What the building of Keystone XL pipeline will mean for Canada and the Canadian energy industry

What the building of Keystone XL pipeline will mean for Canada and the Canadian energy industry

JESSE SNYDER, FINANCIAL POST  03.24.2017

http://www.thestarphoenix.com/what+building+keystone+pipeline+will+mean+canada+canadian+energy+industry/13186547/story.html

Keystone XL route map

The U.S. State Department’s approval of the Keystone XL pipeline on Friday concludes a bitter political battle that stretched on for more than eight years. Calgary-based TransCanada Corp. first filed its application to build the project in 2008. Since then, the proposal was met with a slew of lawsuits, regulatory snags, protests and political jockeying.

The project still has several hurdles to clear before the company can actually move ahead with construction. It will need to secure several state-level permits, including in Nebraska where opposition to the project has been most acute.

Whether the project ultimately gets built is an open question. But today there is still discrepancies over what impact, if any, the project would have on the Canadian economy and the oil and gas sector. Below is a snapshot of a few key numbers.

US$8 billion – Total cost of Keystone XL

Near the end of 2014, TransCanada raised its total capital cost estimate for the pipeline from US$5.4 billion to US$8 billion. The company has yet to update its cost estimate for the project since the Trump administration revived the project, though some analysts have said the costs are likely to have grown over that period. The capital cost of TransCanada’s other major pipeline proposal, Energy East, is now pegged at $15.7 billion, up from around $12 billion in 2015. Costs for the project rose following regulatory delays and several route changes proposed by TransCanada for the pipeline.

42,100 – Jobs created by Keystone XL, according to U.S. State Department

The number of jobs that would be created by the project is a highly contested figure. Project proponents tend to provide generous job estimates based on “indirect” or “induced” jobs that would be hypothetically created by the expected boost in economic activity. Often, job estimates include any position that lasts for at least one year. Other estimates peg Keystone’s job creation numbers closer to just a few thousand, depending on varying parameters like whether the job is full-time and directly created by the pipeline.

$11 billion – Total compensation for Ontario workers over 25-year period

Most of the employee compensation benefits from Keystone XL would be concentrated in Alberta. But other provinces would also see an uptick in activity. A report in July 2012 by the Canadian Energy Research Institute (CERI) found that worker compensation in Ontario—mostly in its manufacturing sector—would rise nearly $10.68 billion between 2011 and 2035 if the project goes ahead.

US$35 – Spread between WCS and Mexican Maya in January 2013

A central argument for why Keystone XL should be built is the discount suffered by Canadian oil producers relative to its competitors. This is typically measured in the difference in price between two grades of crude. Western Canada Select, which is often used as a benchmark for Canadian heavy oil, has for years sold at a steep discount to other producers. Mexican Maya, which is often compared to WCS due to their similar heavy-sour qualities, sold for around US$30 more than WCS in the period between November 2012 and February 2013. In January the figure was US$35. However, falling oil prices and increased efficiency has substantially closed that differential in recent years, and weakened the argument for Keystone XL according to some opponents. Today, WCS’s discount to Mexico’s Maya is below US$10.

$8 – Per-barrel cost difference when shipping oil via pipeline versus rail

For oil producers, pipelines are a cheaper shipping option than rail. Analyst estimates vary, but shipping oil to the Gulf Coast is about $8 per barrel cheaper by pipeline than rail, which is also more dangerous and prone to spills. As oil prices have fallen in recent years and pipeline constraints have eased, some analysts now put that figure closer to about $5 or $6 per barrel. This is particularly the case as more oil companies begin investing in rail infrastructure as Canada could face another pipeline shortage in coming years.

3,108 – Days required to approve Keystone XL

TransCanada filed its application for Keystone XL on September 19, 2008. In March of 2010 the National Energy Board approved the Canadian portion of the project, and the U.S. State Department, after initially delaying a decision, eventually recommended the pipeline be approved. A bill approving the construction of the pipeline was passed by the U.S. Senate in February 2015, but was vetoed later that year by former president Barack Obama. In his first week in office in January 2017, U.S. President Donald Trump invited TransCanada to resubmit its application. On Friday the project was approved by the Trump administration.

660,000 – Tonnes of steel required for U.S. portion of the pipeline
Trump said the approval of the pipeline hinged on several conditions, including that the pipeline use “America made” steel during construction. The Trump administration seemed to soften on that position, as a large portion of the steel pipe had already been manufactured. Just over 50 per cent of the pipe was or will be manufactured in the U.S., according to an outline of contracts from TransCanada, while the rest would be manufactured in facilities in Canada, Italy and India.

$538 billion – Additional GDP generated in Alberta over a 25-year period
Estimates over how much economic activity would be spurred by the construction of Keystone XL vary widely. A 2012 report by CERI forecasted roughly $538 billion in additional GDP growth between 2011 and 2035. It estimated $34 billion in GDP growth in the rest of Canada over the same period. The report was released at a time when oil prices were dramatically higher, and forecasts for future prices were largely expected to continue. Falling oil prices has since diminished royalties and other government revenues from oil, and oilsands expansion projects are expected to slow substantially after 2020.

 

$11 billion – Total compensation for Ontario workers over 25-year period
Most of the employee compensation benefits from Keystone XL would be concentrated in Alberta. But other provinces would also see an uptick in activity. A report in July 2012 by the Canadian Energy Research Institute (CERI) found that worker compensation in Ontario—mostly in its manufacturing sector—would rise nearly $10.68 billion between 2011 and 2035 if the project goes ahead. British Columbia would see $4.58 billion in employee compensation over the period, while Quebec would see $2.27 billion, according to CERI estimates.

 

 

 

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on March 27, 2017, in economic impact, oil, political. Bookmark the permalink. Leave a comment.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: