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On Tuesday, Donald Trump signed executive orders to move forward on the Keystone XL and Dakota Access oil pipelines. Both projects have been very controversial and served as reminders that policy decisions in the energy sector have impacts well beyond it.
Of the two, the Dakota Access has been the more recent contest but also the one most fully advanced. About 90% of the line is completed and oil could begin flowing as early as the end of this year.
The route has been altered to address some of the Native American objections to having a pipeline crossing sacred land. But environmental concerns, especially over water reservoirs, remain.
In other words, the problems and protests in North Dakota will certainly remain.
Keystone XL has been a much longer, multiyear battle – and a very different matter. And regardless of what D.C. wants, there are some big hurdles to clear before the pipeline could be finished.
Here's why I wouldn't hold my breath…
The Existing Keystone Segments Are Already Helping
In fact, what's under discussion is the last of five Keystone segments, with the other four already in use. The entire system is designed to move Canadian heavy oil (mostly Alberta's oil sands) to petrochemical complexes on the U.S. Gulf Coast and elsewhere.
The stumbling block for XL was the additional approvals required from the U.S. Department of State, on the grounds that the pipeline would cross an international border. The primary issue has been environmental. Extracting oil from the Albertan oil sands creates far more pollution and environmental harm than standard oil production.
Five of the larger refineries in the Midwest have already completed multibillion-dollar refurbishments to upgrade and process the crude. The existing pipelines that feed them are currently running at capacity, but the refineries themselves could process much more oil. So there are ready buyers waiting for the additional crude that Keystone XL can transport.
The working sections of Keystone have already decreased the surplus crude stockpile glut at Cushing, Okla. That glut had been a contributing factor in depressing America's domestic oil prices for a simple reason…
"Pass-Through" Exports from Canada Won't Benefit Us
Cushing is the largest interconnection of transit pipelines in the country, and the location where the daily price is set for WTI (West Texas Intermediate, the benchmark crude traded in New York).
The additional throughput to the Gulf provided by existing Keystone segments has allowed a better overall pricing for oil products – especially gasoline – and has served to improve U.S. exports of gasoline, diesel, and other distillates. In fact, American refineries currently lead the world in the export of oil products.
And a bit over a year ago, Congress reversed a four-decade policy, finally allowing crude oil to be exported. At the time, the idea was to provide a boost to U.S. production by opening a new, and higher-priced, foreign market for U.S. oil companies.
That export market may start growing with Keystone XL's potential introducti…
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.