Keystone XL Market Analysis

TGG and KXL: On January 20, 2021, President Biden issued an Inauguration Day executive order to rescind the construction permit for the Keystone XL (KXL) pipeline. Since KXL was first proposed by TransCanada in 2008, the pipeline has been the subject of a long and divisive public debate. This debate and the accompanying media coverage have been characterized by significant misunderstanding and misinformation concerning the pipeline’s environmental and economic impacts. During the Obama Presidency, the pipeline underwent an extensive federal review process by the State Department over a seven-year period. TGG released several highly influential expert reports, notably Pipe Dreams and the Keystone XL Market Analysis, described here. Our reports demonstrated to the Obama Administration and the media that the economic benefits of KXL have been greatly exaggerated by the proponents while the environmental costs have been understated. See Project Pages for Keystone XL in South Dakota and Keystone XL Job Study for more information about TGG’s work on KXL.

Background: In 2013, TGG was retained by Sierra Club, Natural Resources Defense Council (NRDC) and a coalition of 14 leading environmental and public interest groups in the US. The Coalition hired TGG to produce an Expert Report on the US State Department’s revised environmental impact statement (EIS) for KXL. This revised EIS, entitled the Draft Supplemental Environmental Impact Statement (DSEIS), was released on March 1, 2013. The DSEIS concluded that KXL would not have a substantial impact on tar sands production and expansion, nor on related GHG emissions. The DSEIS made no recommendation about whether KXL should be approved, but did conclude that the climate and environmental impacts could be managed. While the purpose of the DSEIS was to guide President Obama’s decision on whether to grant approval for KXL, the study did not provide an environmental basis to reject the pipeline.

TGG’s Evaluation of the DSEIS Market Analysis for KXL: In April 2013, TGG submitted our Report evaluating the adequacy of the Keystone XL (KXL) Draft Supplemental Environmental Impact Statement (DSEIS) Market Analysis. The TGG Report was filed as an attachment in support of Comments on KXL DSEIS by the Coalition (which included the most seasoned environmental litigators in the US).

The TGG Report focused on the main conclusion of the DSEIS Market Analysis, which is that KXL would not have a substantial impact on tar sands production and expansion.

TGG concluded unequivocally that DSEIS substantially underestimated the impact that a rejection of KXL would have on tar sands production and expansion across a range of scenarios. The TGG Report evaluated the relevant market conditions of early 2013 (emerging crude markets, factors driving tar sands expansion, availability and cost of crude transportation, and tar sands breakeven costs). Based on this evaluation, TGG concluded that (a) the State Department’s DSEIS Market Analysis was deeply flawed and not a sound basis for decision-making; and (b) KXL, and specifically its impact on tar sands logistics costs and crude prices, would have a significant impact on tar sands expansion under a very broad range of conditions and assumptions.

In particular, TGG concluded that the DSEIS Market Analysis was not properly reflective of emerging market conditions. TGG found that (a) the emerging and dynamic conditions in the crude markets could become increasingly challenging for tar sands producers; and (b) the DSEIS used lagging data that did not adequately take into account how changes in the crude markets were likely to impact economic conditions for tar sands producers. Under challenging economic conditions, it would be even more essential for tar sands producers to have access to high volume, low cost logistics. Therefore the approval of KXL would have a significant impact as an enabler of less profitable marginal tar sands projects.

TGG’s analysis and conclusions have stood up very well over a period of intense shifts in the energy markets. As foreseen in the TGG Report, conditions have become increasingly challenging for tar sands producers since 2013. Many tar sands projects have been delayed and/or canceled. Tar sands production growth has slowed, with limited, if any, future expansion now projected. The energy market shifts affecting tar sands producers include (a) the boom in US shale oil production; (b) significantly lower crude prices (crashing in 2014 and then remaining “lower for longer”); (c) significantly increased competitiveness of fossil fuel alternatives (including renewables) and expanded adoption of electric vehicles; and (d) significantly increased concern about climate change and the expectation of stronger global climate action. The challenges facing tar sands producers have been further intensified by the COVID crisis, and the demand shock in the energy markets.

Update: The Final Supplemental EIS was released in January 2014 and also concluded that KXL would not have a substantial impact on tar sands production and expansion, nor on related GHG emissions. In November 2015, President Obama rejected KXL, concluding that the pipeline would not serve the national interests of the US, would not be a major job creator and would undercut US leadership on climate change. The President’s justification of the rejection of KXL was highly consistent with the conclusions of our Export report on the Market Analysis in DSEIS, as well as our analysis of KXL’s employment impacts in Pipe Dreams).

KXL was again revived during the Trump Administration and continued to be the target of ongoing legal challenges and public opposition in the US throughout Trump’s presidency. As of late 2020, construction of KXL remained stalled. Moreover, the Canada Energy Regulator (the Canadian FERC) released a report in late November 2020 projecting that if Canada strengthens its climate policies, there will be no need for KXL to export tar sands crude.

President Biden met his election promise to “stop it [KXL] for good” and rescinded the presidential permit for KXL on his first day in office, January 20, 2021.

See Keystone XL in South Dakota Project Page for a more detailed update and news on legal challenges to KXL during the Trump Presidency.

UPDATE June 9, 2021: TC Energy terminated Keystone XL pipeline months after Biden revoked its permit. Alberta’s final costs for the cancelled project are estimated at C$ 1.3 billion.

Other Project Products

MEDIA INTERVIEWS | 2013 – 2015
TGG has frequently commented on the economic impacts of KXL in major media.

Demonstration against Keystone XL Pipeline, CC BY-NC-ND 2.0; Credit: Victoria Pickering