The Keystone XL Pipeline - Who benefits? Who doesn't?

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The TransCanada (NYSE: TRP) Keystone XL pipeline project is a proposed 1,700-mile pipeline that would transport 830,000 barrels of oil from one of the largest oil reserves in the world in Alberta to the one of the world’s largest refining center in the Gulf Coast.

On Thursday the US Senate narrowly defeated an amendment that would have allowed the project to move forward. President Obama has personally taken action to stop the progression of the pipeline due to environmental concerns. The measure, which received 56 votes in favor, failed because Senate rules require 60 votes to include the amendment. Sen. John Hoeven (R., N.D.), whose state stands to benefit greatly from the pipeline, is at the helm of the cause for Republicans, and has vowed to keep the issue alive.

In January, Congress attempted and failed to attach the pipeline to a payroll tax bill. Instead an assessment was requested by the State Department (and President Obama) for alternate pipeline routes that avoid the Sandhills of Nebraska. The Sandhills are nearly 20,000 square miles of unbroken prairie with hundreds of transient lakes, with a very high water table running through it (Ogallala Aquifer). The potential for oil leaks along the pipeline into the water table have raised environmental concerns by the Obama Administration.

TransCanada has agreed to reroute the pipeline likely farther east, nearer an existing Keystone pipeline that already carries Canadian tar sands oil into the US. The company expects to announce the path of the reroute when they apply for a new permit in the fall.

In the meantime, TransCanada is focused on starting construction on the portion of the pipeline that goes from Cushing, Oklahoma, to the Gulf Coast refining center in an effort to relieve the bottleneck in a take away capacity. Once construction starts TransCanada estimates that this section will take one construction season to complete.

The media has played a key role in the process, which has relayed misconceptions and emotionally charged arguments held by extremists to a somewhat misguided public. Proponents of the pipeline are concerned that environmental advocates have led the public to believe that building the pipeline would stop the development of other sources of energy.

Some people believe that if the Keystone XL is stopped that production in the oil sands stops, and that’s the furthest from the truth,” said Alex Pourbaix, TransCanada’s President of Energy and Oil Pipelines. “Once people understand that it’s not a choice between oil sands oil and solar, but that it’s about where they get their oil from, the conversation changes.”

Many feel that the Keystone XL pipeline is not an environmental or energy issue, as much as it is a political and foreign relations issue. The United States has received the bulk of their oil from Saudi Arabia, Canada, Mexico, Venezuela and Nigeria for the past decade. According to Martin Durbin, Executive Vice President of the American Petroleum Institute, most Americans believe their oil comes from the Middle East, and fail to realize that most US consumed oil comes from Canada.

Who would benefit from the pipeline?

Ultimately it is Canada and TransCanada that stands to gain the most from the pipeline with jobs, money, and the ability to move out crude oil that cannot be refined in country. Glen Schmidt, President and CEO of Canadian-based Laricina Energy, said, “The last thing Canadians want is to build multi-billion dollar upgraders facilities in Alberta when the capacity is already in the Gulf Coast. “

Their [Gulf Coast] upgraders are already well-suited for Canadian crude,” said Pourbaix.

Canadian oil is a very heavy crude that can be processed in the US Gulf Coast refinery centers. Because the cost of production is higher for this heavy crude oil it is sold at a discount in order to be cost-effective. It is priced at an average discount to Brent crude of about $23.50/barrel in 2011. Moving the oil from Canada to the Gulf Coast will not lower the cost of the oil or of the refining process. The benefit to American companies, and eventually the American consumer, is that Canadian oil prices are more stable than prices out of the Middle East. Oil from the Middle East fluctuates with each conflict or political disruption. The stability and static price of Canadian oil would reduce the peaks and valleys to refineries, as well as at the gas pump for consumers.

Midwest American refineries, such as Marathon and HollyFrontier will see the cost of refining go up, as will other Canadian producers such as ExxonMobil Corp. (NYSE: XOM), Suncor Energy Inc. (NYSE: SU), and Cenovus Energy Inc. (NYSE: CVE). However, the arguments for keeping the oil in North America, including the reduced cost of the transportation, the stable oil prices, and the national security benefits of not depending on the Middle East for oil, outweigh the increased cost to the industry.

With oil imports at roughly half of domestic consumption and a continued rise in demand, even with biomass and other renewables, analysts predict 57% of our energy will still come from oil and natural gas by 2035. “It’s not a matter of if we’ll need it, it’s just about where we’ll get it. We need to increase the amount of oil we receive from Canada instead of other nations. That will be the benefit,” said Durbin.

The Gulf Coast imports around 5 million barrels/day. The Keystone XL pipeline (along with other pipelines incorporated in the process) would transport less than 1.5 million barrels/day.

A previous source of oil for the US was Venezuela, but as demand for oil has increased in China, Venezuela, has diverted its oil resources to China in exchange for loan-funding. This diversion [away from other countries] along with declining production and rising demand in Mexico has led to decreased imports for the United States.

Currently, oil is imported from Canada via truck and rail, expending carbon emissions, the exact thing environmentalists are arguing against in the oil sands. In terms of worldwide carbon emissions, Canada’s output currently ranks at five percent of the world’s total carbon output, of which .02 % is from oil production.

Advocates for the pipeline, including key Republicans such as presidential nominee candidates Mitt Romney and Newt Gingrich, believe the Keystone XL pipeline will bring approximately 20,000 new jobs in construction and energy to the workforce, and $7 billion into the economy. This was disputed in a study conducted by the Cornell ILR Global Labor Institute, which found that the pipeline would only create 2,500-4,600 temporary jobs, and $3-4 billion into the economy. According to TransCanada, after the construction of the pipeline is finished, it would only require up to a few hundred people to maintain and operate it.

Senator Ron Wyden, (D- Oregon), has proposed that if the pipeline were to be built that the materials used in the construction be American-made whenever possible.

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