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Why You Shouldn’t Hold Your Breath for the Keystone XL Pipeline

by | published January 26th, 2017

On Tuesday, Donald Trump signed executive orders to move forward on the Keystone XL and Dakota Access oil pipelines. Both projects have been very controversial, and served as reminders that policy decisions in the energy sector have impacts well beyond it.

Of the two, the Dakota Access has been the more recent contest but also the one most fully advanced. About 90% of the line is completed and oil could begin flowing as early as the end of this year.

The route has been altered to address some of the Native American objections to having a pipeline crossing sacred land. But environmental concerns, especially over water reservoirs, remain.

In other words, the problems and protests in North Dakota will certainly remain.

Keystone XL has been a much longer, multi-year battle – and a very different matter. And regardless of what D.C. wants, there are some big hurdles to clear before the pipeline could be finished.

Here’s why I wouldn’t hold my breath…

The Existing Keystone Segments are Already Helping

In fact, what’s under discussion is the last of five Keystone segments, with the other four already in use. The entire system is designed to move Canadian heavy oil (mostly Alberta’s oil sands) to petrochemical complexes on the U.S. Gulf Coast and elsewhere.

The stumbling block for XL was the additional approvals required from the U.S. Department of State, on the grounds that the pipeline would cross an international border. The primary issue has been environmental. Extracting oil from the Albertan oil sands creates far more pollution and environmental harm than standard oil production.

Five of the larger refineries in the Midwest have already completed multi-billion dollar refurbishments to upgrade and process the crude. The existing pipelines that feed them are currently running at capacity, but the refineries’ themselves could process much more oil. So there are ready buyers waiting for the additional crude that Keystone XL can transport.

The working sections of Keystone have already decreased the surplus crude stockpile glut at Cushing, OK. That glut had been a contributing factor in depressing America’s domestic oil prices, for a simple reason…

“Pass-Through” Exports from Canada Won’t Benefit Us

Cushing is the largest interconnection of transit pipelines in the country, and the location where the daily price is set for WTI (West Texas Intermediate, the benchmark crude traded in New York).

The additional throughput to the Gulf provided by existing Keystone segments has allowed a better overall pricing for oil products – especially gasoline – and has served to improve U.S. exports of gasoline, diesel, and other distillates. In fact, American refineries currently lead the world in the export of oil products.

And a bit over a year ago, Congress reversed a four-decade policy, finally allowing crude oil to be exported. At the time, the idea was to provide a boost to U.S. production by opening a new, and higher-priced, foreign market for U.S. oil companies.

That export market may start growing with Keystone XL’s potential introduction of “pass-through” oil exports from Canada.

However, the process of moving oil out of the U.S. will take time. At present prices, exports are not cost-effective. And the heavier – and so much less valuable – oil from Canada would make that prospect even less likely.

But there are some even larger Keystone XL concerns…

Keystone XL is Still Years Out

First, even if a renewed application to build the pipeline was filed by TransCanada Corp. (TRP) tomorrow and approval in D.C. was expedited, Keystone XL would still not be completed until the end of the decade.

Second, the added demand that the pipeline be built using only American pipe will greatly increase the cost. The same provision applies to the Dakota Access pipeline. But as only 10% of that line remains to be built, it’s not as much of an issue.

There are also the rather nebulous claims about how much the Keystone XL will help local economies. The pipeline should generate about 40,000 jobs during the construction phase (i.e., over the next two years or so). However, once the pipeline comes online, those jobs are gone.

Only 32-38 permanent jobs, spread over as many as six states, are expected to be created.

In addition, the situation has changed since Keystone XL first became a lightning rod for policy debates. The issue is no longer weaning the U.S. from dependence on foreign (that is, non-North American) oil.

Today, the issue is balancing the rapidly increasing domestic production from shale and tight oil. For example, moving more Canadian heavy oil into the U.S. does not automatically benefit U.S.-based oil producers. In fact, Keystone XL may end up costing more jobs in existing American oil companies than it will create.

