On Dec. 1, 2010, TransCanada Corp. hit send on a news release proclaiming the benefits of its Keystone XL pipeline. A new study, it said, showed that the $7-billion project would create 13,000 jobs, would spur a further 118,000 “spinoff jobs” and would “inject into the U.S. economy” $20-billion.
For Canada, Keystone XL also looked like a clear benefit, with 830,000 barrels a day of promised new pipeline capacity to accommodate the surging oil sands.
The numbers were clear, and they were big.
In subsequent years, they have grown less clear, and smaller. Virtually every aspect of KXL’s purported benefits has been carefully dissected, in particular in the United States, where the project has stoked a fierce debate that was revived again this week by senior U.S. officials, who questioned how much good it will do.
Amid the questions, TransCanada itself has acknowledged its numbers may not be gospel. “Everybody calculates jobs and the figures differently,” chief executive officer Russ Girling said in February. What he knows for certain, he said, is that on construction of the southern leg of KXL, which is ongoing, “we have 4,000 people employed. I can tell by the punch cards that are coming through.” Construction of the full pipeline, he added, will require “about 9,000 people on site. We know them job for job.”
Those are not, of course, “jobs.” They are temporary positions that will see workers spend a year or two laying pipe. The numbers don’t even use the standard measure of employment. TransCanada says, through a spokesperson, that its “estimates are not in person-years, they are specific positions that have to be filled on the project, some lasting months, others for the entire project.”
KXL’s promised benefits have been further reduced by completed spending. TransCanada has already poured more than $1.8-billion into the project. In a January meeting with reporters, Mr. Girling said the company had “ordered 100 per cent of the equipment that’s required for this. It’s bought and paid for already. ... The pipe’s been rolled and the pipe is actually on the ground and waiting to be installed.” In other words, whatever benefits flowed from that $1.8-billion have already accrued, regardless of whether it is built.
So what, then, are the benefits of KXL?
Steel pipe: All of the Canadian steel comes from Japan, through a Calgary company. In the U.S., 40 per cent of the pipe – which must be rolled from steel – is made in Canada, 50 per cent in the U.S. and another 10 per cent in India. The steel itself is imported:
40 per cent from Canada, 50 per cent from Europe and 10 per cent from China and South Korea.
Jobs, Canada: 442 (direct and indirect person-years, NEB), 2,200 (employment of all durations, TransCanada)
Salaries, Canada: $58-million (NEB)
Ongoing benefits, Canada:
$8-million a year in property taxes (TransCanada, 2009), $6.5-million a year (TransCanada, 2013)
Jobs, in person-years, U.S.:42,037 (State Department, full and part-time); 13,000 direct plus 118,000 spinoff (study done for TransCanada); 33,000 to 44,000 but “may actually destroy more jobs than it generates ... through rising fuel costs, spill damage and clean-up operations, air pollution and increased GHG emissions.” (Cornell University, total employment)
Salaries, U.S.: just over $2-billion (State Department)
Construction cost, U.S.:
$3.3-billion (State Department)
U.S. oil movement: 250,000
barrels a day (TransCanada)
Canadian oil movement: about 580,000 barrels a day (pipe capacity, less U.S. movement)
What impact would KXL have on Canadian energy production?
The U.S. State Department has said Canadian energy production would grow apace regardless of KXL’s construction, suggesting it will have little impact on Canadian oil and gas. Trains are carrying more and more oil, and TransCanada rival Enbridge Inc. is installing one million barrels a day of additional capacity on its system – although some of that, too, will go to transport U.S. crude. So even without KXL, Canadian oil may find other ways to market.
Some doubt that’s the case. Environmental groups believe stopping KXL will slow growth in the oil sands, and some financial analysts agree. Greg Pardy at RBC Dominion Securities has written that turning down KXL could result in the deferral of 450,000 barrels a day of oil sands output between 2015 and 2017. How much that costs the Canadian economy is difficult to calculate, although a barrel of heavy oil sands crude is currently worth $70 (U.S.). In very rough terms, that could be worth over $11-billion a year to Canada. But deferrals may constitute temporary hardship, given the likelihood that other alternatives, including new pipeline access to Eastern Canada, will emerge in future.
Lack of sufficient pipeline access could cause broader financial pain, however. Mr. Pardy estimates that without KXL, heavy oil could face a 25– to 30-per-cent discount in 2015-16 relative to West Texas intermediate, the benchmark North American light oil price. With KXL, that differential could narrow to 11 to 18 per cent, he estimates. Canada currently produces just under one million barrels a day of heavy oil. Although the math is rough at best, that price difference could strip some $12-million a day from Canadian oil patch revenues during those years.
Another factor: Pipelines are cheaper for the movement of crude. Truck, rail and barge movement can cost as much as $30 a barrel to the Gulf Coast. KXL will move oil for substantially less, leaving more profit for energy producers.