Feb. 29, 2012 at 3:22 PM ET
ANALYSIS: Proponents of the Keystone oil pipeline argue the $7 billion project will create hundreds of thousands of jobs, give the economy a shot in the arm, lower gasoline prices and wean the U.S. from foreign imports.
Too bad the claims don’t hold up.
House Speaker John Boehner renewed his attack on the White House this week for postponing approval of the project pending a State Department review of the environmental impact of the proposed 1,661-mile pipeline, which would cross six Midwest states to deliver Canadian crude to the Gulf Coast. Republicans have intensified their attacks on Democratic President Barack Obama's energy policies in recent days, blaming them for higher pump prices that could hurt his re-election prospects in the Nov. 6 face-off against the eventual GOP nominee.
On Wednesday, Boehner stepped up the pressure in a letter to the White House urging approval of the project "to provide greater energy security." Senate Minority Leader Mitch McConnell blamed the White House for rising pump prices.
"Make no mistake: the rising price of gasoline isn't simply the result of forces we can't control," he said in a Senate speech.
There's no doubt that rising North American oil production has created pipeline bottlenecks for companies trying to get their product to market. One major chokepoint at a central storage hub in Cushing, Okla., has created such a glut of oil that it's forced prices lower, providing consumers in the middle of the country with a significant discount at the gas pump.
But proponents' case that the Keystone XL pipeline will bring major economic benefits to the U.S. is much harder to make.
Short-term, the construction phase of the project will "create more than 15,000 high-wage manufacturing jobs and construction jobs in 2011-2012 across the U.S., stimulating significant additional economic activity," according to TransCanada, the Canadian company that is seeking approval to build it. (The company said this week it plans to go ahead with construction of a 450-mile segment linking the Gulf Coast and a major pipeline and storage hub in Cushing. That segment with U.S. borders does not require State Department approval.)
That 15,000-job claim is based on a report the company commissioned which assumes roughly $5 billion of the total will be spent on building the U.S. portion of the pipeline.
"The fallacy I see with a lot of the arguments that are going back and forth now is to try to say you can somehow spend $5 billion and not create some economic activity," said Robert Perryman, author of the report. "You can't do that."
But critics say the jobs created will be a drop in the bucket of the U.S. labor force, which totaled more than 153 million people in January. Even if those jobs were added in a single month, they would reduce the unemployment rate by just 0.01 percent. When measured against just the construction and manufacturing workforces, the impact would be 0.07 percent.
Critics of the company's claims, including a group of Cornell University researchers, also note that the employment impact would amount to the equivalent of 15,000 jobs that last only a year.
"We're not looking down our nose here at temporary jobs. A six-month job is better than no work," said Sean Sweeney, one of the authors of a report on the pipeline's economic impact. "But the actual effect of the project is finite. It's not going to create jobs permanently."
The Cornell report also notes that a significant portion of the economic impact will be felt outside the U.S. Some 50 percent or more of the steel pipe used for Keystone XL, the report said, will be manufactured outside of the U.S.
"A lot of the steel for Keystone XL is already stockpiled in the U.S. and sourced from India and Canada," said Sweeney. "Those are not U.S. jobs, those are Indian and Canadian jobs."
TransCanada also argues that the six states crossed by the pipeline's route "are expected to receive an additional $5.2 billion in property taxes during the estimated operating life of the pipeline."
But that analysis fails to account for the likely damage caused by oil spills along the pipeline route. In the past five years, more than half a million barrels of oil and other hazardous liquids have been spilled from U.S. pipelines, killing 76 people and causing some $2.4 billion in property damage, according to the U.S. Department of Transportation.
Oil price impact
Some of the biggest claims about the pipeline's economic benefits are based on the argument that it will lower oil prices by increasing supplies and reducing the risk of a cutoff of shipments from less-friendly foreign suppliers. That assumption generated some very large numbers in Perryman's analysis, some of which have become part of the political debate.
Perryman argues that removing even a small "risk premium" from reliance on foreign sources will have a huge impact on the U.S. economy.
"It's so much more than just gasoline," he said "When you work it through the entire economy and tilt down the cost structure over a $15 trillion economy, that generates some big numbers."
The number are indeed large. Based on the worst case -- the peak oil price of $147 a barrel reached in 2008 -- savings from more "stable" supplies would add an additional $221.3 billion in spending, $64.2 billion in output and 553,235 jobs to the U.S. economy. (Under more “normal” assumptions, based on the 2007 average price per barrel of $66.52, Perryman Group figured the benefit would amount to $100.1 billion in total spending, $29 billion in output and 250,348 permanent jobs.)
But critics argue that Keystone will raise the price of oil consumed in the U.S., not lower it. That's because the current glut of oil created by the bottleneck at the Cushing hub would allow Canadian producers to reprice their oil at the global benchmark, which is now about $15 a barrel higher. The total increase would amount to some $2 billion to $4 billion a year, according to the company's own estimates presented in its application to Canadian authorities.
"Oil companies don’t benefit by reducing the price that we pay at the pump," said Jeremy Symons, a spokesman for the National Wildlife Federation. "The reason they're willing to invest so much money to build in a pipeline all the way across America is to maximize their profit. And that means we're all going to pay more."
As a result of those higher prices, consumers in the Midwest could be paying 10 to 20 cents more per gallon for gasoline and diesel fuel, adding up to $5 billion to the annual U.S. fuel bill, according to the Cornell researchers. They figure that just one year of those higher fuel prices cancels out some or all of the jobs created by the project.
One of the most popular claims by the pipeline's political supporters centers on the benefits of "energy security." They assert that increasing the supply of oil bought from a friendly neighbor will offset the reliance on politically hostile suppliers in the Middle East.
But critics say that argument fails for several reasons. First, while increased oil output from Canada would displace a small fraction of U.S. imports from other sources, even if the Keystone pipeline weren't built that oil would almost certainly flow to the U.S. over existing pipelines or by other modes of transportation, such as railcars. The U.S. imports just about every barrel of oil Canada produces. (Only 1.7 percent of Canadian oil goes to non-US destinations.)
Secondly, the flow of oil to the Gulf could actually lower the share of Canadian oil consumed in the U.S. because, once transported to Houston, oil producers would have access to a global shipping hub in a tariff-free zone, giving them a financial incentive to export at least some of it.
Moreover, the U.S. is already steadily “weaning” itself from foreign oil based on forces that will likely remain in place for some time, with or without the Keystone pipeline. Since 2005, U.S. dependence on imported oil fell from 60.3 percent in 2005 to 49.3 percent in 2010 due to a variety of factors, according the Energy Department. The biggest reason is that demand is falling; it's down 12 percent from the peak in 2007 thanks to more fuel-efficient cars and trucks and to increased supplies of biofuels.
Domestic oil production has also begun rising after more than two decades of being in decline. Increased output in deepwater Gulf of Mexico oilfields and the Bakken formation in the upper Midwest will continue to add to those supplies. Improvements in U.S. refineries have also helped cut the demand for crude, the Energy Department said.
Related story: Why the Keystone Pipeline would boost pump prices