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Five Fallacies of the Keystone Oil Pipeline

There's been a lot of buzz about Keystone oil pipeline recently, but unfortunately, the facts about the project have been obscured by political wrangling.

That's not good for the investors who have money at stake. So here's what you really need to know about the Keystone oil pipeline – and more importantly, the five biggest fallacies being espoused by unscrupulous politicians and the debate-warping mainstream media.

First proposed by TransCanada Corp. (NYSE:TRP) in 2008, the 1,700-mile Keystone oil pipeline would carry 700,000 barrels of crude per day from the Canadian oil sands in Alberta to refineries in Port Arthur, TX.

As far as facts go, that's about all the politicians in Washington agree on. Now here's where the truth ends and the spin begins:

Fallacy No. 1: The Keystone pipeline will create 20,000 jobs … or 100,000 jobs.

TransCanada commissioned a study that said construction of the pipeline would create 20,000 construction jobs, and more than 100,000 spin-off jobs. Republican (and a few Democratic) supporters have been only too happy to repeat these numbers in speeches in support of the pipeline.

The State Department, in its study, came up with a more modest figure of 5,000 to 6,000 construction jobs.

The discrepancy comes from how the TransCanada study calculated the jobs. That study used a "one person, one year model." So if it takes 6,500 workers two years to build the pipeline, that's 13,000 jobs, with the other 7,000 coming from supply manufacturers.

And if that math isn't fuzzy enough for you, take a look at the calculations for the 118,000 spin-off jobs.

That number is based on the one person, one-year model in addition to something called the multiplier effect, which takes the capital costs of the project and feeds it into a formula. In short, these job numbers are about as reliable as a politician's campaign promise.

And yet one more delicious irony: Back in 2009, Republicans complained that the $787 billion stimulus package failed to create long-term stability given that many of the jobs created only lasted as long as the public works projects that were proposed.

Democrats defended the temporary nature of the employment, arguing that it was a necessary step in order to boost economic demand around the country. Now it's the Democrats arguing that the Keystone project fails to create permanent jobs, while Republicans argue the project is needed to combat unemployment.

Fallacy No. 2: Keystone pipeline will increase greenhouse gases, worsening climate change.

Well, yes and no.

The argument from Democrats is that the process of extracting the oil from the Athabasca fields will generate greenhouse gases. Sure enough, it does. But stopping the Keystone pipeline won't change that unless it prevents production, a long shot at best.

You see, the Keystone pipeline isn't the only game in town. At least one other proposed pipeline would run across British Columbia to Canada's west coast, where it would be exported to Asian markets.

The greenhouse gas impact studies assume no Keystone pipeline means no production from the Athabasca oil sands, and assume as well that the Keystone pipeline would pump nothing but oil sands product at 100% capacity 100% of the time – not likely.

The true impact of the Keystone pipeline on global greenhouse gas emissions isn't clear, but would be far lower than its opponents claim.

Fallacy No. 3: The United States is dangerously reliant on hostile energy sources.

Republican presidential candidate and former Utah governor Jon Huntsman claimed in a November speech that the United States spends $300 billion a year on oil imports from "unfriendly regimes."

While the dollar figure is about correct, much of that imported oil is coming from nations friendly to the United States.

According to the Energy Information Administration (EIA), countries in the Western Hemisphere supply 49% of our imports. In 2010, Canada supplied 25%, Saudi Arabia 12%, Nigeria 11%, Venezuela (a Western Hemisphere unfriendly) 10%, and Mexico 9% last year. Only 18% of U.S. oil imports came from the Persian Gulf.

What's more, we're seeing an increase from our friendly neighbors. Crude figures through August 2011 show Canada still in that 25% range, with Mexico now second, at 12.7%.

Second, while the United States does do business with some unfriendly trading partners, so does every other country in the world. The rising costs of energy have less to do with political tension between the United States and its trading partners, and more to do with the combination of growing demand in China and other emerging economies, as well as supply concerns stemming from the reduction in easily accessible sources of energy.

Fallacy No. 4: The Keystone pipeline will improve our long-term energy independence.

Republican candidates and pundits have argued that the pipeline is essential for the future energy security of the United States. However, this view is sorely misguided.

