Keystone Moving Forward

In a development that should not have come as a surprise to Econbrowser readers, TransCanada announced on Monday that it would proceed with the portion of the controversial Keystone pipeline expansion that would connect Cushing, Oklahoma to the Gulf of Mexico. Because this part of the project does not cross the U.S.-Canadian border, it does not require approval from the U.S. State Department.


Existing Keystone Pipeline and proposed Keystone Gulf Coast Expansion Project.

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The Wall Street Journal reports that the 435-mile segment could carry 700,000 barrels/day from Cushing down to the coast, and the company expects that segment of the pipeline to be in service by mid to late 2013. This would be in addition to the 400,000 barrels/day that Enbridge is hoping to send from Cushing to the coast through the Seaway Pipeline by the first quarter of next year, with 150,000 of that already flowing by the middle of this year. Even so, the Wall Street Journal reports:

Even the Gulf Coast leg and Enbridge’s project may not be enough to relieve the bottleneck at Cushing. Alex Pourbaix, president of TransCanada’s oil-pipelines division, said he believes at least two million barrels a day of oil will need to flow between Cushing and the Gulf Coast over the next decade to relieve the bottleneck there.

Confirmation of that assessment comes from the observation that, despite the news, the price of a January 2014 Brent futures contract is still selling at a $7 premium to Jan 2014 West Texas Intermediate.

TransCanada separately reported that it is also reapplying for permission to construct the rest of the original Keystone expansion, and the company seems hopeful that the objections to the original proposal have been resolved:

TransCanada will continue to work collaboratively with the State of Nebraska on determining an alternative route for Keystone XL that avoids the Sandhills. TransCanada has been working on assessing the routing in Nebraska since November 2011, following the State Department’s notice to delay a decision on a Presidential Permit until an adjusted route that avoids the Sandhills was developed….

Reapplying for the Keystone XL permit is supported by words used in President Obama’s statement January 18, 2012 when he said the denial of the permit was not based on the merits of the pipeline but rather on an imposed 60-day legislative timeline to make a decision on the project.

Perhaps more importantly, the White House appears to be on the same page:

TransCanada gave the State Department advance notice of its intention to submit a new application for the cross-border segment of the Keystone XL pipeline, from Canada to Steele City, Nebraska, once a route through Nebraska has been identified. House Republicans forced a rejection of the company’s earlier application in January, by not allowing sufficient time for important review or even the identification of a complete pipeline route. But as we made clear, the President’s decision in January in no way prejudged future applications. We will ensure any project receives the important assessment it deserves, and will base a decision to provide a permit on the completion of that review.

But even if the Canada-to-Steele-City segment continues to be blocked by regulatory delay, the Cushing-to-Texas segment alone can provide an important boost to the U.S. economy. The company expects the $2.3 billion project to provide employment for 4,000 people, and there are significant gains from constructing an efficient way to transport oil to where it is most economically valuable. Again quoting from the White House press release:

The President welcomes today’s news that TransCanada plans to build a pipeline to bring crude oil from Cushing, Oklahoma, to the Gulf of Mexico. As the President made clear in January, we support the company’s interest in proceeding with this project, which will help address the bottleneck of oil in Cushing that has resulted in large part from increased domestic oil production, currently at an eight year high. Moving oil from the Midwest to the world-class, state-of-the-art refineries on the Gulf Coast will modernize our infrastructure, create jobs, and encourage American energy production.

Who am I to argue with the President?

This post originally appeared at Econbrowser and is posted with permission.