Is the Proposed Keystone XL Pipeline in the National Interest?

with opening remarks from

Senator John Hoeven (R-ND)

Congressman Gene Green (D-TX)



featuring

James Burkhard, Global Oil Group, IHS CERA

Jim Kimball, Director, Economics and Contracts Department, International Brotherhood of Teamsters

Lucian Pugliaresi, Energy Policy Research Foundation

Jon Rozhon, Canadian Energy Research Institute

Lorne Stockman, Research Director, Oil Change International

Paul Sullivan, National Defense University and Georgetown University

Anthony Swift, Policy Analyst, International Programs,Natural Resources Defense Council

Luiza Savage, Maclean’s Magazine (moderator)

Elana Schor, Environment & Energy Daily (moderator)

The Keystone XL pipeline would create jobs, increase tax revenues, and reduce dependence on foreign oil, said Senator John Hoeven (R-ND) at an event hosted by the Canada Institute. The program brought together a group of distinguished panelists to offer their perspectives on whether the Keystone XL (KXL) pipeline is in the national interest. The proposed pipeline would carry crude oil from Alberta’s oil sands through Montana, South Dakota, Nebraska, and Kansas to Cushing, Oklahoma, and finally through Texas to the U.S. Gulf coast. KXL would allow roughly 700,000 barrels per day (bpd) to be transported from Canada to the United States. The project was approved by the Canadian National Energy Board in March 2010 and currently awaits approval from the U.S. Department of State. The program coincided with State’s own national deliberation hearings on KXL. A final decision on the pipeline is expected before year’s end.

Setting the Stage

Senator Hoeven was joined by Congressman Gene Green (D-TX) to deliver their views on whether KXL was in the national interest. Hoeven maintained that it is the job of policymakers to create an environment that empowers American businesses to create jobs, investment, energy development, and new technologies, while balancing environmental concerns. According to Hoeven, KXL promises to create hundreds of thousands of jobs and secure a vital source of energy from a secure and stable neighbor. In short, said Hoeven, if the United States is to address the energy and economic issues facing the United States, KXL is exactly the type of project the country needs to approve.

Congressman Green shared Hoeven’s favorable view of KXL. He noted that KXL would increase the supply of oil to five refineries in his Houston district and potentially displace oil from less friendly countries to the United States, such as Venezuela. Green maintained that at a time when U.S. still imports 60 percent of the oil it consumes, it is imperative to seek sources of oil from friendly nations such as Canada. Green also reminded participants that even if Texas refineries produced an increased amount of heavy crude from Canada, they would still need to adhere to Texas’ emissions and environmental standards.

The National Security Debate 

If the United States does not import Canada’s oil, another country will, said Paul Sullivan of the National Defense University. He noted that Canada is already developing pipelines that would enable oil from the oil sands to reach the Asian market. Should the United States balk at receiving heavy crude from Canada, it would be eliminating a highly accessible source of oil that has the capacity to displace imports from less stable sources of U.S. imports. Sullivan maintained that the recent uprisings that have occurred in Egypt and Libya could spread to Algeria, Iran, Saudi Arabia, and other oil exporting nations. Other sources of U.S. oil imports, such as Mexico and Venezuela, have suffered from declining oil production. This bleak outlook for oil producing nations around the globe makes an even stronger case for the United States to secure as much oil as it can from Canada, said Sullivan. Responding to the environmental critiques of KXL, Sullivan said that while the goal of eliminating U.S. dependence on oil as an energy source are laudable, such change takes considerable time.

Lucian Pugliaresi of the Energy Policy Research Foundation argued that approving KXL would send a strong signal to Canada that the bilateral energy relationship is preserved. KXL would also improve distribution efficiency of U.S. and Canadian produced oil in the United States. He explained that KXL would help alleviate the current supply glut in the Midwest and allow excess supply to be processed by the refineries that currently receive a large portion of U.S oil imports. Pugliaresi said that according to the National Petroleum Council, Canada and the United States could combine to increase their current oil production total by more than 10 million bpd by 2035.

Not everyone believed KXL would enhance U.S. energy security. Lorne Stockman of Oil Change International argued that KXL is nothing more than a means for Canada to export its oil sands oil from the U.S. Gulf Coast. He pointed to evidence that U.S. oil demand is in decline and will continue to decrease over the next several decades as new environmental regulations are implemented, in particular the Obama administration’s new Corporate Average Fuel Economy (CAFE) standard. In fact, said Stockman, U.S. exports of its own petroleum products have increased by 60 percent since 2007. Such facts, he argued, make it hard to accept that the United States is in need of more Canadian oil. Stockman also maintained that KXL would not insulate the United States from oil supply disruptions or offer any security from price volatility. The only way to truly enhance U.S. energy and environmental security, said Stockman, is through ongoing efforts to reduce the country’s demand for oil. Stockman also pointed out that climate change should not be omitted from discussions of national security, noting that the environmental impacts of climate change are of increasing concern to the U.S. military.