The pipeline will connect refiners, as Money Morning Global Energy Strategist Dr. Kent Moors recently noted in his Oil & Energy Investor newsletter. The oil that reaches Gulf refineries could ultimately be consumed in the United States, but the finished products could just as easily be exported to China, Japan, or any other oil-hungry nation.

Energy companies will look to sell their oil to the highest bidder.

In fact, the United States is currently a net exporter of gasoline. In September, the U.S. exported 430,000 more barrels of gasoline than it imported. The country is now on track to become a net exporter of refined oil products for the first time in 62 years.

Meanwhile, domestic prices at the gas pump are poised to rise to record levels.

Because of the nature of the global oil market and domestic supply, the Keystone pipeline would contribute very little, if anything, to U.S. energy independence.

Fallacy No. 5: The Keystone pipeline could result in a disastrous oil spill.

This is another point opponents have made that, while not exactly wrong, is misleading.

Just about every energy project carries the risk of an accident. The real question is whether, for any given project, that risk is acceptable.

If governments cancelled energy projects on the basis that a bad accident could happen, very few would ever be approved, including oil pipelines, natural gas fields, and nuclear power plants. We'd all be sitting in the dark.

The State Department's study of the Keystone pipeline said there are reasonable ways to manage the environmental risks. And pipelines are generally considered the safest way to transport oil.

Another complaint made by Democratic opponents is that the pipeline would cross the environmentally sensitive Sand Hills area in Nebraska, which sits atop the Ogallala Aquifer.

That, too, is wrong.

TransCanada in November reached an agreement with Nebraska officials on an adjustment to the pipeline route that would detour around the Sand Hills region, negating that objection.

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Join the conversation. Click here to jump to comments…

  1. Dave Truitt | December 20, 2011

    Would stabilize our market in time of war.Religious wars,Saudia Arabia?

  2. Observer | December 20, 2011

    My brother who is overly concerned about the environment came into town recently and had printed material about the evil pipeline. I asked him how he got here. He drove a car of course. I told him that until he burns less oil he should not criticize how that oil is produced. It is about as dumb as people who talk animal rights as they eat a hamburger.

    • Chuck | October 28, 2013

      Yeah, I'm sure you'd discuss this topic objectively with someone who only walks or bikes someplace.

  3. Scott | December 20, 2011

    It seems as if you are a financial liberal, and you have decided to report data that is untrue in the amount of jobs the Keystone Pipeline will create. I noticed that you only included construction jobs for TransCanada. What about all the subcontractors that will be on site? What about all the administrative personnel? What about the maintenance crews that will be needed during and after the completion of the pipeline? If you are not familiar with the industry, and using inaccrurate data to convince your reader to jump on your bandwagon, then maybe you should stick to reporting on money.

  4. George | December 20, 2011

    A good article that cuts through much of rhetoric that surrounds this issue.
    It would be nice if those for and against the pipeline tried more to do the same. Making an informed decision would be much easier.

  5. Jeff Pluim | December 20, 2011

    Are you calling Saudi Arabia a "friendly" state?????? Isn't that sorta like calling Pakistan a friendly state?
    And if the pipeline is not approved, as the oil consumption of the USA increases, the percentage of oil provided to America by Canada will decrease. Who then becomes the greatest suppier of oil to America? Friendly or unfriendly countries?? A veto of the pipeline will also affect long term relations with America's closest and largest trading partner, Canada. Who do you think Canada will want to grow trading relations with, should the pipeline be veto'ed? China, that's who. How strategically wise would that be for the USA.

  6. andrew robinson | December 20, 2011

    Very good article but I believe your statistics regarding the source for US oil is inaccurate unless somehow Saudi Arabia has been moved from the Persian Gulf to the Western Hemisphere, a move that might be good for Western security interests would be distressing for Muslims as they reassess the direction to Mecca when they do their prayers.

  7. Ed | December 20, 2011

    Look at just one item. Look at the loading site and inside passage route of the new Gateway west coast oil export depot. This will be war. I even give you odds and I don't bet.
    Ed the grocer

  8. Earl Richards | December 20, 2011

    The only jobs created by the oil industry are clean-up jobs after oil spills and deep-water, blow-outs and pump-handler jobs. Keystone will not have a significant influence on permament, job-creating. Keystone XL will not give America energy independence, because the petroleum products from Keystone are going to be exported.

