The Keystone XL Pipeline has been revived by President Trump who, in March, signed a presidential permit approving construction.
TUTORIAL: Commodities: Crude Oil
Tar Sands Oil
When we think of oil drilling, we think of the pictures of an oil well gushing oil out the top like a like a large sprinkler, but most of the world's oil, 2 trillion barrels, is in the form of oil sands, or tar sands. Tar sands are a combination of oil, sand, clay, water and a material called bitumen, a heavy, black and thick oil. After a refining process, tar sands oil becomes the liquid form that we all know.
The United States doesn't get a lot of oil from tar sands, but Canada is different. Forty percent of Canadian oil comes from tar sands and, currently, 20% of the United States' oil imports come from Canada.
The United States currently imports 16% of its oil from Persian Gulf countries, but importing oil from countries where relationships are strained is a national security concern. The United States would like to import more oil from Canada, but the infrastructure doesn't exist. (For more on this sector, read the Oil And Gas Industry Primer.)
TransCanada (NYSE:TRP), a company that builds energy infrastructure, wants to build the Keystone XL pipeline. At more than 1,700 miles in length, the pipeline would transport oil from Alberta, Canada to refineries on the Gulf coast, passing through Montana, South Dakota, Nebraska, Kansas and Oklahoma. The pipeline would move roughly 800,000 barrels per day.
Along with reducing our independence on oil sourced from the Middle East, the TransCanada XL Pipeline could create a lot of jobs. TransCanada estimates that they would employ tens of thousands of Americans to construct the pipeline, along with hundreds of thousands of spin-off jobs, as local businesses along the pipeline route would see increased demand.
Critics of the pipeline have several problems with the project. First, The National Wildlife Foundation published a report that claimed that the pipeline will run through or near water tables, wildlife refuges, aquifers, fisheries and crop land. Any breach in the pipeline could cause a catastrophic spill that would ruin the local habitat and endanger citizens if the water table is compromised.
The NWF also claims that TransCanada doesn't have a good track record of safety. In one report, they list 12 TransCanada spills in 12 months, including a 21,000 gallon oil spill, and it's not only TransCanada. From 1990 to 2005 there were more than 4,700 oil spills according to the same report. Many critics dismiss the job-creation argument as the vast majority of jobs created would be short term.
The Bottom Line
For now, it seems the Trump administration is determined to complete the project, however, there are still a number of obstacles to overcome. Oil independence from the Middle East is important, but declining oil prices and increased focus on the environment (though not from from the administration), may diminish the financial benefit of the pipeline.