Keystone XL: Drill It or Kill It?

Will the conclusion of this study finally allow a decision on the Keystone XL pipeline?

Feb 18, 2014 at 3:07PM

The much-anticipated State Department report, the Final Supplemental Environmental Impact Statement (SEIS) on the proposed Keystone XL pipeline, was released on January 31. The 1,179 mile pipeline in question would transport more than 800,000 barrels of crude oil a day from Alberta, Canada, to smaller existing pipelines in Steele City, Nebraska, and then on to the final destinations of Nederland or Houston, Texas. In addition, the pipeline, which would be built by Calgary-based TransCanada (NYSE:TRP), would potentially transport other crude oil from the Bakken formation that is already being drilled in North Dakota and Montana.

The report both encourages and discourages the pipeline by stating that the transported oil would create carbon emissions equal to 5.7 million cars on the road, but that no pipeline would just cause the oil to be burned anyway. The oil would just be transported through other means, primarily by rail, but also by trucks and barges. This method is considered by many to cause even more damage on the environment and speed climate change far more than the pipeline would, increasing transportation emissions by up to 42%.

Approval by the State Department is necessary because the pipeline crosses a U.S. border. Other departments will have 90 days to comment on the findings of the report before the State Department makes its official recommendation to the Office of the President.

The forgotten losers in all of this are the Canadian Pacific (NYSE:CP) and Canadian National (NYSE:CNI) railways, as the potential to use this pipeline to pump heavy crude oil from the Bakken region could severely impact these two companies. They are currently holding strong as the infrastructure is already in place for them to transport the oil, but the completion of the pipeline would provide a much less costly route (five times less by many estimates) for oil companies and remove a huge element of these companies' business.

The bottom line
When it comes down to it, the oil sands in Alberta will be tapped and extracted no matter what, pipeline or no pipeline. This almost completely eliminates the immediate environmental question (the larger question of removing all fossil fuels and the effect on global climate change excepted) as the oil region is already doomed to be developed one way or another. The brand new, much-scrutinized pipeline will almost certainly be a safer transportation route for all of that crude oil than a variety of trains and other modes of transportation.

The only question is whether it will be transported via train, plane, and automobile, or by the proposed pipeline through much of the United States. The eventual answer will be the latter, as blocking the pipeline has many potential negatives for the United States and allowing it has many positives. Blocking the construction would likely be the final straw for many Canadian officials, many of which see the only hold up as the snail's pace of the American political process. Politically, it would likely also damage campaigns of Democratic representatives in strongly oil-dependent regions that would be positively affected by the pipeline.

Even with these reasons to support the construction, it turns out that the biggest reason to create the pipeline according to proponents is not as strong as originally thought: job creation. The SEIS report states that while roughly 20,000 jobs will be created for the two years of expected construction time, only about 50 permanent jobs will remain after the completion of the project. Yet even without job creation as a supporting factor, the decision on the pipeline construction is no longer in doubt: Build it.

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Karl Avard has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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