As the Keystone XL pipeline loses its footing, other pipelines face even greater scrutiny.

Yesterday’s announcement by the U.S. State Department to delay the Keystone XL tar sands pipeline process into 2013 will quite possibly spell a “fatal blow” to the project. In reacting to yesterday’s announcement, the Canadian government promised they would immediately pursue Plan B: new pipelines from Alberta to the Canadian west coast in British Columbia.  But, in fact, significant hurdles must be overcome to build another tar sands pipeline that may be even greater than what TransCanada faced with Keystone XL.

Canadian officials are already turning their sights to other alternative pipelines because they know the delay to Keystone XL could result in an end to the project.  The Canadian Finance Minister Jim Flaherty acknowledged the delay to the Keystone XL process is effectively a rejection of the pipeline. Investors like BMO Capital Markets agree saying that a delay to Keystone XL to after the 2012 election “may very well be the same thing as effectively rejecting XL.”

TransCanada itself has confirmed that a delay could mean they would lose some refinery customers.  In a sworn statement filed with the U.S. District Court in Nebraska this week, TransCanada acknowledged their contracts with refineries were fundamental to the financial underpinnings of the project. Separately, they have acknowledged, “some Gulf Coats refiners have contracts that expire in 2012 and 2013.” The implications are huge for the financial investment needed for this project. Canada’s Globe and Mail reports that Keystone XL shippers can bail from their contractual agreement with TransCanada if by the end of 2011, “TransCanada cannot prove it will have oil flowing through Keystone XL by December 1, 2013…”  Given the construction of the pipeline will take two years and there are many more months of study needed on possible alternative routes before there is any chance of an approval, there is a good likelihood TransCanada’s customers won’t wait.

But as the rumors of an impending delay surfaced, Canada’s Natural Resources Minister Joe Oliver used tough talk proclaiming, “What will happen if there wasn’t approval [of Keystone XL] – and we think there will be – is that we’ll simply have to intensify our efforts to sell the oil elsewhere.” Translation?  We’ll pursue Plan B and send our oil to China.  Simple enough? Not at all.  As one commentator from Canada’s more conservative paper said, “There will be nothing simple about getting oil to China.”  

Keep in mind that tar sands are land-locked and the U.S. has created nearly all the demand for this product.  Keystone XL has been the overwhelming choice by the tar sands industry for their expansion plans because it would create a super-highway from Alberta to the U.S. Gulf Coast, an international port.  The Keystone XL delay “chokes production growth in the oil sands because the sector has no backup plan on the same scale and time line.”  In fact, industry was mostly relying on Plan A – Keystone XL. Canada’s oil patch has viewed Keystone XL to be “critical to handle the growth in crude supply” according to an October 2011 report by Purvin & Gertz, an international energy consulting firm.  To expand tar sands, they said, more pipeline projects were “urgently needed” to meet industry’s expansion plans.

So, what is Plan B?  The Canadian government will likely set their sights on the proposed Enbridge Gateway tar sands pipeline, a 620-mile (1000-kilometer) long pipeline from Alberta to the Canadian west Coast.  The fight against this pipeline is heating up rapidly and is bound to be the next battleground for tar sands activists.  Chances this pipeline will be approved anytime soon are slim. Canada’s First Nations have constitutionally protected treaty rights and unsettled land claims enabling them to block and significantly delay the pipeline.  Watch Robert Mark, an investor specialist, with MacDougall, MacDougall & Mactier saying there are “a lot more hoops” to proceed with the Gateway pipeline than Keystone XL. 

Other energy analysts have said much of the same thing.   Robert Campbell, a Reuters market analyst, says Canada’s claim they will find other pipeline avenues is hollow. “If anything, a pipeline from Alberta across the mountainous province of British Columbia is likely to face more scrutiny from environmental groups than Keystone XL.” 

Another Plan B alternate pipeline proposed by Kinder Morgan involves the expansion of one of their pipelines and an additional new pipeline. However, both the Enbridge and Kinder Morgan pipelines face a potential deal breaker: a permanent ban on crude oil tankers on Canada’s Western coast.  Pipeline companies will need these tankers to get their product to other markets. Over 130 First Nations groups in Western Canada have publicly stated their opposition to tankers and tar sands pipelines.  Of these Nations, 70 have declared outright bans on the transport of tar sands crude through their traditional territories, whether by tanker or pipeline. Canada’s federal opposition parties have signaled their support for a permanent tanker ban. And dozens of businesses and the majority of British Columbians support a ban.

You might say the tar sands industry has their hands full. Naomi Klein said it best this past Sunday when over 10,000 people joined to send a message to President Obama to deny the pipeline.  She said, “So, as you surround the White House today, I want you to remember that we don’t just have the White House surrounded, we’ve got the tar sands surrounded!”  The fight against these tar sands pipelines is a fight against dirty oil and a fight for breaking our dependence on oil and promoting a clean energy economy.  Investors are taking note that the fight against Keystone is more than a pipeline fight.  It is a “backlash” against tar sands  – an opposition that is the new normal as the tar sands industry pursues its expansion.  In the end, tar sands development carries too high a price tag for water and land protection, public safety, and the protection of our climate.