The Keystone XL Pipeline — Its Pros and Cons

Updated: Oct 27, 2020

By Luke Montalbano


Image via Robson Machado from Pixabay

On July 6th, the US Supreme court delayed, yet again, the Keystone XL pipeline, refusing to hand it a vital environmental permit. Despite this, TC Energy — the Canadian company in charge of Keystone XL — restated that they will not give up on the project, citing the thousands of jobs that would be added to the economies of Canada and the United States.


This delay had also caused significant repercussions to the Provincial Government of Alberta. Early in 2020, Jason Kenney, the Premier of Alberta, promised an investment of $1.5 billion CAD into the pipeline with another $6 billion CAD in loan guarantees. This was to ensure it would be in operation by 2023 — a goal that is becoming starker with each passing day. If the pipeline is blocked again by the U.S. Supreme Court and TC Energy gives up on its gamble, Alberta will have lost billions of dollars that could have been spent elsewhere. The Alberta government has taken a gamble on the pipeline. It sees its possibilities, but others see its drawbacks. 


The challenges of pipeline approvals have been brought to light after the recent protests that swept British Columbia and many parts of the world, in support of the hereditary chiefs of the Wet'suwet'en first nation who opposed the Trans-Mountain pipeline (separate from Keystone XL). This resulted in covert negotiations between the hereditary chiefs and the Canadian federal government who had nationalized the pipeline to ensure its completion. Interestingly, the elected chiefs of the Wet'suwet'en Nation were in favor of the Trans-Mountain pipeline's approval. As of now, the public is divided on the issue of pipelines, with no side having a clear majority in public opinion as of yet. We now need to take an in-depth look at Keystone XL to determine if the risk is well thought out economically, environmentally, and politically.



Pros


The Keystone XL pipeline brings along a significant amount of economic benefits, with many economists speculating that it will be meaningfully beneficial to both the US and Canadian economies. On the environmental side, common transportation methods for oil, such as rail and truck, produce drastically higher amounts of carbon than a pipeline would. This ensures that the carbon footprint for oil would drop if the pipeline were to be built. 


Jobs:

If the Keystone XL pipeline is approved, it is estimated to add almost 400,000 jobs directly and indirectly in the North American oil and construction sectors according to former Natural Resources Minister Joe Oliver. These job gains would counteract the negative effects of the oil price collapse between 2014 and 2016, which caused an estimated 35,000 jobs to disappear. This massive job creation could be beneficial to the North American provinces and states that the proposed pipeline would pass through, especially to those who have been laid off indefinitely due to COVID-19 and are struggling to find work.


The Economy:

Many supporters of Keystone XL often point to its economic benefits and the sheer volume of GDP growth to both the Canadian and American economies. In 2011, Canadian Prime Minister Stephen Harper pushed for the pipeline’s approval, calling it a “no-brainer” due to the sizeable amount of jobs and economic benefits that would be created because of it. Various economic sources suggest the provincial and federal GDP growth to be in the billions of dollars after construction. 


The pipeline will allow the Canadian government to diversify its oil and natural gas sector by opening up Albertan oil production to regions previously hard to transfer oil to due to cost constraints. With the construction of Keystone XL, overhead costs are expected to be reduced as rail and truck transportation would be eliminated from transportation in Oklahoma and Texas. This means Canadian oil can benefit from expanded market share, which in turn allows for expansion of the oil sands sector and further employment opportunities with higher-paying jobs.


Environmental Factors: 

Environmental activists suggest that pipelines are notorious for their poor environmental standards and danger of spillage. However, many may be surprised how environmentally sound pipelines really are, especially compared to other modes of transport such as rail. According to the Fraser Institute, oil transported by a pipeline is 4.5 times safer than oil transported by rail. The Fraser Institute also estimates that 80% of pipeline-related accidents do not occur along the pipeline route but the facilities in which the oil is processed before or after being sent through the pipeline. Despite these findings, between 2010 and 2014, the number of barrels of oil transported by rail jumped from 42,000 to nearly 42 million, an estimated 99,900% increase. This was due to the lack of pipeline construction in this period, forcing major US oil producers, such as BP, to become bearish of pipeline investments owing to the increasing pushback from environmentalist groups. More recently in 2015, Obama vetoed a GOP bill that would have allowed construction of Keystone XL to proceed. This has caused a further surge in rail transportation.


The future of pipelines in the United States is unclear at the moment, especially with President hopeful Joe Biden promising to kill the pipeline proposal soon after he takes office. Nevertheless, Alberta Premier Jason Kenney believes he may be able to sway Joe Biden’s beliefs on the pipeline in the coming months. All things considered, the cons must also be weighed before jumping to conclusions and so with that, we must now focus on the darker aspects of Keystone XL.



Cons 


Quality of Employment: 

Although Keystone XL will create thousands of jobs, many have brought into question the quality of those jobs. According to Forbes, Keystone XL will create 50,000 jobs during construction, most of which pay near minimum wage. With the cost of living in Canada and the United States increasing, earning minimum wage has become unlivable for many. Furthermore, pipeline construction jobs are exponentially more dangerous than regular working jobs. A study in 2017 showed that a pipeline construction worker is 4.3 times more likely to die on the job than the average worker. Yes, pipelines create jobs, but are these jobs worth the vast danger and minimum pay?


Economic Expansion: 

The oil and gas sector, in both the United States and Canada, is a significant economic contributor, and many states and provinces such as Texas and Alberta rely on this resource to fuel their economies. In fact, the oil and gas sector contributes nearly 30% of the Albertan GDP. But oil will not always be there to support the Albertan economy. According to Ecotricity, the world’s proven oil reserves are expected to be depleted in their entirety in just over 50 years. This means that by 2070, Keystone XL will be rendered obsolete and the $7.5 billion investment will have gone to a sector with a limited amount of serviceable years. Perhaps there is a renewable energy investment that may be an attractive fiscal alternative to pipelines? 


According to a survey of 400 companies with investments in Renewable Energy sources, the return rate was on average 15%, lower than an ideal rate of return of 20% historically earned on fossil fuels, but nonetheless a successful return. By investing in renewable energy, one receives a moderate return on investment while also putting money into a product that will not have become antiquated in half a century due to lack of supply. In fact, one could argue that governments would be better served investing in alternative energy sources, well in advance of the disappearance of fossil fuels.


Environmental:

On July 25th, 2010, a major leak occurred in a pipeline beside the Kalamazoo River in Calhoun County, Michigan. The rupture spilled over 1 million US gallons of oil being transported from Athabasca oil sands in Alberta. The cleanup took over five years, cost over $1 billion USD, and even now, according to the National Wildlife Federation, much of the river is still polluted with diluted bitumen — the oil that leaked 10 years ago. Kalamazoo has, in recent years, become a prime example for many environmentalists rallying against pipeline proposals and has often been brought up during the Keystone XL debate. Along with that, according to United Press International, the annual total amount of spills has increased from an average of four spills a year (of over 50 barrels) in the 1990s to more than 17 spills on average by 2009. Since Keystone XL has been unable to obtain a key environmental permit, it furthers the concern whether this pipeline really is as environmentally sound as it is required to be.



Conclusion


The Keystone XL pipeline may bring meaningful benefits to North American economies, but these benefits are far from certain. With all this in mind, if you are in Alberta, the question still remains: is the $7.5 billion risk worth it? Outside of Alberta, are the benefits sufficient to overcome the concerns?


Written by writer Luke Montalbano

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