The People of America's Oil and Natural Gas Indusry

Keystone XL: For Our Economy

Mark Green

Mark Green
Posted April 24, 2013

Let’s recap the economic reasons for construction of the full Keystone XL pipeline project, which has been waiting on the president’s approval for more than four years. According to the State Department’s most recent review Keystone XL would:

  • Create 42,100 average annual jobs across the United States over its one- to two-year construction period.
  • Generate $2.05 billion in employment earnings.
  • Result in $3.3 billion in direct spending on construction and materials.
  • Produce $65 million in short-term revenues for government from sales and use taxes in states that levy them.

Considering the plight of construction workers in this country the past few years, suffering double-digit unemployment, those are handsome numbers indeed. They suggest an even greater boost that would ripple throughout the economy from an infrastructure project of this size. From API’s officially submitted comments to the State Department:

The construction of KXL will make a significant contribution to America’s continuing economic recovery. There is no doubt that this project is a tremendous job creator – whether specific to the project or for the hundreds of thousands of American workers who are gainfully employed due to oil sands development in Canada or the immediate well-paying jobs that the construction and manufacturing of the full KXL pipeline will create.

More detail on Keystone XL’s economic benefits:

  • For every dollar the United States spends on Canadian goods and services (including oil), Canada spends 89 cents on U.S. goods and services, according to the Census Bureau. Here, we detailed how – by buying a little more than 200 million barrels of oil per year from Canada instead of another oil supplier with whom our trading relationship isn’t as strong – the trade differential is about $9 billion a year in potential U.S. exports. That translates into an additional 48,297 U.S. jobs per year, according to the Commerce Department.
  • The Canadian Economic Research Institute (CERI) estimates U.S.-Canadian trade activity generated by Keystone XL would increase U.S. GDP by $172 billion over a 25-year period and increase U.S. employment by 117,000 jobs.

Continued development of Canadian oil sands crude has other economic/energy benefits for the United States. API:

Despite the growth of United States oil production, the Canadian oil sands will continue to play a critical role in supplying the U.S. market. According to the SEIS, “(w)hile the increase in U.S. production of crude oil …will likely reduce the demand for total U.S. crude oil imports, it is unlikely to reduce demand for heavy sour crude at Gulf Coast refineries.” … The Department of State is not alone in its assessment of the U.S. oil market. IHS CERA in a detailed study arrived at the same conclusion stating that though supplies of U.S. light oil are substantial and growing, “the United States will still require oil imports…from Canada and the oil sands.”

U.S. refineries along the Gulf Coast are second to none in the world in their capacity to process heavy crude oil, which means we have a competitive edge against other refining centers around the world. This translates into support for well-paying U.S. refining jobs.

A final economic/oil markets point: Canada’s oil sands will be developed with or without the Keystone XL. That was State’s conclusion:

“…it is unlikely that construction of the proposed Project would have a substantial impact on the rate of development of the WCSB oil sands.”

As API Chief Economist John Felmy told reporters on Tuesday, Canada’s oil sands has a value estimated to be 10 times greater than the country’s current GDP. That value will find markets and willing buyers, with or without the Keystone XL. API:

The Market Analysis section and Appendix C make it very clear that, in the absence of KXL, the oil sands will be developed. This result hinges on the conclusion that moving (oil sands) crudes by rail is a viable substitute for the KXL pipeline. To arrive at this conclusion, the SEIS carefully examines whether rail capacity could grow to keep pace with growing oil sands production by looking at development of loading and offloading facilities, track capacity, and rail tank car availability. On all three counts, there is ample evidence that it is logistically and economically possible for rail and existing or planned pipelines to transport the needed quantity of (oil sands) crude oil to the US refineries in the Gulf.

And:

Perhaps the strongest piece of evidence cited is the fact that companies, who would have had a clear incentive to study the costs and returns closely, have orders for more than 28,000 new insulated rail tank cars that are used only to transport bitumen (page 1.4-50). This fact alone trumps some KXL opponents’ latest claims that the economics won’t support rail. While the SEIS makes the case that production will not be significantly impacted by denial of KXL, the SEIS also implicitly highlights the reason why approval of KXL is important. The SEIS estimates that the incremental increase in cost of rail versus pipeline is $5 per barrel (1.4-51). Given that the pipeline will be transporting 830,000 bpd, the additional cost is over $1.5 billion a year.

The economic and energy market reasons for approving the full Keystone XL pipeline are strong. Energy activity equals jobs, income and spinoff economic activity. API:

It will create jobs now when we need them most. It will help bolster economic growth and provide energy security. With such positive contributions to the U.S. economy and the potential for increased supplies from our stable neighbor, Canada, we hope that (State) recognizes this project is in our national interest and facilitates a swift approval.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.