Keystone XL Pipeline Delays: Don’t Blame Canada
Here at Canada’s University of Calgary, the world’s premier pipeline research center, the disadvantages of blocking the Keystone XL pipelines are obvious.
If President Obama does not approve Keystone XL, which will bring crude oil from Canada to be processed
in our refineries near the Gulf, Alberta’s oil will go to Asia — and the United States will be the big loser.
That is not the view from the Lower 48. Back home, people think that if Keystone XL is not approved, the oil will stay in Canada. Environmentalists think that they are doing the world’s climate a favor by forcing Obama to block Keystone’s approval.
I am visiting the University of Calgary to speak at a conference entitled “Moving Canadian Oil to Market.” Five hundred people showed up to listen and discuss. The Canadians are serious about selling their oil. Without Keystone, they will either ship it by rail to the United States, or by pipeline to their east and west coasts and then to Europe or Asia, or even north through the Yukon to Alaska, and use tankers or the Alaska pipeline to get it back to the United States. “Keystone is only one piece of the puzzle,” said Alberta Energy Minister Diana McQueen.
Jim Donihee, chief operating officer of the Canadian Energy Pipeline Association and a retired Canadian Air Force colonel, told the crowd that Canada has been “lulled into dependence on the United States.” With competitive world energy markets and the Chinese thirst for oil, there is no reason for this dependence.
To block Keystone, environmentalists assert that pipelines are unsafe. All production carries an element of risk. But the State Department’s latest report on Keystone, issued in January, concludes that pipeline is safer than rail. The report says that shipping an additional 830,000 barrels of oil per day by rail instead of by pipeline would cause “a potential additional 49 injuries and six fatalities for rail alternative compared to one additional injury and no additional fatality for [Keystone] on a yearly basis.”
Keystone XL would generate additional tax revenue, economic activity, and jobs for the United States.
The lack of pipelines is causing U.S. federal and state governments to lose tax revenue. The reason? If oil cannot be transported to its destination, its value declines. Last December, North Dakota oil sold at a $26 discount to Brent crude (whose cost is used as a benchmark price). The Energy Petroleum Research Foundation, an energy think tank, calculated that a dollar discount reduces North Dakota’s tax revenues by $3 million a month. A $26 discount adds up to $78 million a month in lost revenue or $936 million a year.
And that is just North Dakota. Oil from the Rocky Mountains sold at a $28 discount below Brent crude last December. All over the country, states are losing tax revenues because there is not enough safe and efficient transportation for oil. Canada has the same problem: Western Canada Select crude oil currently sells at $79 a barrel, a $29 discount to Brent crude, resulting in lost revenues to the Canadian government.
These revenues could be used for other environmental initiatives such as expanding national parks or funding more basic scientific research into energy technology. Or they could be used to expand refundable tax credits for low-income Americans, or fund the music and art. The list is endless: the point is that we are needlessly sacrificing economic well-being by failing to fund transportation infrastructure.
Oil projects and supply chains in North America are all interrelated, and every dollar in Canadian investment results in 80 cents more in the United States. Two examples are Caterpillar, which supplies oil sands mining trucks, and Pennsylvania’s Aquatech International Corporation, which provides technology to recycle water from oil sands. For every two jobs created in Canada, two are created in the United States.
Canada produces heavy crude, suitable for processing at our refineries near the Gulf. The Canadian crude can be blended with the light crude that comes from the Bakken region to make a variety of oil products. Our refineries need that work, because supplies of Venezuelan crude are diminishing.
Canada is building a new refinery in Alberta, the North West Redwater Partnership, the first new refinery in North America in over 30 years. Due to be completed in 2017, it will process Alberta crude. That is work that could have been done in the United States in our refineries. Instead of Canadian oil, we import oil from Venezuela, a country that not only is unfriendly to the United States but also uses the revenues to bankroll other left-wing governments in Latin America.
Without the approval of Keystone XL, Canada may well be sending oil in tankers across the Pacific to Asia, at the same time that the United States is getting oil in tankers from the Middle East. The tankers would almost cross in the ocean and each come back empty, a costly waste of fuel and resources. Canada could be sending oil up through the Yukon, through Alaska, and back to the Lower 48 by pipeline or tanker for refining.
As Canada pursues its plans to move Alberta’s oil to market without Keystone, the absurdities of these transportation arrangements — for both Canada and the United States — make little sense.
Pipelines are ideal for transporting liquids. The shipping container — i.e., the pipe — is static while the oil moves. The container is buried under several feet of earth. With road, rail, and barge, both the container and the commodity are moving over the surface, often in close proximity to people, as well as to other large containers moving in different directions.
Here in Calgary, people are asking me when Obama will make his decision about Keystone. Of course, I do not have an answer. But it is not just the Canadians who are getting impatient. The AFL-CIO and the Laborers’ International Union North America (LIUNA) are in favor of the pipeline, since their members would gain not only 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.”
The Canadians could not have said it better themselves.
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.