The Fuse

Despite More Pipeline Protests, Oil Will Still Make Its Way to Market

by Matt Piotrowski | November 01, 2016

Crude oil pipelines have become political and environmental lightning rods in the U.S. The fight over the Keystone XL dragged on for five years pitting environmentalists versus industry before the Obama administration finally rejected the controversial project. Recently, climate extremists attempted a sabotage against a number of pipelines carrying oil from Canada to the U.S. And now, the battle over the Dakota Access Pipeline, a $3.8 billion project that would transport 500,000 barrels per day from the Bakken oil fields to Illinois, is continuing to heat up and shows no signs of abating. The Standing Rock Sioux Tribe, with help from hundreds of other tribes from the U.S. and Canada, has resisted the pipeline, creating an international movement that has garnered the attention from a wide array of advocates, with public figures including former Democratic presidential candidate Bernie Sanders, climate activist Bill McKibben, and journalist Amy Goodman at the center of the conflict. Even if protests are successful in shutting down projects or making conditions difficult for industry, any oil produced will still be able to make its way to market as long as the demand for petroleum remains strong.

Even if protests are successful in shutting down projects or making conditions difficult for industry, any oil produced will still be able to make its way to market as long as the demand for petroleum remains strong.

Fights over pipelines tend to be full of irony, contradictions, and symbolism. Even though environmentalists bring publicity to their causes through protests to shut projects, their ultimate goal of keeping fossil fuels in the ground is rarely achieved through these efforts. For instance, although Keystone XL didn’t move forward, firms in Canada are still producing tar sands and moving crude to the U.S. Crude oil output in Alberta, the home of the tar sands, reached above 3 mbd earlier this year, just a few months after the Keystone rejection and up from 2.3 mbd in 2014, before being undermined by wildfires. Canada’s exports of crude and refined products to the U.S. have averaged 3.75 mbd this year, a 50 percent jump from 2010. Even if Native American tribes and climate activists are able to put a stop to the Dakota Access project, crude produced in the Bakken will still continue to reach the market, just by another means. Ultimately, the way to limit production of crude oil is to undercut the demand for it, by advancing vehicles that don’t run on oil.

Pipelines move a lot of oil

Last year, some 10 million barrels per day of crude were shipped across the U.S. via pipeline, or 60 percent of total refiner demand.

The shale boom of the past six years, with domestic oil production rising from just above 5 mbd to as high as 9.7 mbd last year, has spawned a massive growth in infrastructure to keep up with rising output. Last year, some 10 million barrels per day of crude were shipped across the U.S. via pipeline, or 60 percent of total refiner demand. That compares to 7.7 mbd at the start of the decade, before the boom in shale production, according to the Energy Information Administration (EIA). Although using pipelines is the most popular, easiest, and in fact the safest way to transport crude oil, the industry is flexible enough to move crude and products to their destinations even without pipeline infrastructure, reinforcing how oil will make it to market despite any setbacks from protests. For instance, at the height of the shale boom in 2014-15, the U.S. shipped more than 300,000 b/d of crude by rail, which is ultimately less safe than pipeline. A number of notable accidents of crude being spilled by trains occurred in North America, with the most horrific happening in Lac-Mégantic, where 47 people died because of an explosion. The amount shipped via rail has collapsed, as the economics of using trains have changed significantly due to tighter price differentials between regions and crude grades, but could be revived if market conditions shift again.

Besides rail or pipeline, the industry can also move crude by tanker, barge, and truck. Some 900,000 b/d of domestic crude was moved by tanker last year, while almost 535,000 b/d is shipped by barge, more than four times the total in 2010. Likewise, the amount shipped by truck has skyrocketed. In 2015, the industry shipped almost 484,000 b/d on highways, nearly double the volumes at the beginning of this decade. Barge and truck, like trains, are not as safe as pipelines for transport of crude, but can be used easily if the necessary midstream infrastructure has not been constructed.

Pipelines being built under the radar

Even as environmental activists have zeroed in on pipelines as pressure points on industry, don’t expect every pipeline to go through such rigorous examination and protests.

But even as environmental activists have zeroed in on pipelines as pressure points on industry, don’t expect every pipeline to go through protests and such rigorous examination. Keystone received extra scrutiny because it was a cross-border project and had to receive approval from the State Department, giving anti-fossil fuel groups an opportunity to organize. Domestic pipelines, though, don’t have to go through that process. The attention of the current stand-off in North Dakota stems mostly from protests among indigenous people. The 1.1 mbd Energy East pipeline project in Canada is also seeing major pushback from indigenous and aboriginal groups who oppose it going through their territory. When industry builds pipelines in oil-producing areas where jobs are dependent on such projects, such as Texas, Louisiana, Wyoming, or Oklahoma, and away from Native American sacred grounds, the controversy is much less if there is any at all. For instance, Kinder Morgan’s 462-mile Double H pipeline, which carries 100,000 b/d of crude from the Bakken to Guernsey, Wyoming and began operation early last year, never saw any resistance

As noted above, the amount of crude moved by pipeline in the U.S. totals roughly 23 percent higher than it did six years ago. In fact, from 2010 through 2014, the amount of crude oil pipeline mileage increased sharply by 12,000 miles, according to the American Petroleum Institute (API), which stated: “Another way to put that, in the time the Keystone XL pipeline was under review, we built the equivalent length of 12 Keystone XL pipelines across the United States.” Even with the sharp rise in pipeline capacity, more will likely be needed, given that shale oil is set to rebound to previous levels, and even higher, while natural gas production will also grow over the long term.

Presidential candidates tread lightly

So far, the two main presidential candidates have hardly weighed in on the Dakota Access fight, reflecting the controversial nature of the project. At a debate last week between Clinton and Trump surrogates, neither gave a position on the pipeline when questioned. Republican candidate Donald Trump reportedly has ties to Energy Transfer Partners, the consortium building the pipeline, a likely factor keeping him mum on the issue. Even though the Democratic Party’s candidate Hillary Clinton put out a statement calling for both sides to move forward in the “broadest public interest,” she has not taken a position. Her silence likely stems from not wanting to anger her environmental base but also understanding the economic necessity of the project.

The battles over pipelines are mostly symbolic, since any victories for environmentalists in the midstream sector won’t undermine oil use—the main objective of their activism.

While most pipelines will likely continue to move forward without much of a fuss, environmentalists appear poised to continue to take aim at midstream projects in order to build momentum for their causes, even if any oil produced can still reach the market by other means. Protesting oil fields or refineries would be more spectacular, but targeting them is more difficult, and industry, politicians, and activists are all reacting strongly to fights over pipelines, providing major publicity. The battles are mostly symbolic, however, since any victories for environmentalists in the midstream sector won’t undermine oil use—the main objective of their activism.

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