America Needs More Oil Pipelines
After Tuesday’s train derailment in Plaster Rock, New Brunswick, causing spills of crude oil and propane, it is time to reconsider the approval of a new generation of pipelines in America.
Although the U.S. has over 2.5 million miles of pipelines
, government authorities still insist on blocking additional pipeline construction. Approval of permits is slow. President Obama has yet to approve TransCanada’s Keystone XL pipeline, which would bring oil from Canada to U.S. refineries near the Gulf of Mexico.
Last year saw a series of rail accidents involving crude oil. For example, in March, trains derailed in Minnesota, spilling 30,000 gallons, in June, it was Calgary’s turn and in November, a train carrying 2.7 million gallons derailed in Alabama.
The Plaster Rock accident appeared to be linked to a problem with the emergency brake, which went on suddenly after the air brake failed. A July rail accident in Lac-Mégantic, Quebec, in which 47 people were killed, was also caused by a brake failure, causing the train to roll backwards into the town and explode.
No deaths or injuries occurred in the village of Plaster Rock, but 150 residents were evacuated. The oil originated from western Canada, and it was on its way to a refinery in Saint John, New Brunswick.
North America is producing 18 million barrels of oil a day (11 million from the United States) and data show that pipelines are safer than road and rail. With a growth of over 3 million barrels per day in Canadian and U.S. oil production since 2008, lack of infrastructure is a serious consideration.
The Department of Transportation’s Pipeline and Hazardous Materials Safety Administration publish data comparing the safety of transportation of oil and gas by pipeline, road, and rail. Operators report to PHMSA any incident that crosses a certain safety threshold, as well as injuries and fatalities.
U.S. data on incident, injury, and fatality rates for pipelines, road, and rail for the period 2005 through 2009, the latest data available, show that road and rail have higher rates of serious incidents, injuries, and fatalities than pipelines, even though it is believed that more road and rail incidents go unreported.
Rising oil and gas production is outpacing the transportation capacity of North America’s inadequate national pipeline infrastructure. Crude oil shipments via rail have continued to expand at an accelerating rate. In 2012, U.S. Class I railroads delivered 233,811 carloads of crude, compared to 66,000 in 2011 and 9,500 in 2008. According to Statistics Canada, 8,832 rail cars were shipping fuel oils in March 2012, compared with 5,602 in March 2011.
An October 2013 study by the Energy Policy Research Foundation shows that the dearth of pipelines is hitting America in the pocketbook, causing federal and state governments to lose tax revenue.
This is because if oil cannot be transported to its destination, its value declines. EPRINC director of research Trisha Curtis, the author of the report, calculated that oil produced in North Dakota was $31 a barrel cheaper than Brent crude at the time the report was written. Now, North Dakota oil sells at a $20 discount.
A lower price of oil means that state governments receive less in tax revenues. Curtis calculates that a dollar discount reduces revenues by $3 million a month. With the $20 discount, that adds up to $60 million a month in lost revenue.
That is just for North Dakota. Oil produced at Eagle Ford in Texas and Clearbrook, Minnesota, sold at a $17 discount to Brent crude last October.
As America continues to ramp up production of oil and natural gas, and the administration continues to place more constraints on coal use, pipeline infrastructure becomes even more important. We need pipelines to get oil from Alberta and North Dakota to the refineries on the Gulf, and shale gas from plays that include Pennsylvania, Ohio, Alabama, and North Dakota to the rest of the country.
Canada is a close U.S. ally and major trading partner, and it is astounding that the Keystone XL pipeline has not already been approved. Rather than using Canadian oil, we are importing oil from Venezuela, a country that is not only unfriendly to the United States but also uses the oil revenues to fund other left-wing governments in Latin America.
The delay over Keystone XL and other pipelines is a tribute to the power of environmentalists, an important Democratic lobby and supporter of the president. Yet the Democratic union of organized labor and environmentalists is fractured when it comes to Keystone. The Laborers’ International Union North America has come down squarely in favor of the pipeline, since their members would gain from its construction.
LIUNA writes on its website that Keystone XL “will unlock good, family-supporting jobs for America at a time when families are losing their homes and desperately need good jobs. The reasonable thing is to build the pipeline, create jobs here and reduce our dependence on oil from hostile regimes, instead of caving to fringe extremists and seeing that oil go to China.”
There will always be some transportation of oil by road, rail, and pipeline. But the continuing series of rail accidents reminds us that in evaluating whether to build more pipelines, human safety should be a paramount consideration.
Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, directs Economics21 at the Manhattan Institute. You can follow her on Twitter here.