Alexander Pourbaix of TransCanada provided insights on the future of oil sands production and addressed pipeline integrity concerns surrounding KXL. Canada currently exports 2 million bpd of oil to the United States, with roughly two thirds of that total coming from the oil sands. Unlike most petroleum producing nations, said Pourbaix, Canada will have the capability to expand its oil export capacity in the future. According to Pourbaix, Canada may be in a position to export 3.5 million bpd of oil by 2020. He reminded participants that KXL is financed completely by TransCanada and carries no burden to U.S. taxpayers. Pourbaix maintained that pipelines remain the safest method of transporting oil and noted that the Department of State’s final Environmental Impact Assessment found KXL to have limited environmental consequences. Pourbaix said that KXL would be constructed and maintained with state of the art materials, and when crossing rivers, would be buried deeper than industry code.

Evaluating KXL’s Economic and Environmental Impact

If Canada does not develop additional infrastructure to keep pace with oil sands development, the country may be faced with stranded supply, said Jon Rozhon of the Canadian Energy Research Institute (CERI). Rozhon presented the findings of a recently released CERI report exploring the projected economic impact of KXL. According to the report, should KXL be built, the United States’ GDP would gain more than 130 billion dollars over the next 10 years. Rozhon noted that Illinois, California, and Texas stand to gain the most economically from KXL. On the other hand, said Rozhon, the United States would stand to lose 46 billion dollars over 10 years if KXL were not built, with the U.S. Midwest affected most if the project was denied.

Jim Kimball of the International Brotherhood of Teamsters said that the most important benefit of KXL is job creation. Kimball described a bleak outlook for the U.S. economy, noting unemployment in the country currently stands at 9.1 percent and that 46.5 million Americans live below the poverty line. KXL, said Kimball, is exactly the type of project the United States needs to endorse in order to create job growth, generate economic stimulus, and develop badly needed new infrastructure. He noted KXL would create thousands of jobs in the U.S. construction sector—a sector that currently suffers from an unemployment rate of roughly twice the national average.

Despite the projected economic benefits, concerns have been raised over KXL’s environmental impact. Anthony Swift of the Natural Resources Defense Council echoed the concerns of Stockman, stating that U.S. oil demand is in decline and that KXL would be built merely to export oil out of the United States. He also maintained that U.S. approval of KXL would spur increased development of the oil sands at a time when countries should be shifting investment toward renewable sources of energy.

Swift pointed out that the pipeline’s proposed route over the Ogallala Aquifer poses a threat to a crucial source of drinking water for two million Americans. The aquifer also supplies one third of U.S. water used for irrigation. Swift maintained that TransCanada is inexperienced in constructing and maintaining oil pipelines. In fact, he noted, TransCanada’s Keystone 1 pipeline was recently shut down by U.S. regulators after spilling 23,000 gallons of oil in its first year of operation. He added that the environmental incidents surrounding Keystone 1 is evidence that more research is needed to determine the effect of diluted bitumen on pipelines and the behavior of diluted bitumen during an oil spill.

Jim Burkhard of IHS-CERA provided insights on the future of North American oil production. Since 2008, noted Burkhard, the United States has increased its domestic production by 1.1 million bpd - a figure that far exceeds any other country in the world. As Canada and the United States continue to increase their production, new pipeline infrastructure will be desperately needed to transport a greater supply of oil, said Burkhard. He explained that refineries in the U.S. Midwest will hit a saturation point of oil supply within the next couple of years. KXL would help alleviate this current supply glut by allowing oil from Canada and elsewhere in the United States (such as oil from the Bakken formation in North Dakota) to reach Gulf Coast refineries. Burkhard rejected claims that KXL would raise U.S. gas prices, noting economic logic suggests that more supply would actually lower price at a given demand point. Burkhard closed by stating that while the oil sands are often accused of producing as much as three times more carbon emissions than conventional sources of crude, IHS-CERA’s own life-cycle GHG analysis found that emissions from the oil sands are closer to 6 percent higher than other sources of oil consumed in the United States.

 

Advancing Dialogue

A spirited Q&A session was held following panel presentations. Several participants echoed Stockman’s view that climate change must factor more heavily in any discussion involving national and energy security. Participants agreed that climate change was a grave issue, but some maintained that change toward renewable energy will be a transition that takes considerable time. One participant noted that much of the controversy over KXL would have been averted if the United States had a policy framework outlining clearer roles for fossil and renewable energy in the country’s energy mix. If a consensus was reached in the discussion, it was that the United States should work toward creating a comprehensive energy strategy. On the economic front, some skepticism was expressed that KXL could generate the tens of thousands of jobs that some studies have claimed. One participant responded that the number of jobs created by KXL is irrelevant. Given the tough economic climate, the United States should endorse projects that will generate jobs, regardless of the exact number.