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7 Reasons Why the Keystone XL Pipeline Should Be Approved

By Michael Lewis

pipelineDuring the past presidential campaign, the Keystone XL Pipeline became a political football. Since that time, the pipeline’s planned route has been changed to avoid potential harm to the Ogallala Aquifer and is currently awaiting final approval from the State Department.

Many Americans, however, are surprised to learn that the Keystone Pipeline already exists, transporting since 2010 590,000 barrels of “heavy” crude oil a day, 2,148 miles from the oil sands surrounding Hardisty, Alberta, Canada to Steele City, Nebraska and subsequently to holding facilities in Patoka and a ConocoPhillips refinery at Wood River, Illinois. The Keystone, owned by TransCanada, is one of many crude oil pipelines currently crossing the border between the United States and Canada, including the Express and Enbridge lines.

Two planned expansions of the Keystone XL Pipeline – a controversial 1,170-mile line through Baker, Montana to Steele City, Kansas and on to Cushing, Oklahoma, and a second 485 mile-line from Cushing to the Gulf Coast refineries in the Texas cities of Port Arthur and Houston – have launched political battles between Republicans and Democrats, environmentalists and “big oil,” and individual landowners and states exercising eminent domain rights. On March 22, 2012, President Obama announced his approval of the Cushing/Gulf Coast expansion and urged regulators to “fast-track” necessary approvals necessary to beginning construction. One year later, he announced that a decision on the northern section of the pipeline would be forthcoming.

Reasons to Approve the Northern Pipeline Extension

It is difficult to determine the actual and/or likely impact of the XL Pipeline extension from the rhetoric emanating from the various sides of the controversy. However, the following points about oil and other carbon forms of energy – as well as their impact upon United States policies – are generally agreed upon by both sides and, from a pragmatist’s view, justify approval of the extension:

1. The Evolution of Society Depends on the Conversion of Energy
In his 2006 article “History of Energy” for The Franklin Institute, Dr. James Williams wrote that the “standard of living and quality of civilization are proportional to the quantity of energy a society uses.” As a consequence, societies will not willingly reduce the quantity of energy necessary to maintain their existing economies. The pursuit, acquisition, and protection of long-term, stable energy sources are fundamental to the United States’ economic and geographical security.

2. The Oxidation of Carbon Will Remain the Primary Energy Source for the 21st Century
From the dawn of the species, firewood (renewable biomass) provided the energy to heat our homes and cook food, gradually being replaced by fossilized fuels beginning with the Industrial Revolution. According to the International Energy Agency’s 2012 Key World Energy Statistics, carbon fuels continue to supply more than 90% of the world’s total energy consumption of 8,677 Mtoe (million tonnes of oil equivalent), or almost 14.1 trillion kilowatt hours. Coal, oil, and natural gas remain the primary source of energy for the world, providing two-thirds of the world’s energy today versus biofuels’ estimated 12.7%. The United States consumes about 20% of the world’s energy, with only about 4.5% of the world’s population.

3.Trillions of Dollars Are at Stake
Trillions of dollars are invested in facilities and machines around the world that are dependent upon existing carbon fuels (coal, oil, and natural gas). These assets cannot be economically abandoned, nor easily converted to other energy sources. As a consequence, industrialized countries (including the United States) seek to gradually transition to more environmentally friendly energy sources while maximizing the efficiency of the carbon oxidation process and minimizing harmful emissions. At the same time, new sources of hydrocarbons, particularly oil, within U.S. borders and the North American continent, will continue to be sought, developed, and exploited for economic and geopolitical purposes.

4. It May Help the U.S. Become Energy Independent
Oil and gas production from new horizontal drilling techniques and fracking technology may make the U.S. energy independent by 2020. The International Energy Agency predicted in November 2012 that the United States would replace Saudi Arabia as the world’s leading oil producer by the end of the decade. Some analysts believe that the United States will stop importing oil as a result of the new supplies. The northern extension of the XL Pipeline is needed to transport “light tight oil” from Montana and other western states in addition to the heavy crude oil of the tar sands of Athabasca.

