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The Politics and Economics of Keystone XL

 4 min read / 

Keystone Pipeline System

The Keystone XL is a part of the larger Keystone Pipeline System, which distributes crude oil across North America, from Alberta through Nebraska to oil refineries in Illinois and to storage and distribution facilities in Texas. Pipeline construction started in 2008 connecting Hardisty, Alberta to oil refineries in Wood River and Patoka, IL in total length of 3,456km. The second phase followed in 2010 between Steele City and Cushing joining the pipeline with U.S crude oil reserves facilities located 480km south of the original “phase one pipeline”. The newest, 784km long, part of Keystone was finished in January 2014 connecting Cushing to refineries in Nederland and Port Arthur, with an extension pipeline to Houston currently under construction.

Why is Keystone XL an issue? 

For a long time, the pipeline has been a symbolic issue for Republicans, who point mainly to job creation, decreasing dependence on foreign oil and safe means of transportation of Canadian and US oil.

In 2013, US oil consumption was almost 19m barrels per day (B/D), with total oil production of 12m B/D, resulting in net import of additional 7m B/D. It reveals US reliance on imports from the Middle East, Venezuela and Canada.

Proponents of Keystone XL argue that construction of pipeline would create up to 42,000 direct and indirect jobs nationwide during the construction process. In fully operational mode it would transport an additional 0.8m B/D to the US fueling regional economic growth in states along the pipeline, notably in oil producing and processing states such as Louisiana and Texas. Currently Gulf Coast refineries import approximately 1.5m B/D from Venezuela and Mexico; however, the competing Canadian oil would lower the price, decreasing refineries‘ production costs. This will in the medium run drive down US gas prices, boosting the American economy.

On the other hand, critics argue that an increase in the Canadian oil sands development would raise greenhouse gas emissions by millions of tons, which would otherwise stay in the ground.

Even President Obama raised his concerns saying that Keystone XL would create only 50 permanent jobs and would only have limited effect on US gas prices; instead, it will allow Canada to

“pump their oil, send it through our land, down to the Gulf, where it will be sold everywhere else.”

Does Keystone actually matter?

Even though Keystone XL is a high profile issue at the moment, its significance has lowered since it has been brought up for the first time six years ago. It is affected by rising US energy production and falling global oil prices, which are less than $80 a barrel for the first time in four years. Moreover, a demand-induced price increase is unlikely, as Chinese and Eurozone growth falls behind expectations.

On the other side, for Canadian oil developers Keystone XL remains a highly important project as oil transportation infrastructure is underdeveloped in Western Canada, which forces producers to use railroad or barges for oil shipping, which are estimated to be approximately $7 to $8 more expensive per barrel. Furthermore, it would allow the development of Canada’s oil sands and open up their production to the Northern American market.

Current situation

On 18th of November, US Senate failed by one vote (59-41) to approve fast-track of Keystone XL straight to Obama’s table. Since first phase of pipeline construction in 2008, the Keystone project “became a proxy in a broader debate over jobs, U.S. energy security and climate change” and it seems to continue on over next few months.

Despite the rejection, the bill is expected to appear on agenda again early next year, when US Congress will be controlled by Republicans, who take over after the recent mid-term elections. The fast-track approval failure only postpones fierce fight on the issue, as President Obama publicly criticized Keystone XL project mentioning environmental concerns and deepening dependence on fossil fuels.

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