This is not a pipe

So ran the caption to one of René Magritte’s most famous paintings, and at times the debate over the $7 billion Keystone XL pipeline has been as surreal as anything produced by the Belgian master, prompting all manner of ‘Keystone Cops’ (or ‘Keystone Cop-out’) headlines. Originally conceived as a way of carrying up to 830,000 bbl/d of oil sands syncrude from northern Canada to processing facilities on the US Gulf Coast, the 2,700km Keystone XL pipeline was approved in March 2010 but thereafter rapidly became mired in controversy. Local opposition was strongest in Nebraska, where the pipeline was due to pass through the ecologically Sandhills area, but environmental opposition has grown to the entire project. As a trans-national pipeline, a final decision rested with the US State Department, and with an eye to presidential and congressional elections scheduled for November next year, President Obama has decided to kick a decision further down the line, with a State Department review now not scheduled for completion until early 2013. Developer TransCanada had proposed a re-routing of the most contentious section, in Nebraska, but it seems that the re-routing the president desired most was around next year’s election, and fears that the pipeline would become an election issue appear to have made the delay irrevocable.

So what now for Canada’s oil sands? The European Union has recently weighed in with its own contribution to the debate by rating oil sands crude’s global warming potential much higher than conventional crude in its new Fuel Quality Directive, and meanwhile Canada is now seriously considering a pipeline to the coast so that the crude can be exported to energy-hungry China, where environmental concerns loom much lower. But US Gulf refiners have already begun construction of up to 700,000 bbl/d of new capacity to process the syncrude there, so it seems highly likely that some of it will end up there, one way or another.

At this year’s Sulphur Conference in Houston in early November, the whole tangled knot was examined by Chris Smith, Pipelines Editor of Oil and Gas Journal, who looked at the various options for getting the syncrude to the US Gulf. There is still spare capacity in the rail network between the US and Canada, he noted, which could allow between 500,000 and 1.0 million barrels per day to be transported that way. And of course Keystone has all manner of rival pipeline schemes, including the Enbridge Northern Gateway pipeline across British Columbia, allowing oil sands crude to be exported from Kitimat (with China and India major potential customers), and another Enbridge proposal to run from Cushing to Houston, linking up with other pipelines such as ExxonMobil’s Pegasus and Keystone’s Cushing line.

At the moment Canada is looking at an extra 3 million bbl/d of oil sands bitumen production by 2020, containing up to 7.5 million t/a of sulphur, and for the sulphur industry, as described by Jim Hyne in our September/October issue, at stake is whether this 7.5 million t/a of sulphur is extracted in Canada, the southern US, or even in China. At present most syncrude is produced at upgraders in Alberta, and most of the sulphur is extracted during the process, producing a sweet syncrude for export. However, one of the fears of environmental protestors was that the pipeline would carry ‘dilbit’ – a dilute bitumen slurry, with several percent sulphur encapsulated within it. Chris Smith argued that if more rail transport rather than pipeline capacity was used, more bitumen would be transported un-upgraded. His calculations put likely shipments of oil sands crude to the Gulf Coast between 210-700,000 bbl/d, with a figure of 300-400,000 bbl/d most likely, and a mixture of rail and pipeline transport (and hence syncrude and dilbit) being used. Sulphur encapsulated in this mix would be 480,000 – 720,000 t/a, recovered at the Gulf’s refineries.

In spite of environmental objections, Canadian oil sands production currently seems likely to increase no matter what. Whether this results in a sulphur boom for Canada, the US or China – or some combination of all three – has yet to be determined.