6 Questions About What's Next for Keystone XL

The U.S. Senate's failure Tuesday to approve Keystone XL won't resolve the seemingly endless pipeline saga that has engulfed Barack Obama's presidency.

Even if the Senate had passed a bill approving the $8 billion U.S.-Canadian pipeline, as the U.S. House of Representatives did for the ninth time last week, that would not have ended debate and begun the project's construction. Not even close.

Congress would still have faced an expected Obama veto. Also, the pipeline currently lacks an approved route through Nebraska, and its construction permits for South Dakota need to be recertified. What's more, falling oil prices may make future oil production less lucrative.

"It's political noise," Anthony Swift of the Natural Resources Defense Council, an environmental group opposed to the project, says of the congressional posturing. Louisiana Senator Mary Landrieu, a Democratic Keystone backer, pushed for a Senate vote to boost her re-election chances in a December 6 runoff against GOP challenger Representative Bill Cassidy, who led Thursday's House vote. Republicans will likely try to approve Keystone in January, when they control the Senate.

Because of its other obstacles, Swift says Keystone's northern leg won't get built right away "regardless of what happens in Washington, D.C."

Yet Calgary-based TransCanada, which first proposed building the Keystone XL pipeline in 2008, has no plans to back down. "As long as our customers are behind the pipeline, we'll advocate for it," says company spokesperson Shawn Howard. "Nobody's canceled our contracts, and we have a waiting list."

Looking ahead, here are six questions and answers about the pipeline's fate.

1. Why has Keystone XL remained so controversial?

Environmentalists have turned Keystone, one of the most contentious energy proposals in U.S. history, into a litmus test of Obama's commitment to fighting climate change. Obama, who reached a nonbinding deal with China last week to curb greenhouse gas emissions, is under mounting international pressure as countries push for a new climate accord at United Nations-led talks next year in Paris. (Related: "3 Obstacles Ahead for Surprise U.S.-China Climate Deal.")

Critics are pressuring him at home too. They've repeatedly demonstrated outside the White House, some dressed as polar bears and many risking arrest. Some call Keystone the "fuse to the biggest carbon bomb on the planet" because of the carbon emissions from the oil it will carry. Climate scientist James Hansen, former head of the NASA Goddard Institute for Space Studies and now program director at Columbia University's Earth Institute, says an approval would mean "game over for climate."

At stake is Keystone's 1,179-mile (1,897-kilometer) northern leg, which needs a presidential permit because it crosses a U.S. border. This leg would carry up to 830,000 barrels each day of a heavy crude from the oil sands of Alberta, through Montana and South Dakota to Steele City, Nebraska. Once in the Midwest, the northern leg would connect with Keystone XL's southern route, which was completed in January, to move the oil to Gulf Coast refineries.

Oil sands crude can be particularly dirty. The State Department, which has reviewed the project because it crosses an international border, says this viscous oil—compared with average U.S. crude—would produce 17 percent more carbon emissions over its life cycle, which includes extracting, transporting, refining, and burning.

Still, the State Department's 11-volume final environmental impact statement says Keystone is unlikely to cause a spike in global emissions because the oil sands will likely be developed anyway—as long as oil prices remain high enough.

Proponents, including the oil industry and some labor unions, say Keystone would help reduce U.S. dependence on unstable foreign sources of oil and boost employment. How many jobs? The State Department's review estimates the project would create 3,900 one-year construction jobs and 38,200 indirect ones. It says operating the pipeline would entail about 50 jobs. (Related: "3 Factors Shape Obama's Decision on Keystone XL Pipeline.")

2. What's holding up an Obama administration decision?

The State Department has done several environmental reviews over the years as TransCanada has modified the project's route to address concerns that a leak could contaminate drinking water supplies. It released its final review in January but announced in April that it would take more time to determine whether Keystone is in the "national interest"—which involves assessments by eight federal agencies.

The department said the agencies have to review an "unprecedented" number of public comments on the pipeline and evaluate the impact of a pending lawsuit in Nebraska that could change its route through that state. (Related: "State Department Further Postpones Keystone XL Decision.")

In February, a judge in Lancaster County, Nebraska, struck down a law allowing Governor Dave Heineman to approve a pipeline route. The state appealed to the Nebraska Supreme Court, which heard the case in September and is expected to rule sometime between late November and early February.

If the court upholds the county judge's ruling, TransCanada may need to secure approval of a new route in the state or obtain permission for the existing one from the Nebraska Public Service Commission.

3. Will Obama really veto a bill to approve Keystone?

He's hinted but hasn't said. The president has said he'll make his administration's final call on the pipeline, though he hasn't issued a specific veto threat.

