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Safety Absolutely Must Be a Key Factor in the Keystone XL Debate

As the oil and gas industry anxiously awaits President Obama's final decision on TransCanada's (NYSE: TRP  ) Keystone XL -- the controversial pipeline that would bring hundreds of thousands of barrels of oil from Canada's oil sands to refiners along the U.S. Gulf Coast -- commentators have drawn attention to its operator's less than stellar track record with respect to pipeline safety.

Some even view it as a strong enough reason to reject the pipeline. Do these skeptics have a point? Or are they embellishing the company's safety-related transgressions simply to push their own agenda? Let's take a look.

TransCanada's claims
As expected, Calgary-based TransCanada remains adamant about its safety record, which it characterizes as "industry-leading." In a section of its website, the company states:

TransCanada has an industry-leading safety record building and operating pipelines across North America for more than 60 years. Our first priority is the safety of our employees and the public. ... Safety is built into the full life cycle of a pipeline, starting with design, construction, operation and eventually abandonment or retirement.

These claims may be convincing when read on a fancy, professional-looking website or when backed by leading experts. But even a cursory review of the company's track record suggests otherwise.

Issues with Keystone I and Bison pipelines
Consider Keystone I, the company's first crude oil pipeline, which transports mainly oil sands crude from Alberta to Cushing, Okla., as well as to refiners in Illinois. As with Keystone XL, the company was initially highly confident about the pipeline's construction quality and adherence to safety standards, claiming that it would "meet or exceed world-class safety and environmental standards."

TransCanada also expressed confidence in its estimates for potential spills arising from Keystone I, as well as other environmental risks posed by the project. The company said Keystone I would leak less than twice a decade and highlighted 51 special conditions that it had followed to ensure utmost safety -- very similar to its claims about Keystone XL. But shortly after the pipeline went into service in 2010, TransCanada was proved wrong.

In its first year alone, Keystone I started to experience major issues and reported numerous leaks. The most serious of these occurred in May 2011, when the pipeline spilled roughly 500 barrels of oil at a pump station in North Dakota. That accident marked the Keystone system's 10th spill, all of which were related to equipment failures at pump stations .

Shortly thereafter, federal pipeline regulators decided to intervene and slapped TransCanada with a Corrective Action Order (CAO). The company was forced to temporarily shut down the pipeline, after regulators determined that it was an imminent threat to life, safety, and the environment. That made Keystone the newest pipeline ever to be given such an order.

Similarly, consider TransCanada's Bison natural-gas pipeline, which exploded in a remote location near Gillette, Wyo., in July of 2011 -- just six months after going into service. According to documents obtained by CBC News, Canada's largest news broadcaster, the Bison pipeline suffered from a litany of problems related to improper welding and substandard safety inspections that became apparent during construction.

Yet just two months before Bison exploded, TransCanada's director of pipeline integrity lauded the pipeline's quality, claiming it had been built with "state-of-the-art" technology. "They [the pipelines] will be in place for 20 or 30 years before they need any repairs," he added.

Final thoughts
While a pipeline such as Keystone would almost certainly provide the U.S. with greater energy security over at least the next several years, as well as tens of thousands of temporary construction jobs, safety should be an overarching priority. That's especially true for Keystone XL, since it would carry massive quantities of diluted bitumen, or "dilbit" crude, a type of crude oil thought to be more corrosive and more difficult to clean up.

As the recent ExxonMobil (NYSE: XOM  ) spill in Arkansas highlighted, oil spills can be quite a hassle to clean up and can often result in the imposition of hefty fines. TransCanada would be wise to follow through with its claims regarding Keystone XL's top-notch safety measures, not only for its own good but also for the benefit of the environment and the communities that lie along the pipeline's proposed route.

Whether or not Keystone XL is approved by the U.S. State Department, improvements in pipeline infrastructure will be a defining trend in North America's energy landscape over the next several years -- one that astute investors would be wise to follow. Enterprise Products Partners, the nation's largest publicly traded energy partnership, is at the forefront of this trend and is investing heavily in pipeline infrastructure that will serve the nation's energy companies for decades into the future. To help investors decide whether Enterprise Products Partners is a buy or a sell today, click here now to check out The Motley Fool's brand-new premium research report on the company.

