prices go up, people make bigger decisions about the type of vehicle they’ll buy or where they’re going to live.”

What they found was that if none of the oil would otherwise reach the market, Keystone XL could increase global oil use by as much as 510,000 barrels per day, or 62 per cent of Keystone XL capacity. Including those price effects, the pipeline’s annual emissions impact would be 93 million tonnes of carbon dioxide equivalent per year, four to five times greater than the greenhouse gas implications of simply displacing average crude imported into the U.S. with tar sands crude.

While the State Department has considered how Keystone might affect overall levels of Canadian oil sands production, it is not clear if and how they considered how such increases in production would affect global consumption — an effect we found could be significant,” Erickson said. “This is an important gap that needs to be addressed if President Obama is to make a fully informed decision about the pipeline.”

The GHG implications of Keystone XL can also be looked at in the context of the U.S. pledge to reduce emissions to 17% below 2005 levels by 2020, Lazarus said.

The potential impact on global GHG emissions could be as high as 1–2% of current U.S. emissions,” he said, “and greater than the emission reductions that several proposed federal climate mitigation policies could achieve in 2020, such as U.S. Environmental Protection Agency performance standards on industrial boilers, cement kilns and petroleum refineries.”

The authors conclude by noting that the answer to the question of whether Keystone XL will “significantly exacerbate the problem of carbon pollution” is likely to hinge upon how much the pipeline increases the global oil supply, and through its price effects, global oil consumption.

Some have argued that if Keystone XL is not built, then other modes, particularly rail, would be used to transport an equivalent amount of oil. However, there is far more prospective Canadian tar sands production (4.5 million barrels per day) than the 830,000 barrels per day that Keystone XL can carry, so rail routes may be needed and used whether or not the pipeline is built, Erickson said.

Additionally, Brian Ferguson, CEO of major oilsands producer Cenovus, was quoted this week as saying: “If there were no more pipeline expansions I would have to slow down.”

So, whichever way you slice it, Keystone XL will have a significant climate impact —by enabling more development of Alberta’s oil industry, but also by increasing the global oil supply and consumption.

Image credit: Tail pipe exhaust via Shutterstock.

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Swedes have done more to damage popular music than Canadian heavy oil could ever do to damage the environment. Here's what I think of my squareheaded scandihoovian relative's work:

1) Alberta is already producing/shipping about diluted bitumen at 1.5 million barrels per day and syncrude at about 800,000 barrels per day as of 2012. This is based on about 1 million barrels per day raw oil sands (the volume increase due to processing and dilution). The most recent production number can be found here:

2) Diluted bitumen is flowing nicely to Illinois and once the Flanagan pipeline is completed this year about an additional 600,000 bpd will flow to the Gulf Coast via Cushing, OK. There's plenty of cross boarder pipeline capacity even without the northern half of Keystone XL until 2019. Illinois/Indiana refineries are already refining tar sands diluted bitumen and soon will be able to process more than 500,000 bbd just at a handful of refineres in those states alone. A nice summary is presented by Congressional Research Services on this whole mess here:

3) If it all stays within US and Canada - then Venezuela will ship its heavy crude to Sweden and Europe - which has an equally troubling carbon footprint.

4) Environmental(ism) is playing catch up at best and pulling guard at worst (football analogy: a pulling guard gets out in front of a runner sweeping left or right). For example, oil and gas does what it does  - the environmental blogs writes about it - we knash our teeth - then read yet another well written and informative article. The perfect example is the Pulitzer Prize winning piece of journalism by Inside Climate News (Bloomberg's personal blog I think, maybe not) on the diluted bitumen spill in Michigan. According to the article “we never heard of it.” I believe many did. The young spunky j school grad didn't, but that doesn't mean all of us never did. Especially those in the hazmat emergency response business. 

Heres' my point…tar sands or diluted bitumen or heavy oil is and has been flowing like crazy. It will increase if Keystone is built. There is and will continue to be workarounds, i.e. alternative pipelines and rail. 

If environmentalist want to get in front of the issue instead of reporting on yet another fossil fuel production increase, then focus on the source. The transition from mining to in situ extraction of tar sands could really shut it down (assuming Canada even cares). Mining production is flattening out and will begin to decrease. The future production of tar sands will be mostly in situ extraction - which given the present technology - is a freaking mess - and expensive.

In Situ is already 80% of all tar sands extraction, there is no transition. Mining operations currently extract more bbl/d per site than in situ sites do and account for a higher proportion of total barrels,. In situ is less ecologically destructive than mining, though it does use an enormous amount of water, at least at start up (after which 99% of the water used is recycled). 

Here's my point. By denying expansion of pipelines, Canada could be a leader in the reduction of GHG, it could also get more on the world market for its oil if production (i.e. supply) were slowed.

I don't think that the carbon footprint of the tar sands is the issue specifically.  I think its concern over global warming.  The Tar Sands, and Keystone XL are just the lighting rods.

Reducing Green House gasses, is a disaster.  The target is zero emissions.  Michael is also right in that oil and gas will just route around the the problem.

Worse still oil and gas isn't profitable.  Its so heavily subsidized its not funny.  Tankers only carry $75 million in insurance.  That means the people of Canada has to pay cash out of pocket for a clean up.  This particular subsidy needs to end.

As for the so called Haitus there has been a lot of work on that subject.  Cowton and Way are are considered to be on the fore front of that.  Specifically, they are analyzing Geospatial gaps in our surface thermometers.

