Wednesday, July 2, 2008 10:05 pm
ICC judge to weigh Canadian pipelines demand for eminent domain
Should a $10 billion Canadian oil and gas delivery company get the right to take a private nature preserve from a retired Illinois railroad conductor? Larry Jones, an administrative law judge with the Illinois Commerce Commission, is set to begin hearings in Springfield on July 8 to settle that question.
Carlisle Kelly’s nature preserve isn’t large, only 205 acres, but the battle for control of piece of his property is seen as a test of how much Americans are being asked to give up to supply the world’s energy needs.
Enbridge Inc. does not want the whole nature preserve, only a 120-foot-wide strip through which it can run a large oil pipeline, but that strip runs right down the middle of the conservation area and, according to Kelly, clearing that strip will destroy the preserve. Since Kelly first objected to selling an easement to Enbridge, some 300 other Illinois landowners and farmers along 170-mile route of Enbridge’s would-be pipeline have joined him in saying no to the company. Enbridge has petitioned the ICC for the right of eminent domain to take the land it wants. Denise Hamsher, Enbridge’s U.S. director of public and regulatory affairs, is quick to deny that Enbridge would “take” anything. “We will be obligated to negotiate for the market value for the land,” she says, “and if we don’t, courts should make us.” Hamsher also says that even if the ICC gives Enbridge the right of eminent domain, the company will not necessarily use it; having it, she says, encourages landowners to negotiate.
“We would not be going for eminent domain if we could negotiate land deals, but Mr. Pliura made clear that a group of landowners would not negotiate,” she says. Pliura is Thomas Pliura, a medical doctor and lawyer in LeRoy, a town of 3,600 residents in McLean County. Pliura, a friend of Kelly’s since the third grade, is the attorney representing the landowners who do not want to sell to Enbridge.
“We are going to be neighbors, and eminent domain is not a good way to start a relationship,” Hamsher says. As a sign of neighborliness, she says, Enbridge would even pay farmers for any crops they lose during the construction of the pipeline and pay them the lumber value of any trees they cut down. That offer doesn’t impress Kelly, who has devoted more than a decade to protecting and nurturing his piece of Illinois woodland. “I detest the fact that they look at everything in terms of dollars and economics,” Kelly says. “There are a lot of other worths to things than just market value.”
Kelly went to work on the railroad when he was 17. “I worked for everything I have,” he says. “I worked for 30-odd years, and any extra money I had I put into buying land.”
About 11 years ago, one of the last wooded tracts in nearby DeWitt County became available. Kelly and his wife, DeAnna, decided to sell some land they owned near LeRoy and purchase the 205-acre tract near Clinton. “It had huge oaks and hickories on it, some of them 300 years old, and turkey, deer, and other wildlife,” Kelly says. “We were wanting to make it a better wildlife area.” The part of the land that was farmed, Kelly took out of agriculture and planted with trees instead. By his own estimate, he has planted thousands of trees.
The U.S. Department of Agriculture, under the Conservation Reserve Program, pays Kelly to keep the land out of cultivation; ironically, another federal agency is supporting Enbridge’s effort. James Slutz, a deputy secretary of energy, has filed testimony with the ICC in support of Enbridge.
Behind the Enbridge effort to extend its pipeline system — from Alberta, Canada, to Patoka, Ill., in Marion County — is a multibillion-dollar oil-industry effort to exploit a Canadian resource that oil companies call oil sand and environmentalists call tar sand. The material in the soils of northeastern Alberta is not oil; it is bitumen, a thick, gooey substance similar to road tar. There are various ways of getting bitumen out of the ground, but ultimately it is diluted with water and sent by way of a pipeline to a refinery or is used as the raw material for the manufacture of a product the oil industry calls synthetic crude oil, which in turn is sent through a pipeline to a refinery. Neither product can be processed by the typical oil refinery designed for handling traditional crude oil without expensive refinery upgrades to handle aromatic compounds such as benzene that are part of bitumen.