5. Oil From the Athabasca Tar Sands Will Be Produced Regardless
As the world price of oil has risen, unconventional sources of oil and natural gas have become economical. Approximately 1.7 million barrels per day of heavy crude oil was produced from the Athabasca oil sands in 2011, and production will increase in future years. The oil sands of Alberta account for 98% of Canada’s proven oil reserves (more than 188.7 billion barrels) -  more than 30% of the GDP of Alberta – and generated more than $3 billion in royalties to the government in 2010 and 2011.

Engineers project that the oil sands can sustain daily production of 2.5 million barrels for 186 years. As a result of the delays in approval for the Keystone XL Pipeline, Canadian Prime Minister Stephen Harper has proposed an alternative pipeline within Canadian borders that would carry the oil from Alberta to the coast of British Columbia to be shipped by tankers to China.

6. Controlling Access to the Canadian Oil Is Strategically Important to the United States
While domestic sources of petroleum have been rising, the need for energy is also increasing worldwide. Refining the tar sands oil within the United States for domestic use or export reinforces the economic cooperation between Canada and the United States while maintaining important options for the latter to direct the refined product to “friendly” allies. However, a Canadian pipeline to British Columbia as proposed by the Canadian Prime Minister eliminates potential oil resources and reduces United States influence.

7. A Pipeline Is the Best Way to Transport Oil Over Long Distances
The proposed Keystone XL Pipeline will transport approximately 800,000 barrels of crude per day, roughly the equivalent of 3,750 tanker truck loads, delivering a load every 25 seconds around the clock, not including those trucks in transit to and from refineries over highways and bridges badly in need of repair and replacement. Some have advocated railroad tanker cars to transport the oil if the pipeline is not approved. While more expensive, railroads offer delivery flexibility not available with a pipeline, simply by redirecting trains to different terminals.

However, replacing the XL Pipeline’s capacity would require ten 225-car trains per day (five loaded and five unloaded), not including those trains in transit traveling in some cases more than 1,000 miles between loading and unloading. Each train would be approximately two and a quarter miles in length and require five to six locomotives with corresponding emissions. Also, pipelines have a lower spill rate per barrel transported than either trains, trucks, or barges.

pipeline

Environmental Impact

While approval of the Keystone pipeline extensions makes economic and strategic sense, the evidence is incontrovertible that the increasing use of carbon fuels is a major contributor to global warming and climate change. Despite the general public perception that the link between global warming and our activities is uncertain, the overwhelming consensus of climate scientists (97.4%) agree that “global warming is caused by man.” According to the United States Environmental Protection Agency, continued warming will have drastic consequences on human life:

  • 5% to 15% reductions in crop yields as currently grown
  • 3% to 10% increases in the amount of rain falling during heaviest precipitation events
  • 5% to 10% decreases in stream flows in some rivers including the Arkansas and Rio Grande
  • 200% to 400% increases in wildfire burn areas in Western United States

Simply speaking, our global society is and has been raiding the larder of fossil fuels built up by nature over eons, releasing millions of tons of carbon dioxide (CO2) into the atmosphere and upsetting the balance between the carbon released into the atmosphere and carbon consumed from the atmosphere by photosynthesis.

Additionally, the effect of an XL Pipeline spill could be devastating to an entire region of Canadians and Americans. The expanded pipeline would transport a carbon-rich crude oil and dilbit (diluted bitumen), which is potentially much more harmful to the environment if spills occur. The pipeline would come dangerously close to the Northern High Plains Aquifer system, a major drinking water source, and – since aquifers, unlike rivers, cannot be dredged or have oil removed – a spill here could dwarf the effects felt by pipeline spills in Montana’s Yellowstone River (2011) and Michigan’s Kalamazoo River (2010). And despite that pipeline spills are typically far smaller than spills related to barges or other methods of transport, they are much more frequent. In fact, 43% of the volume of all oil spills between 1980 and 2002 came from pipelines, according to the EPA. During that same time period, pipelines annually spilled 37 times as much as tankers, according to Dagmar Schmidt Etkin of Environmental Research Consulting.

