What’s All the Fuss Over Keystone XL?

By Cameron Smith

At the end of 2014, the United States Senate failed to approve the Keystone XL pipeline by one vote. Democratic Senator Mary Landrieu of Louisiana, facing what would prove to be an unsuccessful election runoff battle in December, persuaded Senate Majority Leader Harry Reid to hold a vote on approving the oil pipeline.

The vote received significant attention in the media, but most Americans are still wondering why the Keystone XL Pipeline matters in the first place.

According to the Bureau of Transportation Statistics, the United States already contains more than 151,912 miles of oil pipeline delivering energy across the nation.

The Keystone XL Pipeline is a 1,179-mile crude oil pipeline originating in Canada and traveling south to Steele City, Nebraska. The 36-inch-diameter pipe crosses Montana, South Dakota, and Nebraska. When completed, the full pipeline will reach all the way to Nederland, Texas, less than 50 miles from Louisiana. The project will allow oil producers more economical access to Midwest and Gulf Coast refineries by efficiently transporting up to 830,000 barrels of oil per day.

So if Keystone XL accounts for less than one percent of the entire mileage of oil pipelines in the U.S., why is it drawing so much attention?

The pipeline has become a target for opponents of fossil fuels. The United States is already producing millions of barrels of oil every day from the Bakken formation, the Eagle Ford region, and the Permian basin thanks to new technologies permitting their extraction from oil shale. When Canada’s tar sands are added to the mix, America has access to incredible growing reserves of oil.

The massive oil production in North America has created tremendous downward pressure on oil prices. Low cost fuel is an incredible economic boost for businesses and consumers alike because the cost of energy touches just about every aspect of the economic supply chain.

For opponents of fossil fuels, low cost oil critically undermines their ideological agenda because price-driven Americans are more likely to consume lower-cost fossil fuels than other alternatives. If energy costs are relatively close, price selection becomes less of a factor.

At the end of 2014, the price per barrel of oil fell below $65, with Morgan Stanley predicting that prices will fall as low as $43 per barrel in the second quarter of 2015. That translates to quickly declining gas prices. Falling below $2.70 per gallon, the national average for gasoline has dropped to lows not seen for years.

The Keystone XL pipeline is quite literally a line in the sand, or tar sands, for those who seek to end fossil fuel use. If completed, the pipeline could make transportation for oil sands much more economical than other means of moving the oil to refineries. That is particularly important for extracting oil from tar sands because the extraction process is already more expensive than conventional oil production. By lowering transportation costs, Keystone XL could keep tar sands production economical even as oil prices fall.

According to the Wall Street Journal, the opposition to Keystone XL has already become a tactical strategy for opponents of fossil fuels. At least ten oil and natural-gas pipeline projects representing thousands of miles of pipe and billions of investments have either been delayed or opposed by environmental activist groups using Keystone XL as a template.

While opponents of fossil fuels have raised the public profile of the Keystone XL pipeline, it has also become a symbol of North America’s emerging energy dominance. Increasing domestic energy production at home and having allies like Canada, degrades the energy leverage of the Organization of the Petroleum Exporting Countries (OPEC). Every barrel of oil purchased from Canada or produced in the United States is one barrel of oil not purchased from OPEC member nations like Iran, Saudi Arabia, and Venezuela.

OPEC has taken notice of North America’s growing oil production and attempted to slow down the energy boom by maintaining their oil supply instead of artificially cutting their production to stop the free fall in oil prices. OPEC hopes that lower oil prices will render tar sands and oil shale extraction uneconomical and stop OPEC’s emerging Western competitors. Again, Keystone XL has the potential to make oil shale and tar sands oil more competitive by lowering transportation costs.

While the Senate failed to approve the Keystone XL pipeline at the end of 2014, incoming Senate Majority Leader Mitch McConnell has promised to bring up a similar measure early in 2015, and Republican majorities in the House and Senate will almost certainly put the measure on President Obama’s desk for his signature or veto.

Most oil pipelines in the United States do not have names that Americans recognize, let alone a full-scale political battle attached to their construction. The Keystone XL pipeline has become a thorn in the side of those who seek to eliminate fossil fuels, it has become a symbol of economic concern for OPEC, and it might just become a reality in 2015.

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