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The pointless fight over Keystone

Some of more than 350 miles of pipe awaiting shipment for the Keystone XL oil pipeline project was stored in Little Rock, Ark.Associated Press/file 2014

On Wednesday, Republicans will inaugurate the new Congress by taking up a Senate bill to approve the Keystone XL pipeline that would connect oil producers in Western Canada to US refineries on the Gulf Coast. The House will vote on Friday. In the six years since TransCanada Corp. first sought US approval to build the pipeline, the debate over Keystone has, somewhat strangely, become one of the central fights in US politics. It’s about to get even bigger.

Several years ago, liberals looking for a cause to rally around settled on Keystone because the oil it would transport, extracted from tar sands, is especially damaging to the environment. James Hansen, then the director of NASA’s Goddard Institute for Space Studies, famously declared that if the pipeline goes forward and Canada develops its oil sands, “it will be game over for the planet.”


Conservatives seized on Keystone because it offered a clear example of liberals privileging the environment above the jobs the pipeline’s construction would create, an effective political attack in a lousy economy. President Obama’s anguish over whether or not to approve it only added to the appeal.

As a result, Keystone has attained tremendous symbolic importance for both Democrats and Republicans. But this is the opposite of how it should be — the political fight has become completely divorced from reality. The pipeline’s actual importance to oil markets, the economy, and the environment has steadily diminished. Whoever wins, the “victory” will be pointless and hollow.

The liberal claim that blocking Keystone would limit Canadian oil sands development, or even slow Canadian oil exports to the United States, has turned out to be wrong. Over the last four years, Canadian exports to the Gulf Coast have risen 83 percent. Last year, US oil imports from Canada hit a record high. This year, Canadian oil producers expect shipments to double.


One way producers achieved this is by expanding old pipelines and building new ones, such as the Flanagan South pipeline, which can transport 600,000 barrels a day of heavy crude. At the same time, the Canadian government has approved two new lines as a fallback to Keystone — one running east to the Atlantic, the other west to the Pacific — that avoid the United States entirely. Collectively, these projects dwarf Keystone’s 800,000 barrel-a-day capacity. “Keystone is kind of old news,” Sandy Fielden, director of energy analytics at RBN Energy in Austin, told Bloomberg News. “Producers have moved on and are looking for new capacity from other pipelines.”

On Monday, oil fell below $50 a barrel. But even plunging prices won’t halt oil sands development, at least not for many years. Although costlier to produce because it requires more energy and water (causing greater carbon emissions), oil from tar sands is actually less price-sensitive than other forms of crude. That’s because the cost structure is more akin to mining than convention oil drilling, as Bloomberg Businessweek’s Matthew Philips has noted. Oil sands operations require a large upfront investment, but they operate cheaply for many years thereafter. By contrast, fracked wells are quickly depleted, so US oil companies have already begun slashing future investment and laying off workers in response to falling prices.

Conservative claims about Keystone have fared no better. The notion that the pipeline would lower gasoline prices or cause meaningful job growth was always silly. A State Department study last year concluded that Keystone would create 35 permanent, full-time US jobs — about what you’d get from opening a new Denny’s franchise. Unemployment and gas prices have both fallen dramatically without it.


But the biggest misconception may be the idea that completing Keystone would benefit US businesses. In fact, the southern leg of the pipeline, from Cushing, Okla., to Port Arthur, Texas, was finished last year and has already improved US producers’ access to Gulf Coast refineries. The major beneficiaries of the northern leg — the one under dispute — would be Canadian companies such as Suncor Energy, Imperial Oil, and Canadian Natural Resources. “At issue in Keystone is not American oil, it is Canadian oil,” Obama emphasized at his year-end press conference two weeks ago. “It’s very good for Canadian oil companies and it’s good for the Canadian oil industry.” It doesn’t do much for US oil companies.

Nevertheless, in opening the new Congress by forcing a showdown over Keystone, Republicans ensure that it will become the first big political drama of 2015. The idea is to show they’re forging in a bold new direction, though they’re actually mimicking the last Congress by provoking huge fights over minor issues. Congress has already voted at least 10 times on Keystone. This time, with Republicans in full control, the pipeline will almost certainly be approved, forcing Obama to finally make a decision.

Whatever the outcome, its significance is sure to be overstated. If Obama vetoes the bill, as White House spokesman John Earnest said he would on Tuesday, he’ll deliver to liberals a victory that doesn’t carry the environmental benefits that were the purpose of waging the fight. If he signs it, Republicans will gleefully declare victory. But they won’t have won much, besides some new friends in Canada.



John Sununu: Keystone fight sealed Mary Landrieu’s fate

Editorial: Tie Keystone approval to bigger environmental goals

2013 | Joanna Weiss: Left’s money play on the environment

Joshua Green is national correspondent at Bloomberg Businessweek. Follow him on Twitter @JoshuaGreen.