The Trump administration finally got the Keystone XL pipeline going, but with Democrats threatening to yank necessary permits, the project could grind to a halt before any oil flows through it. It has been 12 years since the Keystone XL pipeline was first proposed, and many wonder if it will even be necessary by 2023, the date that owner TransCanada predicts it will open for use.
The first time I wrote about the Keystone XL pipeline was in 2013. In “Pipe Dreams: How Many Jobs Will Be Created By Keystone XL?” At the time, potential jobs created were a big issue as the U.S. economy was still struggling with its long recovery from the 2008 recession. Using the Trans-Alaskan Pipeline as a point of comparison, I showed how difficult it is to actually estimate the number of direct, ancillary and spin-off jobs associated with a pipeline project and that large pipeline projects can have unintended impacts on local economies for years to come. However, even if pipeline proponents often over-estimate the number of jobs the project will create, oil pipelines still have many benefits, including safety (compared to other forms of energy transportation) and national and regional energy security.
Throughout President Obama’s second term, a debate over the pipeline continued. The debate was whether the benefits of a pipeline that would bring oil from Canada’s tar sands region and North Dakota’s shale oil producing regions down to the U.S. Gulf Coast outweighed the potential environmental negatives. In November 2015, the Obama administration decided the pipeline would not serve U.S. interests and declined to approve its construction.
However, interest in the Keystone XL pipeline returned during the 2016 Presidential campaign. I revisited the topic in 2017, after President Trump signed an executive order that raised promise for the pipeline. In “Here Are The Jobs The Keystone XL Pipeline Would Create,” I noted that President Trump’s executive order was designed to advance the construction of the Keystone XL pipeline. After that, TransCanada resubmitted its application for the pipeline and a few months later, in March 2017, the State Department approved that application upon determining that the pipeline was in America’s national interest.
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Construction on the pipeline is underway in Canada and is progressing across the border into the United States, although there are have been some further legal challenges that have complicated progress. During the 2020 presidential campaign, Joe Biden’s campaign issued a statement promising that Biden, if elected, would rescind the permits for the Keystone XL pipeline. Prominent environmental groups are pushing Biden to follow through on that promise, though according to a new report issued by the Rainforest Action Network, the Trump administration is trying to make it very difficult for any future administration to kill the project.
Some argue that the Keystone XL pipeline won’t be useful since the current low oil price environment has cut oil production in Canada and the Bakken shale region of North Dakota significantly. They point to prominent forecasts like BP’s Energy Outlook, which posits that oil demand may have already peaked. On the other hand, financial institutions remain committed to financing the project despite the uncertainty.
The reality is that we have no idea what is going to happen to oil demand or oil prices in the future. The Keystone XL pipeline would business more profitable for oil producers in Alberta (thus incentivizing them to produce more), because it would lower transportation costs. In the past, the expense of transportation has limited production. Other forecasting institutions, like Goldman Sachs GS , believe that oil demand will come roaring back and will grow to 102.5 million bpd in 2022. If so, a lack of investment during this current down-cycle will push prices up and make Canadian and North Dakotan oil production not only viable but valuable.