Keystone pipeline: Separating reality from rhetoric

March 22nd, 2012 by Staff

NEW YORK (CNNMoney) — President Obama stopped in Cushing, Okla., on Thursday to announce a fast-track approval process for a portion of the Keystone XL oil pipeline — although it’s not the part for which he’s taken political heat for blocking.

The portion likely to start construction soon runs from Cushing, a key repository of U.S. oil, to the Gulf Coast.

The full proposed pipeline, which would cross the U.S. border in Montana, is designed to bring between 500,000 to 700,000 barrels a day from the Canadian oil sands region to refineries on the Gulf Coast. It would shortcut to an existing pipe that goes through much of Canada before cutting into the United States in North Dakota on the way to Cushing.

Republican presidential candidates have used the rejection of the shortcut pipeline as a hammer when attacking the Obama administration over high gas prices. They also say the Keystone will create much needed jobs.

Here are three facts about what the decision will and won’t mean.

This is not a flip-flop by Obama: Even when Obama blocked the full Keystone project earlier this year, he said he was in favor of this Cushing-to-Gulf portion. And that is the only portion he is backing now.

Approval of this southern part of the pipeline is not really the Obama administration’s call. The northern portion of the pipeline needs administration approval because it would cross the Canadian border.
Rising gas prices aren’t as bad as you think

The Cushing-to-Gulf segment is much more of a local issue. So Thursday’s announcement is more theater than substance.

“This is pretty routine, but the politics are clear here,” said Bob Tippee, editor of Oil & Gas Journal, an industry trade publication.

Environmental groups oppose even this portion of the pipeline since they don’t like anything that increases production of oil from oil sands.

But compared to the other portion of pipeline, which stirred concerns of Nebraskans worried about underground water supplies, the Cushing-to-Gulf pipeline is relatively non-controversial. More than 99% of property owners where the pipeline will run agree to it.

Gas prices might go up, not down: Right now, a lot of oil being produced in Canada and North Dakota has trouble reaching the refineries and terminals on the Gulf. Since that supply can’t be sold abroad, it reduces the competition for it to Midwest refineries that can pay lower prices to get it.

Giving the Canadian oil access to the Gulf means the glut in the Midwest goes away, making it more expensive for the region.

“The price that refineries on the coasts have been paying is around $120 a barrel for months, while you had $75 to $80 a barrel crude available in the Rockies and Midwest,” said Tom Kloza, chief oil analyst at the Oil Price Information Service.

Much of the difference in gas prices between states is due to gas taxes, not cost. But Kloza said that the center of the country might have benefited by up to 25 cents a gallon in what they were paying for gas because of the glut of oil around Cushing.

The full pipeline would increase the capacity of oil flowing from Canada’s oil sands into the broader global market by up to 700,000 barrels a day, according to advocates. But adding even the 700,000 barrels to more than 90 million barrels worldwide will have limited long-term impact on prices, especially amid worries about what might happen with Iran production.

“In the current market, people are so worried about the loss of 3.5 million barrels from Iran, that 500,000 to 700,000 barrels isn’t enough to calm the markets,” said Tippee.

The impact on jobs will be minimal: The Republican supporters of the pipeline have argued Keystone will create much needed jobs.
Speculators are driving up gas prices — opinion

But even though this southern portion of the pipeline is relatively “shovel ready,” the impact on unemployment will be minimal. Even TransCanada says it will create about 4,000 jobs, mostly temporary construction work. That comes to less than 2% of the nation’s overall monthly job gain in recent months.

If the full pipeline got the green light, it would create 13,000 construction jobs and 7,000 jobs making equipment such as pump houses and the pipe itself, according to the company.

Pipeline critics dispute even those job estimates.

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