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The Keystone/Gulf Coast Pipeline System: A Catalyst for American Jobs and Energy Security

May 16, 2014

In just the past decade, the North American energy industry has undergone a rapid transformation. Thanks to technological advances in hydraulic fracturing and horizontal drilling, oil and gas production has surged from previously untapped U.S.

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In just the past decade, the North American energy industry has undergone a rapid transformation.  Thanks to technological advances in hydraulic fracturing and horizontal drilling, oil and gas production has surged from previously untapped U.S. shale rock formations. By 2016, the IEA projects that the U.S. will overtake Saudi Arabia to become the world’s top producer of oil.[1] In Canada, relatively high oil prices and new technology have enabled the profitable extraction of crude bitumen from the Athabasca oil sands in Alberta. Alberta’s oil sands are estimated to contain the second largest crude oil reserves in the world, behind only Saudi Arabia. Increasingly, this unconventional oil from Canada can wean North America off of its reliance on Middle Eastern oil.         

In December 2013, in an effort to address the declines of its domestic oil production, the Mexican government enacted constitutional reforms that ended the 75-year monopoly of Petroleós Mexicanos (PEMEX), the state-owned oil company. By opening up the country’s oil industry, international oil companies will finally be able to share in the profits from the sale of Mexican oil. These companies will bring advanced technologies to Mexico’s shale plays and offshore territories, reversing the decline in oil production that has plagued Mexico since 2005.[2] Mexican production declined from 3.38 million barrels per day (bpd) in 2004 to 2.52 million bpd in 2013.[3]

Together, these developments have given rise to the possibility of North America becoming a world energy superpower. Not only can the region achieve energy security by reducing imports of OPEC oil, but it can also became a net exporter of hydrocarbons to developing countries in Asia and Latin America. Global demand for energy is expected to rise 35% by 2035 as economies in both developed and emerging countries continue to grow and the standard of living improves in the developing world.[4] As North America weans itself off imported oil, the region will benefit from greater energy security while gasoline and diesel prices at retail will be less volatile and could even decline. However, for this boom to continue, and for energy security to become a reality, the pipeline infrastructure to support North American oil and gas production must be expanded.

The pipeline capacity needed to support the North American energy boom does not currently exist. Because of the shale boom and limited pipeline capacity to move crude oil, shipments of oil by railroad from Alberta and the Bakken have grown 25-fold since 2008. According to the North Dakota state Pipeline Authority, about 75% of Bakken oil left North Dakota on trains in April 2013.[5] Shipments by rail are likely to continue to rise if Keystone XL is not built. However, railroads are neither the most efficient nor the safest means of transporting oil. When a freight train hauling crude oil in tank cars jumps the rails, the damage can be devastating — as was the case with the tragic accident in Quebec in July 2013. By comparison, decades of use have proved that pipelines overall are overwhelmingly safe and reliable. Pipelines carry far more crude and have fewer leaks per mile. And when a spill occurs, repair and cleanup are relatively easy. According to the American Petroleum Institute, over the past 30 years the “spill rate” for pipelines has been only 38 gallons per billion gallons transported. For rail tank cars, the spill rate is 80.

Simply put, North America must build more pipelines. Despite environmental concerns, a pipeline is the safest and most efficient way to transport oil and gas. One of the most vital pieces of this transportation infrastructure is TransCanada’s Keystone Pipeline System. TransCanada is meeting the growing demand for energy across North America — and maximizing America’s pipeline infrastructure — through innovative and strategic pipeline solutions that will transport Canadian crude oil, as well as U.S. domestic crude oil, to key U.S. markets in the Midwest and U.S. Gulf Coast. Three phases of the Keystone Pipeline system have been completed. The fourth phase, the northern portion of Keystone XL, is awaiting approval by the White House. The Keystone Pipeline System means that more of the oil that U.S. refineries need will come from U.S. and Canadian sources, instead of from politically unstable countries in the Middle East and Venezuela.



[1] http://www.cnbc.com/id/101190132

[2] http://www.eia.gov/countries/analysisbriefs/Mexico/Mexico.pdf

[3] http://www.reuters.com/article/2014/04/26/mexico-reforms-idUSL2N0NI01F20140426

[4] http://www.capp.ca/library/statistics/basic/Pages/default.aspx

[5] Dan Murtaugh, “North Dakota’s Bakken Hits Record Oil Production Level in April,” Bloomberg.com, June 14, 2013, http://www.bloomberg.com/news/2013-06-14/north-dakota-s-bakken-hits-record-oil-production-level-in-april.html.

Article Tags
Energy Environment
Author
Bernard L. Weinstein is Associate Director of the Maguire Energy Institute and an Adjunct Professor of Business Economics in the Cox School of Business at Southern Methodist University in Dallas.
bweinstein@cox.smu.edu