Keystone XL has been called the world’s best known pipeline that has not been built. Controversy over the pipeline itself has largely subsided but this project linking the oil sands of Northern Alberta to the large refineries of the Gulf Coast has become a rallying point for an “off oil” campaign.
A presidential permit for import facilities is the sole remaining requirement before construction can begin. KXL would be the 82nd major pipeline in the US, and is the safest and most technologically advanced. It would provide diluted bitumen from Alberta’s oil sands and Bakken crude from Montana and North Dakota to the Gulf Coast, where 40% of the world’s heavy oil refining capacity is located. Those refineries are now largely supplied by Venezuela and Mexico, from whom supplies have declined by 2.5 million barrels per day since 2005.
The controversy focuses on several key points:
1] JOBS & ECONOMIC BENEFIT: This multi-billion dollar project will employ thousands of highly skilled tradesmen. The pipe is manufactured in Arkansas and unions are highly supportive. Unlike other international suppliers, the Alberta oil sands is served by over 1,000 US companies. For each dollar invested in Alberta, 90 cents is returned to the US in purchases. Critics allege few permanent jobs are created to operate a high technology pipeline, but the construction phase and oil sands operation involve much indirect employment throughout many regions of the US.
2] ENERGY INDEPENDENCE: Critics have alleged KXL is essentially an export line for Canada to access Asian markets through a US route. In fact, 40% of the world’s refining capacity for heavy oil is located on the Gulf Coast, employing tens of thousands and supplying products such as transportation fuels, petrochemicals, and asphalt to US markets and beyond.
3] PRICE AT THE PUMP: While KXL may reduce a current discount for Alberta crude in the market place, refiners price their product on Brent, which sets the consumer price. Reducing the discount will impact refinery margins but not the consumer price at the pump. Increasing supply to the marketplace has a generally negative impact on price.
4] ENERGY AND THE ENVIRONMENT: Alberta instituted a carbon charge in 2007 and continues to review its rate and effectiveness. Large emitters are required to reduce their emissions of CO2 by 12%. Failure to do so requires a purchase of offsets or payment to the Alberta Innovation Fund, rather than the Province’s general revenues. The Fund now totals about $400 million and is used exclusively to develop technologies and projects to reduce CO2. Oil sands operators have reduced emissions over 26% between 1990 and 2011. Suncor alone is experiencing a 2% per year continuous improvement.
The next step in the regulatory process will be the issuance of a final EIS by the State Department. The President has publicly stated that the project will be approved if it does not significantly increase CO2. Given the vast increase in shipment by rail and alternate pipelines, the KXL line will not contribute to additional CO2.
Should the Keystone XL pipeline be approved? Are there other costs and benefits to building the pipeline?