The People of America's Oil and Natural Gas Indusry

Keystone and Consequences

John Felmy
Posted January 20, 2012

Heather Zichal, Deputy Assistant to the President for Energy and Climate Change, writes:

"But what’s abundantly clear is that there are no silver bullets when it comes to this challenge. And the idea, as some in Washington have tried to suggest, that building a pipeline is the ultimate answer to the question of American energy security and job creation is nothing more than a pipe dream. The truth is that just two of the Administration’s programs – the DOE Loan Guarantee Program and the EPA’s Mercury and Air Toxics Standards – will create more than 10 times the amount of jobs generated by the Keystone XL pipeline, which will only generate a few thousand temporary jobs."

Let’s take them one at a time.

Yes, there are no silver bullets, we need a comprehensive energy policy embracing all of our resources, like perhaps the one proposed by the president’s own Jobs Council:

“Continuing to deliver inexpensive and reliable energy is going to require the United States to optimize all of its natural resources and construct pathways (pipelines, transmission and distribution) to deliver electricity and fuel. The Council recognizes the important safety and environmental concerns surrounding these types of projects, but now more than ever, the jobs and economic and energy security benefits of these energy projects require us to tackle the issues head-on and to expeditiously, though cautiously, move forward on projects that can support hundreds of thousands of jobs.”

No one that we have seen – and we read a lot of this stuff – has said that the Keystone XL pipeline was “the ultimate answer” to the question of energy security and job creation.  What has been said, well, let’s let the White House itself explain:

“… the addition of crude oil pipeline capacity between Canada and the United States will advance a number of strategic interests of the United States. These included increasing the diversity of available supplies among the United States’ worldwide crude oil sources in a time of considerable political tension in other major oil producing countries and regions; shortening the transportation pathway for crude oil supplies; and increasing crude oil supplies from a major non-Organization of Petroleum Exporting Countries producer.

Canada is a stable and reliable ally and trading partner of the United States, with which we have free trade agreements which augment the security of this energy supply. Approval of the permit sends a positive economic signal, in a difficult economic period, about the future reliability and availability of a portion of United States’ energy imports, and in the immediate term, this shovel-ready project will provide construction jobs for workers in the United States.”

Oops, that was a different pipeline from Canada, one not subject to political threats by the president’s base. In the face of these new threats, security, trade and jobs went out the window.

We will let others handle the Loan Guarantee line – though it is worth point out that the Keystone XL extension was entirely financed by private money – but we have to address the idea that increasing standards are great for job creation because businesses will need to hire people to comply with them. Excellent, so we should have the EPA toss a brick of standards through the windows of every company in America and poof, full employment, right? No actually, that idea was disproved over 160 years ago.

And lastly, regarding job creation, while Zichal may dismiss the job creation potential of the pipeline, the Laborers’ International Union of North America doesn’t:

“The project would create thousands of good jobs at a time when unemployment in the construction industry is 16 percent with 1.3 million men and women jobless.”

And regarding the idea of “temporary jobs,” let’s look at permanent effects, starting with some numbers from the Census Bureau:



What does this show?  Well it shows that in 2011 for every $1 of goods we imported from Canada we got back $0.89 from goods they imported from us.  It also shows us that in 2011 for every $1 of goods we imported from OPEC countries we got back $0.33.

Now some more numbers.  The Keystone XL pipeline would have transported up to 830,000 barrels of oil a day from Canada.  At $100 a barrel that equals $83 million a day to Canada. So if pattern holds we would then expect to get almost $74 million a day back from Canada in the goods they buy from us.

Since the Keystone XL pipeline permit has been denied, let’s look at getting that same 830,000 barrels of oil a day from OPEC.  We start with that same $83 million a day out, but instead of $74 million we’re only getting about $27 million a day back – a $47 million a day difference.

Which means, drum roll please – the Keystone XL decision is not just killing “temporary jobs,” as Zichal derisively calls them, it is also removing up to $17 billion a year from the U.S. economy. Or to put it another way, using the Administration’s own numbers, it is removing from the U.S. economy about 90,000 jobs, not temporarily, but every year.  While these are back of the envelope calculations, they show that short-term political decisions carry with them long-term economic consequences. And not just in the trade of goods.

The Keystone XL pipeline is also a crucial element in expanding America’s role in Canadian oil sands production, which could create over 500,000 American jobs in the next 25 years.  These, non-temporary, jobs are now delayed and possibly lost.

And yet with one smart decision, and no federal money, they are jobs that could have been.

ABOUT THE AUTHOR

John Felmy is API’s Chief Economist. He is responsible for overseeing economic, statistical and policy analysis and has over twenty-five years experience in energy, economic and environmental analysis. John is a Pennsylvania native and received Bachelors and Masters in Economics from Pennsylvania State University and a Ph.D. in Economics from the University of Maryland. He is a member of several professional associations including the American Economic Association and the International Association for Energy Economics.