  9. Bob | December 20, 2011

    Mr. Zieler, while you are technically correct I beleive on all acounts, there is still more to it. Regarding fallacy #1: The 20,00o jobs are real. They are "term jobs" but they are real. Assuming these men and women work on this job are not working otherwise, then that is a good thing that they are now working! If these men and women are seasonal workers, working on this job as opposed ot another seasonal job, then someone else is taking their seasonal work and that is the same good thing – a net plus! Whether or not it is a person year or whatever it is still good. Regarding fallacy #2: Right on. I say it might as well be the USA buying it though. Fallacy #3: If one were to assume that Venezuela and the Presian Gulf are volumes that are "at risk" then that is 28% of our consuption/supply is "at risk". That is a catastrophic amount! We all know that any time a refinery has a "burp", gas prices rise… Fallacy #4: C-mon… If we are just talking volumes of "Stuff" then we net exported about 1/2 days worth of the Keystone Pipelines throughput… The difference is Gasoline (refined product) vs. Crude oil. We import around 20MM barrels of crude every day – which refined products are refined out of. Gasoline, diesel and loads of other things (even lipstick products) are refined out of Crude oil. Refined products or gasoilines are just part of that amount. So 430,000 bbls are really a drop in the bucket are are probably regionally due to over capacity in that particular region or due to "blips" that occur with supply and demand. Whether or not it would make the US more independant – well it would w/o a doubt to some degree. in theroy it would or could offset about 8% – 10% of someone elses oil (Venezuela I hope) when the line is ramped up to the 800,000+ bbls/day it is slated for. Fallacy #5: You got it! Maybe we should not walk outside because we might get hit by lightning….

  10. Isaak Banman | December 20, 2011

    This description below is contrary to your's. I am way down on BPZ. Please respond to me on this, giving your opinion.

    BPZ Resources Inc. (BPZ): BPZ is engaged in the exploration and production of oil and natural gas primarily in Peru and Ecuador. On Thursday, Director Gray Gordon sold 20,000 shares (regular sell). This is in addition to the 30,000 shares that he sold on Tuesday. Overall, insiders at BPZ sold only a total of 127,652 shares in the last three months (buying none). BPZ currently trades within striking range of its all-time lows as revenue growth is expected to slow down to the low single digits, and the company is expected to keep incurring losses going forward, at least until 2012.

  11. roman | December 20, 2011

    As a Canadian this article gives me a somewhat objective look at the US point of view, and also clarifies some of the numbers my government has been throwing about. Oil spills are too often becoming the accepted collateral damage for our dependence on this source of energy. On the other hand, please wake me up fast when an opponent of oil energy appears on TV from a station that is only powered by wind, solar, and critter energy.

  12. Bernard Durey | December 21, 2011

    There seems to be a lot going on with the oil pipeline. We have one very knowledgeable and very involved in the oil and energy industry and has been for years. He may not always be right but he certainly isn't always wrong either. He has been pushing this "oil constriction" isssue. Not oil construction but oil constriction. That has haqppened at the Cushing,Oklahoma location and probably other areas. You also have TransCanada's rival which recently purchased the pipeline between Cushing,Oklahoma and the Gulf Coast. But what is going on with Trans Canada and the tar oil sand crude? You still have U.S Politicians trying to get this done expeditously. However,we aren't even for sure that it may come across the United States. There is language out there that they could run it across British Columbia and thenexport it to Asia. So that in and of itself has some questions to be considered. Does Canada have Envrionmental Impact Statements for pipelines crossing Canada? Are the refineries capable at this time to refine the tarsoil sands crude or do they need to refurbish their reineries or can Asia perhaps refineit and are their refiners capable of refining it or do they need to be refurbished to be able to refine tars oil sands? If they come across the United States the sweet crude oil coming out of the Bakken might be possible to mix with it and attempt to dilute it down some before it hits a refinery. However that might depend upon what the crude would be used for and the export issues of Canada and the United States combined toother countries would certainly have to be considered. So thus Mr. Moore may or kentmay very well be right on target with the "oil constriction". He is also predicting that at the pump price here in the United States will reach $5 per gallon in the year of 2012. Imported crude will or is suppose to hit $150 or so. The magical profit or drill baby dril foroil is probalby around $50 to $55 today before they would consider shutting down or capping wells,etc. One thing we haven't heard much about is back afew years ago like 2003-2004 some people were saying we needed more refineries. What happened in the past in the U.S. hen refineries were closing down? Could we in the long run see the same thing or will there be the potential for an oil blackmale in the world some where and be fuel for the next war?