For the moment, Enbridge, which mainly moves oil for ExxonMobil and Royal Dutch Shell, has a monopoly on the movement of oil-sand products to Illinois. With ExxonMobil, Enbridge is studying the feasibility of building a pipeline from Patoka to move diluted oil sands to the Gulf Coast. Meanwhile, TransCanada and ConocoPhillips are building a competing pipeline to move diluted oil-sand products to the ConocoPhillips refinery in Wood River, Ill. ConocoPhillips’ plans to spend more than $4 billion to convert the refinery there to process oil-sand products were put on hold on June 6, when the U.S. Environmental Protection Agency ruled that the Illinois EPA neglected to consider air pollution from refinery flares before granting the company permits to proceed. Another company, Kinder Morgan Inc., has announced plans for yet another Alberta-to-Illinois pipeline. David Sykuta, executive director of the Illinois Petroleum Council, says Illinois in general and Patoka in particular play a key role in delivering oil across the U.S. It is not just that Illinois is a major refinery state, the fourth-largest in the nation, he says: “More pipelines cross Illinois than any state in the nation, outside of Texas.” Patoka, he adds, “is the biggest pipeline nexus in the country.” Its importance in keeping oil flowing throughout the U.S. is such that “it was one of the top 10 sites targeted by the Russians during the Cold War,” he says. From Patoka, oil-sand products could be shipped across the country or down to the Gulf. The Enbridge project, Sykuta says, is “absolutely” necessary for the nation’s energy independence and security. “There is a price to be paid for secure, reliable energy,” he says. “I think it is a modest one.”
All this pipeline-building activity can be credited to President George W. Bush. Back in 2005, his administration decided that the black sands of northeastern Alberta were vital to the domestic security of the United States. In an agreement with the governments of Canada and Mexico, called the Security and Prosperity Partnership, the U.S. government pledged to do everything it could to promote the conversion of Canadian tar sands into oil to replace “foreign” oil. The agreement established an Oil Sands Experts Group to outline the infrastructure and refinery development necessary to increase the market penetration of oil-sand products.
In 2006, the experts’ group concluded that full development of the oil sands required the opening of new markets outside the central U.S. “and possibly offshore.” They called for extensive construction of new and expanded pipelines to move oil-sand products; they said that regulatory and permitting issues were a concern in the U.S.; and they called on the U.S. government to “streamline the regulatory approval process” and better manage the risk to pipeline projects.
Since the agreement was signed, investment by U.S. and Canadian oil companies in oil-sand production has outrun all expectations and now exceeds $100 billion. Faced with nationalization in Venezuela, companies moved resources, equipment, and Venezuelan oil workers to Alberta. The goal of producing 1 million barrels a day by 2020 was hit in 2005. With production now at 1.3 million barrels a day, the oil industry’s new target is 4 million barrels a day by 2020.
That glut of product has compounded the need for more pipeline capacity. Today, 1 million barrels a day of oil-sand production, 70 percent of the total, currently flows into Chicago, Hamsher says. In addition to the “southern access extension” designed to move diluted oil-sand product out of the Chicago area to the pipeline nexus at Patoka, Enbridge has plans to build a pipeline westward from Albert to the Pacific Ocean. These projects will benefit companies with a heavy investment in Canadian oil sands but not the public, says Pliura, the lawyer fighting the Enbridge project.
“There is a saturation of Canadian petroleum in the Midwest,” Pliura says. By building new pipelines, that petroleum can reach more markets and allow producers to increase prices. “There is nothing fundamentally wrong with big business trying to make more profit; it just shouldn’t be subsidized by Illinois landowners and farmers,” says Pliura, a self-described lifelong Republican.
But Hamsher, the Enbridge spokeswoman, says Pliura and his clients can’t have it both ways.
Landowners in Alberta and Minnesota, she notes, already have pipelines crossing their land to deliver oil-sand products to Illinois.
“Illinois can’t be parochial, or Illinois wouldn’t get the million barrels a day it gets now,” she says.
Peter Downs is a St. Louis editor and freelance writer. His look at the growth of the Illinois coal industry, “Addicted to coal,” appeared in the April 17 edition.