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U.S. oil industry warns China will fill Keystone pipeline vacuum

The U.S. oil industry is playing the "China card" in urging the American government to quickly approve TransCanada Corp. 's proposed Keystone XL pipeline project, which will deliver oil sands crude to Gulf Coast refineries.

In a submission to Secretary of State Hillary Clinton, the Washington-based American Petroleum Institute argues that the $7-billion (U.S.) pipeline would be a major boost to job creation, and warned that the U.S. cannot take for granted its access to the vast oil sands resource in Canada.

"Other nations will aggressively develop this key strategic resource for their future energy needs if we fail to act," API chief executive officer Jack Gerard said in his letter.

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Although he did not name China, Mr. Gerrard was clearly referring to warnings that, in the absence of the Keystone XL pipeline, Canada will build alternative export routes to the West Coast to ship oil sands crude to the booming Chinese market.

"The U.S. should approve this pipeline to utilize this resource to enhance our energy and national security, preserve our global competitiveness, and maintain our role as a world economic leader."

On Monday, the State Department concluded a public comment period on its draft environmental impact statement, and will publish a final one some time this summer, before making a determination as to whether permitting construction of the cross-border TransCanada pipeline would be in the U.S. national interest.

TransCanada hopes to get its permit before the end of the year, and will immediately begin construction of the 2,700-kilometres line, which will carry 700,000 barrels per day of bitumen to the massive Gulf Coast hub, where refineries are particularly suited to process the heavy, high-sulphur bitumen.

Backed by environmental groups and some residents along the route, many Democrats in Congress have urged the Obama administration to either reject the pipeline or delay it by ordering further review.

The Environmental Protection Agency and the Department of Energy - which were both critical of the State Department's initial environmental assessment - will assess its latest effort, and could seek further study.

In his letter, Mr. Gerrard said the State Department has studied the proposed pipeline extensively and should not delay its approval.

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While environmental groups worry the pipeline will spur further development of the oil sands and add to greenhouse gas emissions, the industry's chief lobbyist rejected that argument. He said failure to approve Keystone XL will force Canada to find other export options, but will not slow development of the oil sands.

And he argued the U.S. has no business attempting to regulate greenhouse emissions in Canada.

In an interview with The Globe and Mail editorial board, David Collyer, president of the Canadian Association of Petroleum Producers, said the Keystone XL line is needed to connect the Alberta oil sands with refiners who have invested billions of dollar to upgrade their plants so that they can process heavy grades of crude.

Canadian producers are now locked into U.S. Midwest and Ontario markets, which have limited capacity to process additional volumes of oil sands bitumen.

Indeed, Canadian oil sands exports could exceed the refining capacity in the Midwest by 2015, IHS CERA, a consulting firm based in Cambridge, Mass., said in a submission to the State Department. "A more dynamic and flexible pipeline system that boosts continental oil supply would be a big positive for American consumers and U.S. energy security," IHS CERA said.

It argues that the Gulf Coast refiners invested heavily in processing capacity in order to benefit from price discounts on lower-cost heavier-grade crudes. Should the United States reject the TransCanada pipeline, those refiners would replace Canadian bitumen with heavier crudes from Mexico, Venezuela, Brazil, Colombia and Saudi Arabia.

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As a result, there would be little or no impact on global greenhouse gas emissions, IHS CERA said.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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