Keystone XL Pipeline: The Good, Bad And Ugly

The planned 1,897-kilometer Keystone XL Pipeline would transport up to 830,000 barrels of tar sands oil per day from the Western Canadian Sedimentary Basin in Hardisty, Alberta to the existing Keystone Pipeline system in Steele City, Nebraska. By building this pipeline, the goal is to increase crude oil delivery to existing refinery markets in the Texas Gulf Coast region [for more commodity news and analysis subscribe to our free newsletter].

After submitting an application in September 2008, the pipeline passed environmental impact studies in August of 2011, but was derailed three months later when the government demanded additional time to explore alternative routes in Nebraska. In January 2012, the President flatly rejected the project due to an untimely deadline that prevented a full assessment.

Keystone advised the government that it would file a new application a month later and submitted alternative Nebraskan routes in April of 2012. An additional environment report on the new routes was issued in September of 2012, which was based on extensive feedback from Nebraska, and a new final decision is expected in early 2013.

The Good

The Keystone XL Pipeline could generate some $20 billion in value for the U.S. economy, according to an independent study commissioned by the Keystone partnership. In addition to these immediate financial benefits, the pipeline would improve U.S. energy security and provide a stable source of consistent energy supply over an extended period of time.

Employment: TransCanada estimates that the pipeline would have a very positive impact on employment throughout several U.S. states. Some 15,000 Americans would be put to work constructing the pipeline – including pipefitters, welders, mechanics, electricians and heavy equipment operators – and manufacturing the pipeline’s components. At a time when unemployment remains stubbornly high, this benefit is likely to carry political weight [see also Analyzing 5 High Yielding MLP Stocks].

Tax Revenues: The Keystone XL Pipeline is also expected to generate some $5.2 billion in property taxes during the estimated operating life of the pipeline. These tax revenues are commonly used to support local education, police/fire protection, local governments, some free medical services, and most other municipal or state infrastructure projects. With the spending cuts impacting all areas, these increased revenues could also carry high political weight.

Energy Security: The U.S. is a net energy importer, often from unfriendly countries like Venezuela and others in the Middle East. With the completion of the Keystone XL Pipeline, the U.S. could generate about 5 percent of its current consumption needs and 9 percent of its total imports from friendlier Canadian and domestic energy sources. While energy prices have declined, politicians remain committed to making the U.S. energy independent.

The Bad

Opponents to the Keystone XL Pipeline believe that it puts people and wildlife at risk of toxic oil spills, water pollution, and a host of other environmental risks. These opponents suggest that the massive project would employ safety shortcuts, substandard materials, and unsafe practices that could create a high risk of ruptures and impact both wildlife and humans.

Keystone PipelineDirty Fuel Source: Canada’s tar sands generate some of the dirtiest forms of oil to be refined in the U.S., potentially making the country even more dependent on a damaging and inefficient fuel source. At the same time, the U.S. may also be less incentivized to develop new, more efficient forms of fuel that are better for the economy, national security and the environment, if there are cheaper forms of dirty fuel more readily available [see also 25 Ways To Invest In Crude Oil].

Spill Dangers: The Keystone XL Pipeline would create thousands of miles of new pipeline that cut through sensitive wetlands, rivers and aquifers, and could cause ranchers and farmers to lose their land in the event of spilling or leakage. Moreover, much of this pipeline would be constructed through the Midwest and Western states that rely on farming and ranching for a significant portion of their respective gross domestic product (GDP).

Wildlife Concerns: The Keystone XL Pipeline could encourage the Canadian government to continue destroying the boreal forest, polluting watersheds and destroying wetlands that are important to U.S. wildlife, as these practices are common among oil sands drillers. Meanwhile, air and water pollution could increase in the U.S. around the refineries where the tar sands oil will be refined, as it’s a dirtier fuel source to use in the refining process.

The Ugly

The Keystone XL Pipeline’s strongest opposition comes not from environmental groups directly, but scientists and academics that have conducted comprehensive studies. Some of these studies directly counteract the Perryman Study that was commissioned by TransCanada in support of the pipeline project and presented to regulators tasked with approving the project.

Pipe Dreams Report: Cornell University’s Global Labor Institute produced a report, entitled Pipe Dreams, which directly countered a number of claims made by the Keystone project. For instance, the report suggests that TransCanada would spend only $3-4 billion (rather than $7 billion), most of the jobs created would be temporary and non-local, and KXL steel would be manufactured outside of the United States and actually impact unemployment levels slightly.

Oil Prices Set to Rise: The Natural Resources Defense Council produced a report, entitled Keystone XL: A Tar Sands Pipeline to Increase Oil Prices, which argues that the Keystone XL Pipeline would both decrease the amount of gasoline produced in U.S. refineries for domestic markets, and increase the cost of producing it, leading to even higher prices at the pump.

Environmental Impact: A collection of 27 different scientists working for a variety of organizations sent a letter to President Obama noting that tar sands carbon takes a lot of energy to extract and refine, with mining practices that are environmentally destructive. Unlike in the past when these impacts were not known, there’s now a chance to stop the pipeline from being built before the dangerous results would be realized.

The Bottom Line

The Keystone XL Pipeline may not be the first pipeline transporting oil from Canada’s tar sands to U.S. refiners – Enbridge’s Alberta Clipper and TransCanada’s Keystone I pipelines are already transporting oil – but the increasing number of pipelines and the resulting increase in dirty fuel is causing concern among many environmental groups and citizens in affected states.

Politicians are likely to weigh these concerns and decide on the fate of the Keystone XL Pipeline in early 2013, unless regulators introduce additional delays.

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Disclosure: No positions at time of writing.

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Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

One Response to “Keystone XL Pipeline: The Good, Bad And Ugly”

  1. [...] and plentiful source of energy. From Qatar’s conventional North Field to the United States’ unconventional shale plays, production of the commodity is set to rise over the coming years, while its lower CO2 [...]

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