Pipelines’ promises under scrutiny

Jobs, growth impact of KXL, Dakota Access

• TransCanada Corp. has quickly filed a new application to build Keystone XL, one of two big oil pipelines being given a second chance by President Donald Trump.

Former president Barack Obama rejected the Keystone XL in 2015. The Army Corps of Engineers put a halt to construction of the Dakota Access pipeline last month.

The move by Trump fulfils a campaign promise to revive the projects, which he says will create thousands of jobs and generate taxes for states and communities. However, the number of jobs created and the economic benefits have been hotly debated. Many experts believe any impact on the U. S. economy will be small.

Despite Trump’s executive orders, both projects face likely court fights by environmental groups, and the Keystone XL pipeline faces uncertain demand from oil shippers.

JOBS

According to a 2014 report by the U. S. State Department, Keystone XL would support about 42,100 jobs including about 3,900 workers directly involved in construction. Workers, including those indirectly supported by the pipeline, would earn about US$ 2 billion.

Once construction ends and oil starts flowing, the pipeline would support just 35 permanent jobs, according to the report.

The Dakota Access project has created about 12,000 construction jobs, according to project leader Energy Transfer Partners LP. But most sections of the pipeline are finished and most of the jobs are too.

ECONOMIC IMPACT

The State Department said that construction of Keystone XL would contribute around US$ 3.4 billion to the nation’s output. The companies building the Dakota Access pipeline say they have spent more than US$ 3.5 billion and would spend “hundreds of millions a month” to finish the work.

Those sums, however, are insignificant in the US$ 18 trillion U.S. economy. The XL pipeline would contribute about 0.02 per cent to the nation’s GDP.

“The macroeconomic implications of the latest executive orders on their own will be relatively minor, in our view” although Trump’s orders “reinforce the message that the federal government has become much more pro- business,” said Jim O’Sullivan at High Frequency Economics.

Environmental groups say the pipeline companies are overstating the economic benefits of their projects and understating the impact of using oilsands oil, which they say generates higher carbon emissions in production than other crude. A civil engineer at the University of Nebraska concluded that TransCanada also significantly underestimated the likelihood of major pipeline spills.

TAXES

The State Department estimated Keystone XL would generate US$ 70 million in additional state and local taxes during construction and US$55.6 million in property taxes once the pipeline begins operating.

The Dakota Access companies estimate that the project will result in US$156 million in sales and income taxes during construction and US$55 million in annual property taxes.

OIL

Keystone XL would carry about 830,000 barrels a day from Alberta to Nebraska. TransCanada, which is seeking US$ 15 billion in damages from the United States over the 2015 rejection of its previous application, said it reapplied on Thursday. The State Department has 60 days to make a decision.

At an investor conference earlier this week, TransCanada CEO Russ Girling was optimistic but not convinced Keystone XL can get built because of uncertainty about demand from oil producers.

“I believe the economics for this project are still there, but we’ll see,” Girling said. “This wasn’t in our planning horizon in the middle of last year. We only have just re-engaged with our shippers on that topic.”

Afolabi Ogunnaike at Wood Mackenzie said rising costs, continuing opposition and competition from two other planned pipelines will complicate XL’s future.

“This could be a race to get shipper commitments and a race to build,” he said. “Maybe only two of the three pipelines get built.”

Some of the biggest producers of oilsands oil or bitumen are Canadian firms including Suncor Energy Inc. and Canadian Natural Resources Ltd. Other big producers include Texas- based Exxon Mobil Corp.

The US$ 3.8- billion Dakota Access project would carry about 500,000 barrels of oil per day of from North Dakota to Illinois.

MADE IN USA

Trump signed a separate memorandum last week that could lead to a requirement that new and retrofitted pipelines within the United States be built with U. S.-produced materials “to the maximum extent possible and to the extent permitted by law.” But much of the Dakota Access pipe is already laid, and TransCanada has stockpiled much of the pipe it would use for Keystone XL — much of it foreign.

Vicki Granado, a spokeswoman for Energy Transfer Partners, said 57 per cent of the pipeline used in the Dakota Access project was bought from manufacturers in Louisiana and Arkansas. That was the total U. S. capacity available when it was ordered, she said.

TransCanada spokesman Terry Cunha said “a majority” of XL’s pipe has come from the U. S. and Canada — he declined to break out the U. S. share. The firm said in 2012 that three-fourths of the pipe laid in the project’s U. S. section would come from the U. S. or Canada, with the rest from Italy and India.