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TransCanada Corporation (USA) (TRP), Exxon Mobil Corporation (XOM) – Everything You Need to Know About Keystone XL: The Debate

By now, you’ve probably heard about TransCanada Corporation (USA) (NYSE:TRP)‘s Keystone XL pipeline. For even the most casual observer of the energy industry, this project has been the spark that has ignited political debates ranging from environmental hazards and emission of greenhouse gases to North American energy independence. In Tuesday’s speech on climate change, President Obama made a point to discuss the Keystone XL pipeline and its role in the United States:

Allowing the Keystone XL pipeline to be built requires a finding [from the Department of State] that doing so will be in our nation’s interest … [which] will be served only if this project does not significantly exacerbate the problem of carbon pollution. The net effects of the pipeline’s impact on our climate will be absolutely critical to determining whether this project is allowed to go forward.

TransCanada Corporation

There are clear environmental concerns that several people have regarding the construction of this pipeline, but the story is so much more than that. Check back at our breakdown of the economic fundamentals of the pipeline here. To help better understand the entire story of the Keystone XL pipeline, we at the Fool want to give investors a better look at what the Keystone XL means for all parties involved. In this part, we’ll look at what needs to happen for the pipeline to pass and examine the different sides of the debate.

Getting approval
The Keystone XL pipeline is an expansive project that travels 1,179 miles and crosses through three states as well as an international border. It has to get approval from a multitude of state and federal governments before it gets built.

Approval of the pipeline has been a long process. It has also required a revision of the original route. The first plan for the Keystone pipeline was to run through Nebraska’s Sand Hills region, the largest wetland in the United States. After negotiations with the state of Nebraska, the pipeline route was changed to avoid this environmentally sensitive area. So far, the only pending approval that’s required is a presidential permit through the Department of State.

The State Department is the only body left needed to approve the pipeline, so the president will have the final say. Based on his statements at his most recent speech, a large emphasis will be put on how the pipeline will affect carbon emissions in the United States.

Opponents of the Keystone XL
For the most part, the argument against the Keystone XL is centered on environmental concerns. One big sticking point for opponents of the pipeline is the potential for spills. Recent spills in both Canada and the U.S. have certainly increased awareness about this possibility. The most visible spill of late was at Exxon Mobil Corporation (NYSE:XOM)‘s Pegasus pipeline in Arkansas. The pipeline spilled between 5,000 and 7,000 barrels of heavy oil coming from Canada and headed to the Gulf coast.

These kinds of spills are concerning because of the previous proposed route for the pipeline. The southern leg of the pipeline traverses the Ogallala Aquifer, a massive underground body of water that is close to the surface and is responsible for a large part of the Midwest’s groundwater supply. There are large fears that a spill could contaminate an already highly stressed water source and could have a detrimental effect on farming in the region. As part of the route revision to avoid the Sand Hills region, the new proposal will avoid traversing the aquifer as much as possible.

There have also been some fears that Canadian tar sands are more corrosive than other oil types and could increase the risk of oil spills. But a recent study by the National Research Council, part of the National Academy of Sciences, recently released a report stating that oil sands don’t pose any greater risk of spill than other types of oil.

The other large argument against the Keystone XL pipeline is that oil sands are a more greenhouse gas-intense oil source than other sources. Unlike traditional oil, which we drill wells for and pump out of the ground, oil sands are exactly that — oil trapped in sands. To use this resource we need to mine it like other minerals and upgrade it by melting the oil off the sand. Some new techniques are being used that heat the sands in situ, which means the oil can be extracted through wells. Either way, though, the process of extracting these resources does normally require more energy, and hence more CO2 emitted, per barrel extracted. Some of the more difficult to produce can emit up to 2.5 times more CO2 per barrel extracted than the average barrel consumed in the United States.

One of the benefits both TransCanada Corporation (USA) (NYSE:TRP) and its allies have touted for the project is the prospect of jobs in the United States. How many jobs? Estimates from various sources project jobs related to the Keystone XL of between 35 and 553,235! The higher number is 0.3% of the entire American labor force.

Why such a large disparity? Well, it’s all in the way that you measure it. The Perryman group study with that big jobs number makes the assumption that oil prices will reach the peak from the summer of 2008 at above $140 per barrel. Also, the increased stability in energy prices from the Keystone XL would spur greater economic investment in the United States — $221 billion, by its estimate — leading to more jobs in not only the energy sector, but also manufacturing and any ancillary jobs that may be needed to support them.

Projecting out how a single event like a pipeline will affect jobs numbers and economic output can be very suspect to massaging numbers. So of course take these numbers with a grain of salt. Prof. Ellen R. Wald’s article in Forbes does a great job of explaining the disparity of jobs for these kinds of projects and compares it to another major project, the Trans-Alaska pipeline.

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