Keystone XL And Infrastructure Design

James Hamilton writes about the recently announced Keystone XL extension from Cushing, Oklahoma to the Gulf of Mexico:

The Wall Street Journal reports that the 435-mile segment could carry 700,000 barrels/day from Cushing down to the coast, and the company expects that segment of the pipeline to be in service by mid to late 2013. This would be in addition to the 400,000 barrels/day that Enbridge is hoping to send from Cushing to the coast through the Seaway Pipeline by the first quarter of next year, with 150,000 of that already flowing by the middle of this year. Even so, the Wall Street Journal reports:

Even the Gulf Coast leg and Enbridge's project may not be enough to relieve the bottleneck at Cushing. Alex Pourbaix, president of TransCanada's oil-pipelines division, said he believes at least two million barrels a day of oil will need to flow between Cushing and the Gulf Coast over the next decade to relieve the bottleneck there.

Confirmation of that assessment comes from the observation that, despite the news, the price of a January 2014 Brent futures contract is still selling at a $7 premium to Jan 2014 West Texas Intermediate.
TransCanada separately reported that it is also reapplying for permission to construct the rest of the original Keystone expansion, and the company seems hopeful that the objections to the original proposal have been resolved:

TransCanada will continue to work collaboratively with the State of Nebraska on determining an alternative route for Keystone XL that avoids the Sandhills. TransCanada has been working on assessing the routing in Nebraska since November 2011, following the State Department's notice to delay a decision on a Presidential Permit until an adjusted route that avoids the Sandhills was developed....
Reapplying for the Keystone XL permit is supported by words used in President Obama's statement January 18, 2012 when he said the denial of the permit was not based on the merits of the pipeline but rather on an imposed 60-day legislative timeline to make a decision on the project.

I wanted to take a better look at the pipeline map, to see where that eastern portion ran to, so I went to the TransCanada website, where they had a nice interactive map.  There are several things I don't really understand about the pipeline design. 

First, why did they build the original Keystone Pipeline from Hardisty to Steele City where they did?  Was that to avoid the Ogallala Aquifer, was it to follow an existing pipeline route, or was it for some other reason?  If they were planning on building the pipeline in stages as they currently show, why wouldn't they have planned for both pipelines to follow the same path?  Did the Bakken development sneak up on them, so now they want a pipeline nearer to that field?  Did they only plan on the first leg of the pipeline, but the oil sands developed faster than they expected?  Something caused them to take that obviously more expensive route the first time around.

Secondly, the opening of the pipeline from Steele City to Cushing occurred in February 2011, almost at the exact same time that Brent and West Texas Light Sweet prices diverged significantly.  It would seem like phase three of the Keystone project, the recently announced pipeline from Cushing to the Gulf, might have been better if built as phase 2 or phase 2A (concurrently with the pipeline from Steele City to Cushing.  Building the line to Cushing before there was infrastructure to get the oil out of Cushing seems like pretty poor planning.  This misstep had to have cost the Canadian and North Dakota producers, and therefore consumers, a pretty penny.

Finally, with landowners fighting the project in Nebraska, why wouldn't they have moved quickly to relocate the pipeline through South Dakota over to the original pipeline location, where I would think they would have an easier time acquiring right-of-way, if they didn't already have enough to fit two pipelines.  Were they too stubborn, too lazy or too confident they could get lawmakers (read Republicans) to steamroll the opposition and let them force their way through where they drew their lines?  I'll go with all of the above. 

To me, it looks like the planners for the Keystone pipeline vastly underestimated oil supply from the tar sands and the Bakken, and badly predicted the effect the Steele City to Cushing pipeline would have on the pipeline system at Cushing.  They also seem to have vastly overestimated the political skills and intelligence of the current Republican party (it is almost impossible to underestimate the intelligence of the current party) and badly misplayed their hand with the Obama Administration.  Once the Republican governor and U.S. Senator from Nebraska came out in opposition to the pipeline route across the Ogallala Aquifer, TransCanada should have quickly established a new route skirting the north side of the auqifer in South Dakota.  Instead, they put their money in the Republican stack of chips on the political poker table, then sat back and watched as the Republicans sat at the table with their cards facing Obama.  He cleaned them out on this deal because the Republicans are idiots.  They think they are dealing with a dumb guy they can easily manipulate, and no matter what decision he makes, they'll be able to use their propaganda machine to make him look bad.  Also, their constant renegotiations on deals Speaker Boehner has worked out with Obama came back to bite them in the ass.  They forced Obama to agree to make a decision on the pipeline in 60 days because they only envisioned Obama agreeing to allow the pipeline or Obama rejecting it and they would able to take advantage of either move politically.  Instead, he rejected it with the obvious excuse that TransCanada hadn't even come up with the alternate route they promised they would.  It is hard to approve a route that doesn't exist. 

In the end, the vast number of miscalculations by TransCanada in the pipeline planning lead me to be wary of their promises that there wouldn't be any environmental issues in the Ogallala aquifer caused by the pipeline.  The gang that couldn't shoot straight makes me a little nervous.