Put simply, Keystone XL is and will remain a controversial political issue, even as it becomes unclear whether it’s still necessary to build.

One clear advantage to building both the Keystone XL and Dakota Access pipelines is this: both will allow more crude produces in the Bakken and Williston basins in North Dakota to move to market.

But once the dust settles from this latest political tug of war, someone will have to decide whether that very local advantage is worth the bigger picture-costs…

PS Whichever pipeline ends up being finished (if any), one thing is for sure… there’s a special situation developing in the U.S. oil market, and using hard data from over 45,000 data points, I can tell you that opportunity – and the impact – will be dramatic. To find out more, click here.

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  1. JAL64
    January 26th, 2017 at 20:13 | #1

    I am sick and tired of the argument over “permanent” jobs and pipelines. When did the lack of permanent jobs stop a highway from being built?

  2. Bob Schubring
    January 26th, 2017 at 20:37 | #2

    The US is not monetarily-independent of the world. Accordingly, energy-independence comes at great financial cost. Viewed in that light, there most certainly are benefits to using American hydrogen to treat Canadian crude for export to China.

    Gulf Coast petrochemical plants create value that is paid out as dividends and is taxed to put money in the US Treasury. Processing that Canadian oil for sale in China, offsets the interest payments we owe to China on the import of all the many billions of dollars worth of manufactured goods on the shelves of every Walmart and Target store. Keeping our payments current, and supplying China with oil, give us bargaining leverage in working for peace in the South China Sea. Not paying our debts, and not delivering this oil, works against those strategic interests.

    There most certainly are benefits to America of hauling Canadian tar to Texas, turning it into oil, and selling that synthetic oil in China.

  3. Malcolm Rawlingson
    January 26th, 2017 at 21:16 | #3

    The Bakken Market link project associated with KXL will according the the TransCanada website “provide receipt facilities to transport up to 100,000 bpd of crude oil from the Williston Basin producing region in North Dakota and Montana, to Cushing, Oklahoma and the U.S. Gulf Coast using facilities that make up part of the Keystone Gulf Coast Expansion Project (Keystone XL)”.
    While certainly things have changed since the politically motivated veto of the project under the previous administration the fundamental reasons for the project have not.
    President Trump wants America to be energy independent. That means the US will no longer be an oil importer at the mercy of unfriendly nations but an oil exporter utilizing the resources of Canada and the US to achieve that. It should not be forgotten that the Canadian Oil sands contain the second largest oil deposit in the world. Together with the US shale reserves they will enforce the stabilization of oil prices. KXL is a key piece of infrastructure necessary to make that happen. Regarding the use of US steel for the pipeline…it was always the intention of TransCanada to use US steel so the impact on costs will be zero. Today Ross Girling the TransCaanada CEO stated that they have applied for a new Presidential Permit. Once that permit is issued it will take two years to build and produce a revenue stream for every county through which it passes as well as many construction jobs.

  4. Kilroy Was Here
    January 26th, 2017 at 23:16 | #4

    All construction project workers know when they get the jobs it will end upon being finished. For them that’s not big news. But once it’s finished there will be other big jobs starting up so as usual they will move on. Construction people know how to plan for the next job in advance and will be ready when the pipe line is finished. You guys act as if they will just sit down and cry but you don’t know Construction and it’s Workers. Watch and see.

  5. Herb Tory
    February 14th, 2017 at 22:18 | #5

    When people talk about a pipeline having “32-38 permanent jobs” they are ignoring the on going maintenance that these pipelines and facilities require. This work is contracted out so do not show as “pipeliner jobs” but they are real jobs and required to inspect, maintain and repair a pipeline. Sometimes these are done by mom and pop type firms, locally spawned and staffed, reacting to the opportunities.

  6. james sullivan
    February 18th, 2017 at 09:21 | #6

    This is nasty business.This tar oil should stay in the ground maybe a future generation will need it an know how to refine it better then us. Gluttony is a sin.

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