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The Economist: Punting Energy Security with Keystone

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The author of this entry is responsible for this content, which is not edited by the Wilson County News or
Dr. M. Ray Perryman
November 16, 2011 | 2,327 views | 2 comments

Last week, the US Department of State and President Obama put off a final decision on the proposed Keystone XL pipeline connecting oil supply regions in Canada with US refineries and distribution networks. The project was announced in July 2008 and was scheduled for approval a year ago, but the latest announcement pushes out the date until at least early 2013.

As I have stated before, the pipeline offers clear advantages in terms of job creation, cost improvement, and enhanced security. In a prior study, we determined that the total impact of the construction and development phases of the Keystone XL project on the US economy would include (over the life of the project) $20.931 billion in total spending, $9.605 billion in output, and 118,935 person-years of employment. These were calculated at that time in constant (2009) dollars and rise slightly when adjusted to a 2011-dollar basis ($21.979 billion in total spending and $10.087 billion in output).

As I described in a column several months ago, the delays in the permitting process have already cost business activity (on a net present value basis) of $1.19 billion in spending and $559 million in output, as well as postponing 88,622 person-years of employment. Job deferrals for states along the route vary, but most states have seen in excess of 5,000 person-years of employment (one person working for one year) delayed during a difficult economic period. These costs are growing as long as the project is on hold.

Among the primary reasons given for the delay is the route through the Sand Hills of Nebraska, an environmentally sensitive area, and the need to explore alternatives. Of course economics is not the only consideration in any infrastructure decision, and protecting the environment must also be a component of the process. However, the US Department of State has already gone through the extensive environmental impact assessment process. The resulting document is extremely detailed, with analysis of potentially affected species of wildlife (and even insects), public or private wells within a mile of the route, and much more. It involves hundreds of pages in eight volumes and ironically, as we go to press, the US Department of State’s website still indicates that they are on track to reach a decision by the end of 2011. There was also a draft impact assessment issued in May 2010 which involved a lengthy comment period and meetings held in dozens of communities; issues raised were addressed in the final statement. Even an agreement to use an alternative route has not overcome the delay, suggesting that it is based on political rather than economic or environmental considerations.

The executive summary of the US Department of State’s Final Environmental Impact Statement points out that Keystone has already agreed to comply with 57 additional “Special Conditions” developed by the Department of State and the Pipeline and Hazardous Materials Safety Administration which would “result in a Project that would have a degree of safety greater than any typically constructed domestic oil pipeline system under current regulations.”

It’s simply not credible to say at this point in time that the project needs more study. The State Department rightly noted that if the pipeline isn’t built, Gulf Coast refineries could obtain crude oil transported by marine tanker from areas outside of North America, but that many of these regions are experiencing declining production and are not secure. In addition, alternative transportation methods such as trucks or rail involve a higher likelihood of accidents, and the regions of origin are anything but stable. The bottom line is that not building this pipeline (which is designed to be much safer than existing pipelines and other transportation alternatives) will not magically reduce the demand for oil. Instead, it means that more oil from more unpredictable sources and transportation methods will have to be used, thus further delaying critical efforts toward energy security.

Reaction from Canada has been quite negative. By delaying approval of this project, the Obama administration has not only cost jobs in communities across the US, but also squelched the development of an important component of Canada’s natural resource base. In fact, the end result may well be that this much needed energy goes elsewhere.

The irony of this delay is extreme given President Obama’s recent frequent use of the phrase “we can’t wait” in speeches and “pre-campaign campaigning.” The KXL pipeline is a privately-funded, shovel-ready project, putting tens of thousands of people to work and offering other benefits in terms of energy security and even the environment. To delay it another 15 months is a clear case of a political punt not only of an important job initiative, but also of our energy future.

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group ( He also serves as Institute Distinguished Professor of Economic Theory and Method at the International Institute for Advanced Studies.
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Your Opinions and Comments

Rock'n chair Rambler  
Over Taxed, TX  
November 17, 2011 8:28am
"We can't wait" for a new President.

Elaine K.  
November 16, 2011 7:57pm
New post.

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