Canada pipeline deal too costly, officials in Kansas say

McClatchy NewspapersFebruary 12, 2011 

WASHINGTON — Crude oil from western Canada began flowing through a controversial pipeline in Kansas last week.

Supporters say that construction of the Keystone Pipeline — which flows down through the Dakotas and Nebraska, Kansas and Missouri to refineries in Illinois and Oklahoma — provided an economic boon, producing money and jobs.

But in Kansas, local officials along the pipeline's path think that the state sold them out — unnecessarily — to get the pipeline. Because of an exemption the state gave the company that owns it — Alberta-based TransCanada — the local officials won't see a dime in property taxes from the project for a decade, a loss they estimate at $50 million in public revenue.

"If we had that pipeline on the tax rolls this year, we could have cut our levy by 30 to 40 percent," said Dan Holub, a county commissioner in Marion County, Kan. "Rural counties don't have much of a tax base and a whole bunch of expenses. We've got 1,600 miles of road. People have got to be able to get to them."

Supporters of the pipeline deal counter that the company will owe taxes for 90 years after the abatement expires. They said the project also would help the state's shrunken oil industry.

But questions persist about whether TransCanada used the power of eminent domain improperly to acquire land.

It used eminent domain to obtain an easement through Greg Roles' 160 acres of wheat and soybeans in Clay Center, Kan. He resisted TransCanada's $15,000 offer and now is suing the company in a case that could end up before the Kansas Supreme Court.

"I'm the only guy who has tried to stand in front of them," he said. "I know I'm the only guy in Kansas. This deal just isn't right. Where are our elected officials?"

The debate is likely to intensify.

TransCanada plans to use its Kansas pipeline as a pivotal piece in a new, $7 billion, nearly 1,700-mile project to transport heavy oil from Canadian tar sands to refineries in Texas. If it's approved, it could carry up to 500,000 barrels a day, doubling the amount of oil that TransCanada brings in overall.

The massive undertaking has galvanized opponents, who argue that safety and the environment would be at risk.

In Nebraska, for instance, where the proposed pipeline would be built to connect to the Kansas portion, it would run beneath the Ogallala Aquifer, a huge, shallow water table that provides drinking water for about 2 million people in eight states.

The Kansas pipeline can move 156,000 barrels of oil from northern Alberta to a refinery in Cushing, Okla., by way of several Canadian provinces and several states.

The new project would construct a pipeline to carry Canadian crude south through six states, including Kansas, to Texas. It also would pass through Montana, South Dakota, Nebraska and Oklahoma.

The company claims that it would create about 20,000 construction and manufacturing jobs and add $20 billion to the U.S. economy.

The project also would "improve U.S. energy security and reduce dependence on foreign oil from the Middle East and Venezuela," Russ Girling, TransCanada's president and chief executive officer, said in a recent statement.

That's backed up by a recent report by a private energy consultant for the Department of Energy, which says that Canadian crude oil and reduced demand "could essentially eliminate Middle East crude imports longer term."

But the report also points out that if Canadian suppliers export oil to Asia from Canada's west coast, "more Middle East crude moves into the USA."

Further, it notes that with so many pipelines bringing crude across the border already, TransCanada's new pipeline, if it's approved, might not be needed for years.

Approval of a cross-border permit will be up to Secretary of State Hillary Clinton.

Several members of Congress urged her in a letter last summer to go slowly with her decision, which is expected by spring after the State Department looks at the pipeline's environmental impact. Others lawmakers wrote in support of the project.

The Environmental Protection Agency said the State Department's original report last year was "unduly narrow" because it didn't fully look at oil spill response plans, safety issues and greenhouse gas concerns.

If the administration signs off on the pipeline, it would inadvertently be aiding two of President Barack Obama's arch political foes: David and Charles Koch, who own Koch Industries.

The Wichita-based oil giant is the second largest privately held company in the U.S., with annual revenues estimated at about $100 billion.

The Kochs have bankrolled conservative efforts and candidates who oppose Obama and the Democratic Party's environmental policies. According to Solve Climate news, an energy and climate online news service, the Koch brothers would stand to gain from the project because their company controls nearly a quarter of all tar sands crude oil that's imported into the U.S.

Extracting oil from tar sands and liquefying it enough so it will move through a pipeline is an energy-intensive process that adds greenhouse gases to the atmosphere. Getting it out of the ground involves clear-cutting forests, leaving a wasteland that oil companies say they will restore. Some scientists say that rivers also become polluted.

"From start to finish, this a dirty project," said Stephanie Cole, a spokeswoman for the Kansas chapter of the Sierra Club. "Forests in Canada are being destroyed, and increased reliance on fossil fuels will accelerate global warming."

The Energy Department report concludes that building a new pipeline wouldn't have a major impact on greenhouse gas emissions.

In Kansas, debates over the environment have taken a backseat to the five-year-old dispute over TransCanada's tax break for the existing pipeline. It remains a source of conflicting stories and continuing bitterness.

Kansas legislators say that granting the 10-year property tax moratorium was crucial to getting the pipeline.

"I got a letter from TransCanada that says clearly that the incentive was one of the considerations to coming to Kansas," said Republican state Sen. Jay Emler, who's now the majority leader.

TransCanada spokesman Terry Cunha said that it wasn't. He said the company didn't "originate this tax abatement issue. We weren't part of that discussion. We were already in the process of finalizing our proposed route" for the pipeline.

Republican state Rep. Carl Holmes, who led the moratorium effort, declined to talk about the negotiations that led to the deal or the dispute. He said the tax abatement was designed to aid the state's oil business.

"We had 20 refineries 25 years ago," he said. "Now we're down to three. You want to drive; you've got to have gasoline."

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