However, the opposition to the XL Pipeline ignores the political and economic reality of the role of carbon-based fuels in modern society. The tar sands oil will be produced by Canada regardless of how or if the product moves to the United States, thus the environmental effect upon the atmosphere will be unchanged by any decision about the pipeline extensions in the United States. Environmental efforts to reduce CO2 emissions would be more effective by advocating and instituting regulations that reduce emissions and speed the transition to alternate fuels.

Government Actions to Offset Carbon Emissions

With approval of the Keystone XL Pipeline extensions, the financial assistance provided by the Federal Government to public/private partnership Carbon Capture & Sequestration (CCS) activities through the American Recovery and Reinvestment Act (AARA) should be maintained and increased. These projects are aimed at reducing and capturing emissions at their source and segregating the harmful CO2 from the atmosphere.

There are several other government initiatives to reduce our carbon footprint:

  • Continued Development of Alternative “Non-Carbon” Energy Resources. These alternatives include wind, solar, tidal, and nuclear power. Collectively, these sources produce about 8% of the energy consumed today, with nuclear power providing the majority (6%). While the increased use of nuclear power will be slowed until it is considered safer and we understand how to store the radioactive waste, sun, wind, and water sources are non-polluting, renewable, and efficient. Unfortunately, technology has not yet developed economical methods of providing and distributing large-scale applications. Nevertheless, the European Photovoltaic Industry Association projects that solar energy could supply 26% of the world’s energy by 2040.
  • Enhanced Fuel Conservation Activities. The Corporate Average Fuel Economy (CAFE) standards released by the Department of Transportation (DOT) and the Environmental Protection Agency (EPA) on August 28, 2012 require new cars and light trucks to average 54.5 miles per gallon by model-year 2025. This goal will almost double the fuel efficiency of vehicles today, saving consumers almost $1.7 trillion at the pump and reducing oil consumption by two million barrels per day. The political tendency in the past has been to relax standards when oil prices fell (1986-1988), ignoring the environmental impact of increased driving mileage. Neither the United States nor the world can continue that practice.
  • Higher Standards for CO2 Emissions From Utility Plants. While many of the harmful emissions from burning coal (sulfur-dioxide and nitrogen-dioxide) can be controlled by existing technology, capturing and storing CO2 emissions is expensive and dependent upon the success of CCS efforts. Increasing the standards for carbon dioxide emissions would effectively force utilities to invest in research and technology and encourage a transition to a cleaner fossil fuel, natural gas, which is more abundant and cleaner environmentally to burn until alternative energy sources are available.
  • Incentives for Energy Conservation. According to Amory Lovins, physicist, environmental scientist, and chairman of the Rocky Mountain Institute, conservation through proven building and industrial technologies – housing insulation, LED lighting, ultrasmart home appliances – pays back faster than new sources of supply, wastes far less energy, and would boost jobs and economic growth. Replacing the current tax incentives to the carbon fuel industry with individual incentives for conservation and clean fuels makes sense.

Final Word

Solving the environmental problem will require all of mankind’s ingenuity, creativity, and universal resolve  to abate and eventually reverse the current levels of emissions before an unrecoverable disaster occurs. The stakes are high and the outcome remains uncertain. The Keystone XL Pipeline extensions make economic and environmental sense in view of the alternatives available today. At the same time, Americans and the rest of the world must pursue energy policies that allow the continued progress of every nation while reducing the threat of hardship, possibly extinction, to future generations.

What do you think? Are you willing to accept the risks of nuclear power, for example, or a reduced living standard in order to save the planet?

Michael Lewis
Michael R. Lewis is a retired corporate executive and entrepreneur. During his 40+ year career, Lewis created and sold ten different companies ranging from oil exploration to healthcare software. He has also been a Registered Investment Adviser with the SEC, a Principal of one of the larger management consulting firms in the country, and a Senior Vice President of the largest not-for-profit health insurer in the United States. Mike's articles on personal investments, business management, and the economy are available on several online publications. He's a father and grandfather, who also writes non-fiction and biographical pieces about growing up in the plains of West Texas - including The Storm.

