Oil pipelines are the backbone of US economy

President Donald Trump’s action Tuesday to advance the Dakota Access and Keystone XL pipelines honors campaign commitments and advances U.S. energy security, but it reopens one contentious issue and throws fuel on the other. 

Pipelines are the backbone of the American economy. They link consumers and industry to abundant North American resources.

{mosads}The rationale for these two projects is distinct, as is the nature of the crude that would be transported through them. Protestors may have a common goal to “keep hydrocarbons in the ground,” but the specific objections vary.

Keystone XL, a 1,179-mile expansion of existing TransCanada infrastructure in the U.S., would improve the feasibility of producing “heavy, sour” oil in Canada, transporting 800,000 barrels per day to refineries along the U.S. Gulf Coast that are configured to process this grade efficiently.

“Heavy” refers to the viscosity of the oil, and “sour” describes the sulfur content. Refined petroleum products would be available to U.S. consumers or for export, depending on market conditions.

Availability of Canadian crude could lessen our dependence on comparable oil from Venezuela, which is in the throes of political instability.

The Keystone XL project also creates thousands of construction jobs and supports high-paid jobs in U.S. refineries. TransCanada, the project developer, engaged actively with communities and environmental groups and rerouted the pipeline from its original design.

Remaining issues include the environmental impact of extracting and transporting the oil, which has higher carbon dioxide content than conventional crude, and the project’s economic viability.

Oil sands (called “tar sands” by opponents) production is more akin to strip mining than traditional drilling. YouTube photos and videos show an ugly portrait of the land, some 500 miles north of Calgary, where oil sands have been extracted.

Developers claim that the land can be restored and show examples where this has taken place. This hydrocarbon also has higher carbon dioxide content than other types of crude oil, although there is disagreement as to the degree.

Critics ask why this needs to be produced and refined when there is excess crude in global markets. They also cite the global commitment to reduce carbon emissions agreed upon only a year ago at the U.N. climate change talks near Paris.

TransCanada could also develop the option to export to China, but that would create environmental and social challenges with the First Nations, whose land a pipeline to the coast would likely cross.

Finally, oil sands were profitable to produce in a $100 per barrel oil price environment, but it is questionable in the low $50’s scenario of today. It raises the question whether TransCanada will even decide now to spend billions on the Keystone XL pipeline project.

That will depend on their long-term price forecasts, improvements in operating efficiency and reductions in costs.

The issues involving Dakota Access are different in several ways, although the pipeline is about the same length at 1,172 miles. This would transport 550,000 barrels per day of “light, sweet” crude from the recently developed fields of North Dakota to a terminal in Illinois.

There is actually an environmental argument favoring this build. Pipeline transportation is safer and more efficient than the truck and rail transportation that is currently used to move it. Memories of the deadly 2013 runaway oil train in Canada are still fresh. 

Opposition to Dakota Access has been passionate in recent months, ostensibly over concerns about threats to freshwater used by native communities.

There has also been a measure of “fake news” suggesting that the pipeline crosses tribal lands, which it does not. Energy Transfer Partners has already invested a substantial sum in the project, which is built along existing pipelines, and undoubtedly would move to complete it if possible.

Tuesday’s announcement by Trump will engender excitement in the energy industry and raise hopes for many new jobs. Opposition will remain fierce. Pipelines will continue to keep the economy humming, regardless of when and how these two projects get completed.

William Arnold is a professor in the Practice of Energy Management at Rice University’s Jones Graduate School of Business. He held a White House appointment as senior vice president of the Export Import Bank of the United States from 1983 to 1988. 

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