On February 8, Charles Ebinger took your questions on the Keystone XL pipeline project and analyzed its potential economic and environmental impacts in a live web chat moderated by POLITICO.
12:30 Emily Howell: Hi everyone, let’s get started.
12:31 Comment From Anne: What is the current status of the Keystone project? Does the project still have life?
12:33 Charles Ebinger: The current status of the Keystone project is that it’s very much alive. The president’s decision was a postponement, not an outright rejection, and he has made clear that after further review of an alternative route bypassing the Sand Hills in Nebraska his administration will make a final determination.
12:33 Comment From Tony: What possible economic benefits could the pipeline project have for the country?
12:36 Charles Ebinger: The Keystone pipeline would have tremendous economic benefits. The actual construction would create about 20,000 jobs during the construction phase. Small towns through which the pipeline passes would see economic benefits servicing workers. It would also provide jobs in Texas and the Gulf Coast at refineries that are currently operating below capacity by providing feedstock and, hence, more American jobs. And finally, over the longer term, it would allow some of the new oil along the Montana/North Dakota border to find additional export outlets, producing additional jobs for those who produce the oil and at the refineries.
12:37 Comment From Karen K: Was the president right to postpone approval?
12:40 Charles Ebinger: The president had a difficult situation over the timing of his decision because the Republican-led Congress tied a quick approval of the pipeline to the additional financing of unemployment benefits. So it was difficult for the president to have the further review of the pipeline route occur within the timetable set by the Republicans. Nonetheless, some people felt that enough reviews had been done and that the second round of reviews was unnecessary. In my opinion, the rational thing would have been to approve the pipeline pending an agreement between TransCanada and the state of Nebraska over an alternative route through the Sand Hills.
12:41 Comment From Ken: Today’s FT has an article on Canada oil prices, which highlights the increasing transportation capacity issues facing the Bakken/Oil Sands regions. In light of the delay in XL, what other options are being considered to match transportation with supply, and what other countries have the refining capacity to handle bitumen?
12:45 Charles Ebinger: There are other pipelines between the United States and Canada that, with some minor modifications, could take a great deal of the oil sands currently available. But the oil sands are continuing to increase volumetrically in production. For example, currently in Western Canada total oil production is about two and a half million barrels a day. That is both oil sands, which are about 65%, and conventional oil production. It’s estimated that by 2020, we may see Western Canadian production rise to five million barrels a day, of which about 75% would be from oil sands. So at some point, we will need additional capacity to move the oil sands, but there are other alternatives now if the pipeline isn’t passed.
The Canadians are also looking at the prospect of shipping the oil to Asia because they see the U.S. as a questionable partner in the wake of the president’s decision. But economically, it makes far more sense to ship the oil to the United States than to ship it to Asia and there are some serious environmental questions related to expanding port facilities in British Columbia.
12:45 Comment From Jasper: What are some of the most serious environmental concerns the pipeline project raises?
12:52 Charles Ebinger: Critics of the pipeline have argued that the production of tar sands releases higher volumes of carbon dioxide and other pollutants than conventional oil production. Cambridge Energy Research Associates, a major oil consultancy, has done a major study suggesting that the difference is relatively small (7%), and with technological improvements will continue to fall. To place this debate in context, we should note that we have some offshore heavy-oil production in CA that is as or more polluting in terms of emissions as the oil sands.
There have also been some concerns expressed about the original pipeline routing through astern Nebraska, which is an environmentally sensitive area, and it is likely the pipeline route will be changed. Further, there have been concerns that if the pipeline were to have an accident, oil might spill into the Ogallala aquifer which is a source of fresh water for many ranching and farming areas in the center part of our country. But it should be noted that in OK, which covers the aquifer, there have been pipelines crisscrossing this region for many years without any water contamination. Interestingly, the ranching and farming interests who raise concerns about polluting the aquifer are themselves responsible for polluting the aquifer because of the large amounts of fertilizer and chemicals used in ranching and farming. So in some sense, we have the pot calling the kettle black.
12:52 Comment From Christy: If built, will the pipeline lower gas prices in states south and east of the Cushing hub?
12:55 Charles Ebinger: It is difficult to tell what the impact would be on prices south of Cushing, OK as we are talking about a worldwide-traded commodity, and there are many factors that could impact the price that have nothing to do with the pipeline. For example, if the pipeline were in effect today and war broke out with Iran, we might see the price of oil rise everywhere. But in general, more oil being processed in the refineries south of Cushing should lead to greater supply of petroleum products, providing greater competition and downward pressure on prices. Personally, I think there will be little impact up or down.
12:56 Comment From Tenley H: Aren’t we just investing more money in a doomed industry? Sooner or later, the world will run out of oil. Shouldn’t we be trying to build sustainable energy sources?
1:04 Charles Ebinger: We should of course build sustainable energy resources and develop our tremendous wind resources in the center part of the country and also the east coast and solar power in the southwest, but the reality is that we have to differentiate what sectors of the economy we are talking about. Right now, we use almost no oil in electricity generation—most comes from coal, natural gas and nuclear (together about 90%). So we are going to be stuck with oil in the transportation sector (gas and diesel) for a long number of years—even the most optimistic forecasts for electric vehicles say we might have 10 million by 2020 or 2025. But keep in mind, on American roads we have 260 million vehicles running on gas and diesel. When you look at the rest of the world and fast-growing India and China, car consumption is going through the roof, and while electric vehicles will play a role, for at least the next 30 years it’s unlikely that gas and diesel won’t be the predominant fuels.
And we have the added problem in the U.S. that with natural gas prices down around $2.50 per million btu, we are beginning to see natural gas block some wind projects because wind projects are more expensive at that price level. So the best policy we can embark upon is to try to accelerate the development of cost-effective electric vehicles, convert our large-scale 18-wheel trucks to liquefied natural gas, try to convert every vehicle fleet (school busses, delivery vans, taxis) to compressed natural gas wherever geographically possible in the country and continue to make conventional cars as fuel-efficient as possible with technological change.
1:04 Emily Howell: Thanks for the questions everyone!
[Investor-state dispute settlement] has not brought public interest regulation to a halt in the past and I don't think we should assume that will happen now.