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  • http://www.facebook.com/mameloot1 Michael Ameloot

    Sorry, but I think this is getting too far off topic, even for the Economy and Policy heading. I’m not commenting on whether or not I agree or disagree with the blog. I’m neutral.
    I just don’t think this is appropriate for Money Crashers. I hope that political/social issue blogs are not going to be a trend here. We’re innundated with too much of that sort of controversy everywhere else we turn.

    • Michael R Lewis

      Mr. Ameloot,
      I appreciate your writing and your sentiment. I had proposed the topic to MoneyCrashers in the belief that the decision to allow the pipeline or not has short- and long-term consequences for the economy and for the energy policy (or lack thereof) we will follow in the future. I also tried to give readers both sides of the argument and the rationale for my opinion. As with all opinions, some will agree, some will disagree, and some, as you have suggested, will think the discussion inappropriate.

      Thanks for taking the time to give your opinion.

  • Brian Kennedy

    Mr. Ameloot, I respectfully disagree. Just because this economic / financial topic is vast and controversial does not make it “off topic.” Quite to the contrary! The topic will still be there, and hugely important, whether we choose to look at it (uncomfortable) or not (comfortable — for a while).

    Mike Lewis hit the nail on the head. The game-changer was the protection of the Ogallala Aquifer, which is a critical-path item.

    Oh, there are nuances. “Energy independence” is important but sometimes over-blown. Even if we produce more than we consume, the price of a relatively fungible world commodity is set internationally, not nationally. And Alberta’s — and the eastern provinces’ — fate is a hot potato in Canada’s domestic politics.

    If we do keep pouring ever-more CO2 into the atmosphere, the human race must simply count on the scientists to come up with efficient large-scale artificial photosynthesis, utilizing the energy of sunlight to pull CO2 out of the atmosphere and replace it with O2.

    If the answers were easy, we’d have found them by now. Kudos for taking on so vital an issue so lucidly!

    Brian Kennedy

    • Michael R Lewis

      Brian,
      Thanks for writing and expressing your opinion. As you pointed out, large national policies are multi-sided with proponents and opponents on every side. In a perfect world, our economy would not be reliant on carbon fuels nor the atmosphere so filled with CO2 to create global warming.
      However, we’re not in a perfect world, nor in a society where one person or group gets to make all of the decisions. I, like you, hope for a future where we do get it “right”.

  • http://www.ontargetcoach.com/ Brent Pittman

    The Keystone is passing 20 miles from us now and it’s an army of hundreds of workers. I’m sure it is pumping money into the economy and finding a hotel in our area is very difficult. I think this topic is perfect for any financially related blog.

    • Michael R Lewis

      Brent,
      Thanks for writing. Since I wrote the piece, I agree with you that it is pertinent.

  • first time last time

    Totally left field. Yeah you can make a very weak argument that theres somehow relevance but you can try that with anything and con yourself if youre predisposed to that sort of political nonsense. You sound like a shill whose trying not to sound like a shill. (almost had me fooled – NOT!) Why not take it further and talk about how Obamacare is likely to prevent readers from starting or maintaining a business (you know, bullshit not new topics like Fox News does) or the economics of preventing criminals and mentally ill folks from purchasing machine guns. The article is an Op-Ed more suitable for the New York Post. I wish I had these last 5 minutes of my life back

    • Michael R Lewis

      Dear first time last time.

      Thanks for writing. You obviously disagreed with my article, but I’m not sure why. Do you, for example, disagree that the tar sand oil will be produced, regardless of the pipeline extension? Or perhaps that the pipeline is the most environmentally sound method to transport large amounts of crude? Do you accept the 7 reasons as being valid, but my conclusion to allow it while focusing on other government initiatives to reduce our carbon footprint? It would be helpful for me to understand your position.

      My positions on healthcare – the PPACA or Obamacare as you’ve described it – as well as gun control have been the subject of other articles on this site and others, neither of which come the conclusions you presuppose.

      Sorry about your feeling that you wasted 5 minutes reading the piece. In my experience, taking the time to learn what others are thinking and expressing a reasoned opinion is never a waste.

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