  13. Bernard Durey | December 21, 2011

    Sorry about any typographicals in the above comments or mispelling of words. I also forgot one item that has been talked about very little in reference to tar oil sands. We already have the Keystone Pipeline project in. They had problems at Cushing,Oklahoma with what they called an oil glitch or glutch. However,that crude oil has ahd to have been processed some at Cushing Oklahoma as well as the refinery in Illinois. So have they tested it with their refineries going into the process as well as coming out to see how the equipment is holding up etc.? Doesn't seem to be any mention ofit in this Keystone XL debate. Might be worth a little time to investigate what has relly taken place at the refineries that are already processing tar oil sands crude.

  14. Sara Porter | December 23, 2011

    This was my reply from Sen. Rand Paul when I voiced opposition. The "myths" you mention are declared facts by Sen. Paul — Sara M. Porter

    Dear Ms. Porter,
    Thank you for taking the time to contact me regarding the TransCanada Keystone XL pipeline (Keystone XL).  I appreciate hearing your thoughts on this issue. 
    The beginning stages of the Keystone Pipeline System were started in 2005, with the first phase completed 2008.  The original Keystone Pipeline has been used since 2008 to transport crude oil from Alberta, Canada, to oil refineries in Illinois and Oklahoma.  Following the completion of the first Keystone pipeline in 2008, TransCanada proposed an extension and expansion to create the Keystone XL, which would transport oil to our refineries on the Gulf of Mexico. Upon completion, this system would provide 1.1 million barrels of oil per day, or approximately 5 percent of current daily U.S. consumption. 
    Since 2008, the Obama Administration has impeded the construction of the Keystone XL by delaying its final approval. Finally, on Nov. 10, 2011, the State Department announced that a final decision on the pipeline would not be made until an alternative route through Nebraska has been reviewed. Perhaps coincidentally, this action would postpone any final ruling until after the 2012 presidential election.
    This evidences an egregious disregard for the economic and energy security of our country on the part of the Obama Administration. Rather than create thousands of jobs, expand America's refining capacity, and strengthen our unique partnership with neighboring Canada, the President has elected instead to punt, in order to appease environmental extremists. I believe this project should be allowed to move forward, and will support any legislation to force a decision on its approval sooner than 2013.
    Again, thank you for voicing your concerns.

  15. Diana Nadanyi | December 27, 2011

    Will they put pigs in these pipelines? But more important will they allow the pigs to actually work the way they are designed to work or will we have explosions to save money and time?

  16. Tim | January 2, 2012

    My understanding is that the oil from Alaska is sent to Japan and we do not use any of it. Please correct me if I am wrong with stats and not opinions. I am still up in the air over the Keystone pipeline but I would like to see the U.S. lean more toward wind & solar in the future and get weaned from coal oil and nuclear. We would need to upgrade our electrical grid to do this but I would think in the long run this is the answer. As far as electric cars, I would think the batteries would eventually be an environmental problem just as the nuclear waste from the nukes.

    • lee | March 23, 2012

      Well Tim

      How ya goin" put solar panels or windmill blades on a 747??
      on a drone? on a tank??

  17. Reay Services Group | January 7, 2015

    Thanks for the facts! I am still confused about the number of jobs it will create. I’ve read somewhere it will only create 2,000 jobs. Which is which.

    • David Zeiler | January 7, 2015

      It's hard to give exact numbers, but the construction phase should generate about 13,000 jobs. But studies since this article was written three years ago indicate the pipeline will generate only about 50 permanent jobs after construction is complete.

  18. Reay Services Group | April 24, 2015

    Thank you for your reply, David. Hmmm. 50 permanent jobs. That’s surprising considering how huge this project is. Well, we can just hope for the best. Will stay tuned in. Great article!

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