House Panel: Oil Sands Project Critical to U.S. Energy Security

June 15, 2011
Obama administration is the 'one thing standing in the way,' says energy committee chairman.

The United States should look to its neighbors up north for additional oil supplies that could have a major impact on the nation's energy security, say oil industry analysts and Republican lawmakers.

A proposed oil pipeline called Keystone XL could pump 700,000 barrels per day from Canada's oil sands to the U.S. Gulf Coast.

A Republican-controlled House panel tried to fast-track approval of the pipeline by passing a bill June 15 that will advance to the House Energy and Commerce Committee for consideration.

Canadian energy infrastructure company TransCanada has submitted an application to build the $7 billion pipeline. But controversy over the potential environmental impact caused by the oil sands production has stalled the project.

The panel chaired by Rep. Ed Whitfield, R-Ky., approved a bill called the North American-Made Energy Security Act to push the Obama administration on the proposed Keystone XL pipeline.

The U.S. State Department has been reviewing TransCanada's request for the permit.

Energy and Commerce Committee Chairman Fred Upton, R-Mich., said the Obama administration is stalling the project.

"With Canada's oil sands coming online and the enormous untapped resources residing here in the U.S., North America appears to have the capacity to break free from unfriendly sources of oil and bring down prices at the pump," Upton said. "There's only one thing standing in the way - the Obama administration. This legislation will end the delays and require this administration to make a timely decision on this pipeline."

But environmental concerns associated with oil sands production include increased greenhouse-gas emissions and the potential for spills.

Canada is the United States' top supplier of foreign oil, accounting for 22% of U.S. oil imports. About 1.1 million barrels per day come from Canada's oil sands in Alberta, according to an IHS Cambridge Energy Research Associates report.

Oil sands are mixtures of sand, water and a thick, heavy crude oil called bitumen. Production requires separating the bitumen from the sand, which can be an energy-intensive and costly process.

A State Department report concludes that without a new oil sands pipeline, less-energy intensive light sweet crude oil will satisfy demand. But U.S. Gulf refiners have made large investments in heavy-crude refining capacity and will likely increase heavy crude oil imports without construction of a new pipeline, according to a recent IHS CERA oil sands report.

The State Department also estimates that greenhouse-gas emissions from oil sands production and consumption is 17% higher than the average barrel in the United States.

But IHS analysts say the greenhouse-gas intensity of U.S. oil sands imports is 6% higher than average U.S. crude consumed.

"In the case that the pipeline is not built, they assume (the State Department) that it will be a lighter, Middle Eastern crude, and we assume it will be a crude that will be closer to the greenhouse-gas emissions of oil sands," says Jackie Forrest, a director with IHS.

The overall operating costs of oil sands production can be 25% to 50% higher than conventional methods, says Iain Reid, managing director of oil and gas research for securities and investment banking firm Jefferies International Ltd. But if oil prices remain above $80 a barrel, oil producers can still make a decent profit, Reid says.

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