Bloomberg News

Keystone Pipeline Brings Pain at Pump: Jonathan Alter

March 01, 2012

(Corrects second paragraph to show that pipeline markets are domestic and foreign, deletes erroneous reference to spill in third paragraph in column published March 2.)

“I’ll get us that oil from Canada,” Mitt Romney said in his victory speech after the Michigan primary. He was referring to Keystone XL, the crude-oil pipeline that has become a top-tier campaign issue for Republicans.

Problem is, the tar-sands oil in that pipeline wouldn’t necessarily be coming to “us.” Some of it would go directly from Canada to refineries in the Gulf region en route to export markets in Latin America and Europe.

We’ve heard a lot about spills on the completed portions of the pipeline -- more than a dozen since it started operation in 2010. Conservative Nebraskans became greens overnight when they learned the details of the project that will go through their state.

But the immediate effect of completing the Keystone pipeline (perhaps by 2015) is more surprising and counterintuitive.

The Jobs Myth

The project would increase domestic oil prices by more than $6 a barrel and prices at the pump in parts of the country by about 20 cents a gallon. You read that right. At a time when rising gas prices threaten President Barack Obama’s re-election, the Republicans’ most ballyhooed remedy -- a new pipeline -- would make the problem worse.

Before I explain why, here’s a little background on Keystone’s other practical shortcomings beyond its broader threat to a clean energy future.

The same Republicans who opposed the auto bailouts that saved about 1.5 million jobs (according to the Center for Automotive Research) claim that Obama’s delay of a decision on Keystone until after the election is a travesty because it’s a “job-killer.”

The president’s announcement in January that he would punt was highly political; he didn’t want to offend environmentalists in the Democratic base. But it’s a myth to say unemployment will rise as a result. TransCanada Corp., the company building the pipeline, initially estimated that the project would create “a few hundred” permanent jobs. The State Department put the number at 20. Experts I consulted say that maintenance of the specialty pipe used in Keystone is more complicated than the State Department figures indicate. Presumably the refineries processing the additional oil might add some jobs. So the total number of permanent jobs could perhaps be closer to 1,000.

Knowing that such paltry figures would harm their efforts to sell the project to the U.S. public, TransCanada underwrote a study by an outfit called the Perryman Group claiming that Keystone XL will create 119,000 total jobs. But according to a report by the Cornell Global Labor Institute, the Perryman study is bogus. It included the vaguely calculated multiplier effects of $1 billion spent for a section of the pipeline in Kansas and Oklahoma that has already been built and isn’t part of the controversial extension.

The temporary construction and manufacturing jobs created by the project over two years -- estimates range from 2,500 to 20,000, depending on how much of the money is spent in the U.S. -- would be welcome, but by themselves they hardly justify approval of the whole thing.

Extortionist Logic

The Republicans’ decision to politicize the issue is a perfect illustration of their pound-foolish approach. First they tried to hold up the payroll tax holiday (a proven job multiplier) if Obama didn’t approve Keystone. Now they are applying the same extortionist logic to the transportation bill, which would create hundreds of thousands more jobs than a single pipeline.

Then there’s the backlash from landowners resentful of TransCanada’s cavalier approach. The company, apparently less sensitive to NIMBY than American firms, sent out threatening letters pressuring property holders to sell their land. The letters often wrongly claimed that the permitting necessary to seize the property had already been completed. This has sparked a strange bedfellows alliance between environmentalists concerned about dirty energy and Tea Party activists angry about eminent domain.

TransCanada’s plan to jack up oil prices is hiding in plain sight. In the appendix to its application to the Canadian National Energy Board (helpfully provided to me by the Natural Resources Defense Council), the company brags that its project is “expected to realize an increase in the heavy crude price of approximately $3.00 per barrel by avoiding a discount” at the U.S. Gulf Coast. The market price of heavy crudes should rise an additional $3.55 per barrel when the new pipeline “relieves the oversupply situation in the Midwest.”

That oversupply, which holds down prices, is a result of more oil flowing south from Canada into Midwestern refineries. (It used to flow north from the Gulf region, which was more expensive.) The Canadians “propose building the Keystone line to go around Midwest refineries,” says Philip Verleger, an oil industry consultant and professor at the University of Calgary.

John Kilduff, an oil analyst at Again Capital, reminds me that eventually the supply bottlenecks (most famously in Cushing, Oklahoma) will ease, the oil will flow, and sharply increased supply from Canada will push down global oil prices.

Maybe so, but in the meantime the Keystone XL pipeline has become just another example of Republican hype. Like the false claim that Obama is hostile to oil leasing (in truth, he has greatly expanded it) and intent on putting the industry out of business (so why the record profits?), this debate feeds dangerous myths about our energy future.

(Jonathan Alter is a Bloomberg View columnist and the author of “The Promise: President Obama, Year One.” The opinions expressed are his own.)

Read more opinion online from Bloomberg View.

To contact the writer of this article: Jonathan Alter at alterjonathan@gmail.com.

To contact the editor responsible for this article: James Gibney at jgibney5@bloomberg.net.


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