The Keystone XL Pipeline Controversy: Why There's Less on the Line Than You Think

Joel Anderson  |

Environmental activists and their Democratic allies seem pretty convinced that building this pipeline would be the worst thing that could ever happen to America. Pro-business activists and their Republican allies seem certain that NOT building this pipeline is the worst thing that could ever happen to America.

It’s often said that when two parties disagree, the truth is somewhere in between. In this care, that’s almost entirely true, in the sense that the actual project is of negligible importance to the American people one way or another. As much as has been said, written, and shouted about the project, the facts seem to indicate that both sides are conflating evidence to support their cause.

In reality, this issue is largely just a political football. Its symbolic importance to interest groups drastically outpaces its actual importance to John and Jane Q. America. Why is building the Keystone Pipeline not nearly as important as its biggest detractors and advocates would have you believe? Let’s explore what’s really at stake...

Canadian Oil Sands Are Going to Market With or Without this Pipeline

Climate change is the great environmental issue of our age, and as such, environmentalists are typically – and understandably – very sensitive to any expansion of the use of fossil fuels.

The thing is, if not building this pipeline was something that might actually stop the oil in Canada from reaching the market and eventually our atmosphere, objections to building the pipeline might hold water...but that’s just not the case. In fact, the U.S. State Department’s report on the environmental factors surrounding the Keystone pipeline was pretty damning in this regard.

“The dominant drivers of oil sands development are more global than any single infrastructure project,” the report states. “Oil sands production and investment could slow or accelerate depending on oil price trends, regulations, and technological developments, but the potential effects of those factors on the industry’s rate of expansion should not be conflated with the more limited effects of individual pipelines.”

Even if the pipeline’s not there, there’s still plenty of ways to get the crude oil to refiners. The report’s conclusion was that, at crude prices exceeding $75 a barrel, transportation costs wouldn’t affect production levels. At $65-$75 a barrel, transportation costs would be a minor factor, and at prices less than that production would effectively cease anyway.

So, if the pipeline had existed last year, there was about a week there during the collapse of oil prices that its existence might have mattered. We essentially whipsawed from “so profitable we would ship this by wagon train” to “so not we wouldn’t bother teleporting it” in a matter of months. What this shows is that the whims of Saudi Arabia are clearly a larger factor by orders of magnitude, and that as far as global warming is concerned, we all have much, much bigger fish to fry. If you’re really that concerned about climate change, fighting the Keystone XL pipeline is arguably just a huge waste of your time – not to mention an unnecessary expulsion of CO2.

Oil Spills from Pipelines…and Railcars…and Trucks…and Barges

So the next concern for environmentalists would come in the form of oil spills. “One need look no further than the terrible 2010 oil spill in Michigan to see why oil pipelines are a liability that cannot be tolerated,” runs the logic. One thing is certain – building the Keystone XL pipeline would increase the risk of an oil spill from a pipeline in the United States, particularly for those people living in the near vicinity of the pipeline itself.

The better question, though, would be whether the construction of the pipeline would increase the chances of an oil spill. And that’s not nearly as clear.

For starters, if everyone was so concerned about the safety of transporting crude oil to refineries via pipelines, it seems really odd they haven’t spoken up before now. Hate to break it to you, but the cat’s out of the bag on this one.

The US already has some 500,000 miles of pipelines transporting about 80% of the total crude oil on the move in the United States. That translates to millions upon millions of barrels of oil a day. The Keystone pipeline would really only marginally increase this level.

Also, as noted above, the presence of the pipeline isn’t actually going to impact whether or not the oil is transported over the United States, just whether it’s going via pipeline or by rail car. Transportation by rail has its own issues, as anyone who remembers the horrifying accident in Montreal in 2013 is already well aware.

"I think if you look at the safety record of crude oil pipelines versus alternatives, pipelines come out on top," senior Credit Suisse (CS) analyst and director John Edwards told CNBC. "Release rates as of 2012 were roughly 25 barrels per billion barrel miles. So a very, very low rate of incidents taken over the hundreds of thousands of miles of pipelines that transport millions of barrels of oil per day."

All told, spill rates for pipelines are extremely low, and companies are working hard to reduce them even further. If blocking construction of the pipeline were actually going to protect Americans from oil spills, that would certainly be an argument against its construction. Unfortunately for the pipeline’s detractors, most of the evidence would indicate that the increased risk of oil spills for Americans is increased very marginally – if at all.

This Pipeline Will Create Thousands of New Jobs

Moving on to the arguments from the pro-pipeline crowd, the argument that the pipeline is going to create the sort of solid employment that America has desperately needed for years now is the one most-commonly cited. There’s certainly an argument to be made there. Constructing over 2,000 miles of pipeline and then keeping oil flowing through while monitoring for spills and leaks is clearly going to generate some economic activity.

But how much?

The “this will create jobs” stance is a popular one among politicians of all stripes because it’s virtually impossible to disprove. Like most economic arguments, there’s never one definitive answer and the interwoven, indirect effects of an activity like taking out the trash arguably creates jobs, so making the same case for building a pipeline isn’t hard.

That said, when you really delve into this project in particular, the long-term economic benefits are pretty limited in the United States. Given that the facilities handling the crude oil on our end already exist, and that the actual drilling and extracting is occurring in Canada, the American jobs created really come down to two things: construction and maintenance.

On the construction end, an estimated 10,400 construction workers would get jobs lasting from four to eight months as a result of the pipeline’s construction. That’s substantial, but not exactly a massive boon given that those jobs won’t even last a full year.

What about maintenance? Keeping the pipeline running over time will require workers, right? Full-time workers who will have jobs for years. Unfortunately, though, the project only stands to generate about 35 positions for long-term employees.

Oil Company Profits

Ultimately, this entire project is about one thing: helping boost the bottom line for the companies that are planning to build it, TransCanada (TRP) and ConocoPhillips (COP) . For them (and a handful of other companies), the pipeline’s a very big deal. For everyone else? Not so much. Should the President approve the project just to help these companies make a little more money? Maybe yes, maybe no. It’s just not going to matter much either way.

In fact, if not for the fact that the pipeline crosses the Canadian border, it probably wouldn’t be something most of us had ever heard of. If some geographic quirk millions of years ago had resulted in the tar sands being located about 500 miles farther south, the entire episode would just be business as usual for American oil producers and construction would have started years ago.

As such, it seems as though both sides on this issue have plenty of opportunity to find better ways to spend their time. Environmentalists dead set on reducing carbon pollution should probably be honing in on improving fuel economy standards, supporting international treaties, or even extending tax breaks for solar installers past 2016. Those more concerned about oil spilling into our ecosystems have plenty of domestic regulatory efforts that could be bolstered to impact the existing pipelines. And those business-minded folks looking to create jobs and create prosperity could spend their time fighting for reforming the corporate tax code, opening up securities regulations to boost investment, or even extending tax breaks for solar installers past 2016.

Either way, letting the politicians and interest groups continue to use this non-issue to stoke partisan rage isn’t a productive use of anyone’s energy resources.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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