The Benefits and Drawbacks of the Keystone XL Pipeline

TransCanda overstates the number of jobs it will create with the Keystone pipeline.

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Patrick DeHaan is a senior analyst at gasbuddy.com.

Americans are confused, baffled, and don't know much about the proposed Keystone XL pipeline. In talking with the general public, I've become aware of the wide array of varying opinions surrounding development and implementation of the proposed Keystone XL pipeline. It's not hard to see why—claims from various sources flying in every direction like airplanes over O'Hare. Coupled with the political battle that is ongoing there's clearly opportunity for Americans to digest misinformation.

Why are people confused and baffled? One possible reason is politics. The proposed pipeline has been a political hot topic, and both political parties may be stretching the truth. Republicans, along with TransCanada, continue to overstate the amount of jobs we're talking about with this project. On the other side, Democrats have been citing safety and the environment as reasons this project should not move forward. Americans are caught in the middle, with various media outlets providing various numbers surrounding pros and cons to this project. It's no wonder Americans are confused.

[ See a collection of political cartoons on energy policy.]

Can you believe that some Americans think this pipeline is needed to connect us to a "new" source of oil? The United States has been a destination for Canadian oil for decades, and is already our number one source of imported oil—this likely won't change with Keystone. But what about jobs? Sure, Keystone will add construction jobs—temporary construction jobs. This is a huge area of misinformation. 20,000 jobs? 10,000 jobs? With November elections less than a year away, every politician wants to show how many jobs he or she has helped add, and what easier way to do it by inflating potential jobs added and advertising it? Sen. Dick Lugar and Senate Minority Leader Mitch McConnell have already claimed that the new pipeline would add 20,000 new jobs, as has TransCanada. As time has gone by since those claims, we've seen lower amount of new jobs claims added. Recently, Cornell University completed an independent assessment which stated the project may produce between 2,500-4,650 jobs and could even (are you ready for this?) cost the country jobs in the years ahead!

So who completed the study from TransCanada? A company called the Perryman Group. Now—much like in a court of law where expert witnesses are hired, they often "find" evidence that supports their client. Have you ever seen a case where an expert brought in agreed with the opposite side? So did we really expect Perryman Group to be impartial and fair? We also have lawmakers push the pipeline, some even own TransCanada stock—so are they biased or likely to push it because their dollars are in on this? Isn't pushing the pipeline more of a conflict of interest so they can retire in Tahiti? For the record, I'd love to retire in Tahiti, but not at the cost of my integrity.

[ Read the U.S. News debate on whether it is time to drill in the Arctic Refuge.]

The midwestern United States has long used Canadian oil (also referred to as Canadian Sour, which describes its quality, as sour crude is more difficult to refine and not as desirable as the light sweet crude oil that virtually any refinery can process). Refineries in the Midwest are nearly all capable of processing this oil—which takes special equipment to refine. Since not all refineries can process this oil, the price for it is comparably lower than higher quality crudes. The fact that Canadian oil can't leave Canada or the United States also keeps the price lower. By keeping Canadian oil off world markets, demand for it stays lower, which keeps the price for it lower. By connecting Canadian oil to the Gulf, there is the distinct and likely possibility that Canada will begin exporting this type of crude oil, which would open the possibility for international buyers, thus increasing demand for Canadian Sour, and causing the price to rise. This is exactly why Canada is pushing so hard for this pipeline--the more potential buyers, the more demand, the higher it can be sold for. This is bad for American and Canadian motorists.

According to the Cornell University study,

Keystone XL will increase the price of heavy crude oil in the Midwest by almost $2 to $4 billion annually, and escalating for several years. It will do this by diverting major volumes of tar sands oil now supplying the Midwest refineries, so it can be sold at higher prices to the Gulf Coast and export markets. As a result, consumers in the Midwest could be paying 10 to 20 cents more per gallon for gasoline and diesel fuel, adding up to $5 billion to the annual U.S. fuel bill.

[ See the 10 priciest years in history for gas.]

My logical view is this: while the additional jobs would be most welcome—they would be temporary and last one or two years at best, which is reality, not stretching the truth. TransCanada admits permanent jobs would only number in the hundreds. On the flip side, the pipeline would be permanent, and the rise in price for this oil that we already consume would rise for decades to come. How are higher oil prices going to help the economy? They won't. The National Petroleum Refiners Association claimed that exports—which the TransCanada pipeline may bring—help move this country to recovery faster more exports of Canadian oil. Did you know that refiners are shipping nearly 20 percent of produced distillate (heating oil, diesel) out of this country? What's to stop Canada from exporting this oil once the pipeline starts shipping oil close to ports of export? Nothing. Want to know why diesel prices are hovering at or over $4 per gallon? Look no further—high exports of diesel/distillate are keeping supply tight. What's to stop that situation from happening with Canadian oil? Nothing. Who will it hurt most if Keystone XL is built and Canada uses it to export oil out of North America? Americans and Canadians. Exactly why Keystone XL may not be a good idea—unless there are restrictions on exporting the oil out of North America, but something that will probably never happen.