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What Effect Would The Keystone XL Pipeline Have On Americans?

CleverDude_oil

Image courtesy of suwatpo at FreeDigitalPhotos.net

I’m going to do something today that as far as I can remember I’ve only done once here on CleverDude. I’m going to get all political. But don’t worry fellow money nerds, it has to do with something that we all talk about and are forced to think about almost every day.

Let’s talk about price fixing, monopolies, and the price of oil and gasoline.

The price of oil has shrunk in half over the last year to eighteen months from around $110 dollars a barrel to currently right around $50. The global demand for oil isn’t growing as it once was, and the high output from oil producing countries is resulting in a massive stockpile of oil.

It used to be that when oil prices dropped, OPEC countries would reduce their output, artificially reducing supply and thus causing the price to go up. It also astounds me that every time oil prices fall significantly, refining plants have to go offline for maintenance. Which then leads to an increase in gasoline prices because even though there may be plenty of oil, gasoline is in short supply causing the price to go up.

Where I come from, this is called collusion and price fixing which is illegal in the US. But somehow in the global stage this is acceptable behavior.

High gasoline prices take money out of the pocket of everyday consumers. If we’re spending our money on gasoline, we won’t be spending on other industries to help our economy grow. It seems to me that it is in the best interest of the every day consumer, and thus our economy as a whole, to have low gasoline prices. To have low gasoline prices, we need low oil prices, and the shortest path to having lower oil prices is to break OPEC’s price fixing ability.

To completely break OPEC’s price fixing capability we need to increase global share of oil produced by non-OPEC countries.

One way to help this would be to build the Keystone XL pipeline, which some in United States have largely opposed, and quite frankly I don’t understand why. Here are my thoughts on the subject:

It’s About The Jobs

The building of the pipeline will create thousands of new, high paying jobs. The opposing view will say they are temporary and will disappear as soon as the pipeline is built. That’s true, but good paying jobs even if temporary, are still good paying jobs. Plus, the workers will build skills and experience that may help them get their next job. It’s kind of like the solar panel initiative our President recently put together for veterans. Those are also temporary jobs which have the goal of providing short term employment, but skill building to help the vets as they go forward. One big difference here though, is that the pipeline jobs will be funded by the oil companies. The solar panel jobs are funded by us, the taxpayers.

Where Does the Oil Go?

The argument against the pipeline is that the oil from Canada would go to the Gulf, be refined, and be shipped around the world. Not one drop would be used in the US, and thus would not affect the price of gasoline here. I find that theory to be questionable because any increase in non-OPEC oil reduces OPEC’s ability to fix prices. An increase in non-OPEC oil is a step in the direction of having oil costs truly reflect the supply and demand curve, and not what OPEC makes the curve the look like. Imagine a world where the price of oil and gasoline doesn’t spike overnight just because some guy in the middle east had indigestion from last night’s meal.

Environmental Impacts:

This is the most tricky subject. Oil is sticky and messy and causes quite an environmental catastrophe when it spills. Fortunately, oil spill catastrophes are rare. Is the occasional accident a reason not to help the global economy? Is an occasional car accident a reason to stop building automobiles? Opponents would have you believe that the Keystone XL pipeline is the first and only pipeline in the US. The fact of the matter is, Keystone XL would simply be a new piece in a large network of thousands of miles of pipeline that already exist today. When was the last time you heard about a pipeline disaster within the US?

Honestly, I believe we should be sinking huge amounts of money into alternative fuel development and get ourselves completely off the horse of using fossil fuels. One day our oil supply will completely dry up, and we will have no choice. Until then, it’s in our best interests to make ourselves less and less dependent upon oil from the most unstable region of the word; The Middle East.

What do you think, Clever Friends? Would you support building the Keystone XL pipeline if it meant more affordable gasoline, or are the potential impacts too great?  Before you comment, please remember to remain respectful.  I love a great discussion, but let’s keep it classy.

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About the author

Brock Kernin

6 Comments

  • Who would you rather be in partnership with? Canada or the middle east? I know who my choice would be. And the pipeline would be much more environmentally safe than shipping the oil by rail. It certainly is not unusual to read about a derailment that spills oil or a chemical into the environment. Haven’t heard of the Alaska pipeline spilling huge amounts of oil. BTW I’ve seen that pipeline up close and personal and it is an amazing piece of construction. Anyway, Warren Buffet -who owns railroads that ship oil- is against the pipeline so I’m in favor of it.

  • This is a weird article for you, Dude. Frankly, I don’t see the point, even with the financial spin.

    I’m for the pipeline, only because it’s no where near as big of a deal as either side is making of it.

    That said, I don’t agree with some of what you are saying:

    I’d like to see the data proving that the KXL pipeline will actually make any impact to oil prices at all. In fact, Canadian production is 1/10th of US production:

    http://www.eia.gov/todayinenergy/detail.cfm?id=15571

    If this pipeline is built, it will send an extra 300,000 barrels a day, up from the 550,000 already moving through the Keystone system. I don’t see how an extra 300,000 will make an impact.

    http://www.bbc.com/news/world-us-canada-30103078

    As for environmental impact, I don’t think we can underestimate the risks here. You say that you don’t know of any pipeline disasters… I ask: what is a disaster?

    http://en.wikipedia.org/wiki/List_of_pipeline_accidents_in_the_United_States

    Based on those lists, there is plenty of evidence saying that pipelines are not infallible. This isn’t to say that we shouldn’t build one, but we should put strict legal protections in place that says any impact to the environment should be mitigated 100x over.

    As for the jobs… 42,000 temporary jobs. Sorry, that is insignificant on a national scale. The Republicans are making this out to be this huge jobs program. It’s not. It’s ridiculous to say it is. Addressing our infrastructure problem in America via 30, 40, 50 year treasury bonds would make for a major jobs program. This does not deserve national debate as a jobs program.

    Bottom line, this whole thing has gone from a simple pipeline project to a politicized mess. Frankly, I blame the Republicans. If they didn’t grab this as some huge political platform, this would have been approved years ago with little to no impact or care from the general public.

  • @Kathy – I’d love to see one of those pipelines up close…I don’t have a good feel for how large they are. Opposing Warren Buffet is an interesting reason to support the pipeline…lol. Great to hear from you!

  • @Tom – It’s definitely a different article…but it was on my mind, so I wrote about it. I think it’s important that all of us have some understanding of the world economy.

    My response to the amount of oil that flows as well as the # of jobs created is this: Every little bit helps. I’ll give you an analogy. I work in IT, and one thing that we do at the end of a release cycle is performance analysis. The performance group goes absolutely nuts over a change that causes a 0.5% increase in performance. In the whole grand scheme of things, that’s not much. But when you add 10 of those together…..that’s 5%. 5% can mean millions of dollars of more revenue.

    I agree that the environmental impact is a tough one….but there’s an environmental impact to almost everything we do. The best we can do is put the best safety measures in place.

    I do want to reiterate that I wish that we would get off of fossil fuels all together and pump our research into renewable energy sources. imagine if we didn’t have to worry about oil AT ALL???

    Thanks for sharing your very detailed perspective…..I’m happy that there’s an opposing viewpoint given – it allows readers to hear two sides to the story, and then make up their own mind!

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