Read/Post Comments (4) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 21, 2013, at 4:37 AM, RobDekker wrote:

    Arjun Sreekumar in this post said :

    "While a pipeline such as Keystone would almost certainly provide the U.S. with greater energy security over at least the next several years, as well as tens of thousands of temporary construction jobs.."

    Arjun, it seems you have become a victim of the widespread political propaganda around this pipeline.

    For starters, there has been a tremendous amount of hand waving about jobs by fossil fuel companies, the political right and reflected in the media.

    Problem is : these job numbers of "tens of thousands of temporary construction jobs" are simply not at all sustained by evidence.

    The State Department estimates "approximately 3,900" temporary (1 year) construction jobs for the entire project. However, only half of this project is in the US, so we may reasonably assume that only half of the jobs (only some 2,000) would go to US workers.

    However, even that may be an overestimate. After all, TransCanada will likely have a 'core' of workers who know the project to work inside out to work as ex pats on the US section as well.

    This reasoning seems to match the findings of the ONLY independent study of the Keystone XL project, from Cornell University, which actually gives a State by State employment estimate :

    This study concludes that construction employment (1 year period) per state, for the current Keystone XL project under consideration by the State Department, to be "between 93 and 257 jobs for residents in Montana; 121-333 jobs in South Dakota; 90-248 jobs in Nebraska"

    That is a maximum of 838 temporary (1 year) construction jobs for US residents.

    This number very much matches our experience from the first Keystone project, which gained 282 South Dakota temporary workers, according to TransCanada :

    Long story short, it is almost certain that the Keystone XL will provide "hundreds" of temporary construction jobs and almost certain that the tens of thousands or even hundreds of thousands of jobs spread by our politicians and the media alike was propaganda, and not sustained by evidence.

    It really does not take that many people to lay a pipe.

  • Report this Comment On April 21, 2013, at 5:15 AM, RobDekker wrote:

    We already know that this pipeline will create an additional 500,000 ton PER DAY of toxic sludge be pumped into unlined "tailing ponds" the size of Washington DC.

    We already know that this pipeline will enable a 50 % increase of the largest industrial project on the planet which is on track to turn pristine Boreal forest the size of Florida into an open pit mine.

    We already know that this pipeline will leak, and that the substance is diluted bitumen, which we already know from the Kalamazoo river spill is much harder to clean up, and that we have the benefit of having our essential aquifiers contaminated with this stuff.

    We already know that the Keystone XL will increase the price of Canadian bitumen, which will increase the price of gasoline in the Mid West.

    We already know that a foreign corporation is using 'eminent domain' as an argument to violate property rights of US land owners.

    And we already know that this project will only 35 permanent jobs, a couple of hundred temporary jobs for US workers, and decidedly NOT the tens of thousands, hundreds of thousands, or even up to a million jobs that our politicians have been handwaving about.

    So, now that we know that right-wing politicians and the fossil fuel industry have deceived the American people in every possible way, can we take a step back and assess again :

    Exactly WHAT about the Keystone XL is in the "national interest" of our nation ?

  • Report this Comment On April 26, 2013, at 11:32 AM, BillLatka wrote:

    Safety is absolutely the issue: the safety and security of all human beings on planet earth - even the investors! Constructing this pipeline would mean "game over for the planet," according to NASA chief climatologist James Hansen. This pipeline carries the most climate-damaging form of fossil fuel.

    Read this article on Fox News: Why Keystone XL is a Bad Deal:

    From an investment standpoint, there are tens of thousands of people, and many hundreds of universities and endowments divesting from the fossil fuel industry. It's just a matter of time before this kind of investment becomes worthless.

    As an investor, I'm looking for stuff that's not going to kill us all.

  • Report this Comment On April 26, 2013, at 11:44 AM, Costanzawallet wrote:

    Invest in Air and water, because these are fast disappearing and will be the gold and oil of this century. When you have black tar oil in your lake and spilling onto your driveway, when you can light your tap water on fire, and when you can't breathe because of the suit and carcinogen particulate in the air your job or increasing stock dividend won't amount to a hill of beans. Just because this is not being built across your back yard shouldn't relieve you of your morals. For too long, too many businesses have abused and laid waste to what is not theirs for their own profits and investors have turned a blind eye. Not anymore.

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