Spots that aren't well measured today are deep arctic and deep desert.  These are also spots that are suffering the most heating from cliamte change. Take Canada as an example, we're 3C hotter.

On top of that Climate Change is now costing Canada jobs.  Pine Beetles are trashing BC and expected to trash northern arctic forests.  This has force closures mills as well as resulting in the expenditure of hundreds of millions on efforts to prevent or contain the outbreak.  FYI, The beetles had something like anti freeze in their blood, you need like 2 weeks of -40C to kill them and halt the spread.  This hasn't happened for a long long time.

Based on total recoverable oil sands, it has been reported that roughly 80 percent will have to be mined in situ. Here's the latest breakdown on surface to in situ mining:

Insitu extraction (primary and other, i.e. thermal assist) = 478,483 bbd (34%)

Surface mine: 929,240 bbd (66%)

based on a total of 1,407,723 bbd

The interested take away from the macro graph is the flat lining of surface mining output and continual increase in in situ extraction. In 2008 19 percent of the total daily production was 19 percent in situ and 81 percent mined. The total production in the four years increased around 5 percent from 886,000 to 929,240 bbd.

I'm assuming the transition to in situ extraction is as important as takeaway issues like pipeline and rail. 

an Oilman and Peter Moss,

What's going on with in situ electric resistance heating for oil sands? ET Energy piloted this in situ extraction method recently at one of the fields. This may be less sloppy than steam thermal, no?

There are many alternate technologies for extraction.  Usually they require very specific conditions to work.

I'd be curious to know how efficient that is.  First we burn 60% coal, 40% natural gas (?) in Alberta for electricity. Then you'd have losses in the actual heating.  I also assume you'll need to inject something downthere to cause it to flow out.

As always they have removed coal from their emmissions estimates. :-)

Aaaand current natural gas is equivalent to coal, but I bet they removed losses from their estimates.  (I supose it would be OK to use the same estimate for comparison purposes, but they are wrong.)

Sorry Michael, I'm not familiar with that extraction method. It looks interesting though. We did a SAGD plant near the McKay River last year for a junior client. It was designed as a 12,000 bbl facility, but it's only pulling 1,800 bbl because they have since found out they have to use a lot more water than anticipated. That's the problem with in situ, it's a relatively young technology and the science behind things like how much water will be needed at any given reserve is fairly inexact. And the juniors are having a harder time getting in the in situ game due to changes in the application process. It's getting too costly for them, so the trend is going to be for larger established companies doing larger SAGD projects (i.e. > 40,000 bbl/d). As you said, mining is not growing and has peaked. I shudder to think what the landscape is going to look like after projects like Kearl are finished.

I think the only hope we have of getting out of this mess is to slow things down, deny expansion of pipelines and rail, begin undoing the subsidies and collect carbon taxes instead, and ramp up renewables. Whether any of these actually happens or not I don't know. 

I've been reading about plans to bring nuclear power up to Alberta to generate low carbon electricity. Steam assisted extraction and gravity drainage in situ techniques seem to be the state of the art for the time being. If this were to happen, I was wondering if in situ electric resistance heating (ERH) was moving forward. ET Energy seems to be well into the pilot program at Poplar Creek (somewhere up there).

In situ ERH was tested as a tertiary oil recovery technology back in the 70s. Then moved over to environmental. US DOE was testing ERH for in situ vitrification of nuclear waste impacted soil at Hanford, Washington. In situ vitrification didn't go very far into commercial use. Using the same technology essentially, Hanford then reduced the applied current (energy input) and developed ERH for soil and groundwater remediation. Where it has been successful for about 20 years. Now the technology may go full circle and be used for oil extraction. Don't know. Something anything needs to be done. At the rate the planet is being heated, Canada will just have to build a pipeline directly north to the Arctic Ocean (that is not a serious comment).

There have been rumblings to bring nuclear power to Alberta for decades. The first I heard about it was in the late 1980s. But nuclear power isn't going to be part of Alberta's energy grid or even as a supplier to industry anytime soon. Fukushima and any new fresh disasters have and will make sure of that. Besides, it's just way too expensive and would requie massive government investment, something not likely with current provincial deficits. Finally, just to get one approved and then built, you're looking at a ten year window.

No nuclear power plant has ever made a profit without heavy heavy subsidy.  Like Oil and Gas, Nuclear Energy is un-insured.  (Can you imagine what insurance would cost?  At all?  Fukashima will cost $150 billion to clean up!)

What would happen if there was a melt down at the reactor?  (A freak 1000 year flood?) This would go beyond blowing its top… it would also pollute all of Canada's energy reserves.

One of things I heard them thinking of was using steam from the nuclear plants for In Situ extraction.

The funny thing is that they haven't considered going solar.  20 cents per kwh installed small scale.   Furthermore the tar sands were profitable at $35 a barrel.

Michael Berndtson said:

“Canada will just have to build a pipeline directly north to the Arctic Ocean (that is not a serious comment)”.

I'm afraid that is being taken seriously by the Alberta Government:

“Most recently, the government has hired Canatec Associates International Ltd., a Calgary consultant experienced in northern development, to do some research on the potential for an oil pipeline from the central Mackenzie Valley to a tidewater at Tuktoyaktuk, N.W.T., on the Beaufort Sea, Ken Hughes said.”

So much for trying to be flip.