"The administration has taken a dim view of these kinds of legislative proposals in the past," White House spokesperson Josh Earnest told reporters during Obama's trip to Myanmar (Burma) last week. "It's fair to say that our dim view of these kinds of proposals has not changed."

In addition, Obama has recently sounded skeptical of Keystone's benefits to the American consumer. Traveling in Asia, he said, "Understand what this project is: It is providing the ability of Canada to pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else. It doesn't have an impact on U.S. gas prices."

What's unclear is whether, once the Nebraska court case is decided, Obama may be willing to approve Keystone next year as a bargaining chip to gain support for the key plank of his climate change plan: proposed federal rules to limit power plant emissions.

4. Does TransCanada face other state-level obstacles?

Possibly. In September, the company filed a petition to have its construction permits for South Dakota recertified. The state's Public Utilities Commission requires that if construction does not begin within four years of when permits were granted, the applicant needs to show that the project still meets the commission's conditions.

In September, TransCanada said the project fully meets the conditions of its June 29, 2010, permits. "We expect some kind of a hearing process," but the timeline for this remains unclear, says company spokesperson Howard.

TransCanada could also encounter resistance from local landowners. "We will be right there, ready to intervene, along with our allies and and partners in the fight against Keystone XL," says the grassroots group Dakota Rural Action on its website.

5. Aren't other pipelines proposed to move oil sands crude?

Absolutely. In the six years since Keystone XL was first proposed, TransCanada and other pipeline companies have put forward new projects or expansions of existing routes. Some of these projects will likely encounter indigenous opposition, mostly from First Nations—indigenous Canadians—and it's unclear which will get built.

Earlier this month, TransCanada asked the Canadian government to approve a 2,858-mile (4,700-kilometer) pipeline, known as Energy East, to move 1.1 million barrels of day of oil sands to Canada's east coast. It won't need U.S. approval, but Canada's regulatory system alone could prove to be a challenge. (Related: "Blocked on the Keystone XL, the Oil-Sands Industry Looks East.")

Toronto-based Enbridge got Canadian approval to build the 525,000-barrels-a-day Northern Gateway pipeline, which would run west to the Pacific, but it must meet more than 200 regulatory conditions before starting construction.

In March, Enbridge announced a $7 billion plan—and a novel tactic—to move more oil sands across the U.S. border. It said it would replace almost all of its Line 3 from Hardisty to Superior, Wisconsin, with wider and improved 36-inch (91-centimeter) pipes that will allow it to nearly double the amount of oil it can carry. It said it didn't need a new State Department permit, because it would limit the pipe diameter of a 17-mile (27-kilometer) stretch across the U.S. border to 34 inches (86 centimeters)—the dimension specified in the initial permit—and widen it elsewhere.

"The lack of new pipelines is starting to shut down production," says the NRDC's Swift, noting that several major oil companies-including Royal Dutch Shell, France's Total, and Norway's Statoil—have canceled or scaled back oil sands projects in Canada this year.

Railroads are picking up some of the slack. Though much of the increase in oil trains has been to accommodate booming production from North Dakota, rail cars are carrying a lot more oil sands too. They'll be able to transport 1.3 million barrels per day of Canadian crude by the end of next year, says Dinara Millington, vice president of research at the Canadian Energy Research Institute or CERI, an independent, nonprofit group.

TransCanada's Howard says pipelines are a cheaper and safer alternative. He also says public opinion polls consistently show that the majority of Americans support Keystone XL.

6. Will falling oil prices decrease demand to produce and transport oil sands?

Perhaps eventually. Oil sands development, accounting for the bulk of Canada's total oil production, has been soaring in recent years and that trend is expected to continue. CERI forecasts that production will grow from 2 million barrels per day in 2013 to 3.7 million in 2020 and 5.2 million by 2030.

In recent weeks, U.S. oil prices—as measured by the price of crude oil called West Texas Intermediate, used as a benchmark—has tumbled, nearing a four-year low of $75.64 a barrel on Tuesday morning.

"The existing production of oil sands won't be affected by falling oil prices," CERI's Millington says. Once producers have invested capital expenses, she says they can continue extracting oil sands for 35 to 40 years at operating costs that range from only $37 to $50 per barrel.

Still, she says falling oil prices could jeopardize future projects and slow the upward growth curve for oil sands production. The Paris-based International Energy Agency reported in October that one in four new Canadian oil projects could be vulnerable if U.S. oil prices fell below $80 per barrel for an extended period of time.

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The story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.