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Is the Keystone XL Pipeline Really Worth It?

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A look at the good, the bad, and the ugly about the major oil project.

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The planned 1,897-kilometer Keystone XL Pipeline would transport up to 830,000 barrels of tar sands oil per day from the Western Canadian Sedimentary Basin in Hardisty, Alberta, to the existing Keystone Pipeline system in Steele City, Nebraska. By building this pipeline, the goal is to increase crude oil delivery to existing refinery markets in the Texas Gulf Coast region.

After submitting an application in September 2008, the pipeline passed environmental impact studies in August 2011, but was derailed three months later when the government demanded additional time to explore alternative routes in Nebraska. In January 2012, the president flatly rejected the project due to an untimely deadline that prevented a full assessment.

Keystone advised the government that it would file a new application a month later and submitted alternative Nebraskan routes in April 2012. An additional environment report on the new routes was issued in September 2012, which was based on extensive feedback from Nebraska, and a new final decision is expected in early 2013.

The Good

The Keystone XL Pipeline could generate some $20 billion in value for the US economy, according to an independent study commissioned by the Keystone partnership. In addition to these immediate financial benefits, the pipeline would improve US energy security and provide a stable source of consistent energy supply over an extended period of time.

Employment: TransCanada (NYSE:TRP) estimates that the pipeline would have a very positive impact on employment throughout several US states. Some 15,000 Americans would be put to work constructing the pipeline – including pipefitters, welders, mechanics, electricians, and heavy equipment operators – and manufacturing the pipeline's components. At a time when unemployment remains stubbornly high, this benefit is likely to carry political weight.

Tax Revenues: The Keystone XL Pipeline is also expected to generate some $5.2 billion in property taxes during the estimated operating life of the pipeline. These tax revenues are commonly used to support local education, police/fire protection, local governments, some free medical services, and most other municipal or state infrastructure projects. With the spending cuts impacting all areas, these increased revenues could also carry high political weight.

Energy Security: The US is a net energy importer, often from unfriendly countries like Venezuela and others in the Middle East. With the completion of the Keystone XL Pipeline, the US could generate about 5% of its current consumption needs and 9% of its total imports from friendlier Canadian and domestic energy sources. While energy prices have declined, politicians remain committed to making the US energy independent.

The Bad

Opponents to the Keystone XL Pipeline believe that it puts people and wildlife at risk of toxic oil spills, water pollution, and a host of other environmental risks. These opponents suggest that the massive project would employ safety shortcuts, substandard materials, and unsafe practices that could create a high risk of ruptures and impact both wildlife and humans.

Dirty Fuel Source: Canada's tar sands generate some of the dirtiest forms of oil to be refined in the US, potentially making the country even more dependent on a damaging and inefficient fuel source. At the same time, the US may also be less incentivized to develop new, more efficient forms of fuel that are better for the economy, national security and the environment, if there are cheaper forms of dirty fuel more readily available.

Spill Dangers: The Keystone XL Pipeline would create thousands of miles of new pipeline that cut through sensitive wetlands, rivers and aquifers, and could cause ranchers and farmers to lose their land in the event of spilling or leakage. Moreover, much of this pipeline would be constructed through the Midwest and Western states that rely on farming and ranching for a significant portion of their respective gross domestic product (GDP).

Wildlife Concerns: The Keystone XL Pipeline could encourage the Canadian government to continue destroying the boreal forest, polluting watersheds and destroying wetlands that are important to US wildlife, as these practices are common among oil sands drillers. Meanwhile, air and water pollution could increase in the US around the refineries where the tar sands oil will be refined, as it's a dirtier fuel source to use in the refining process.
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