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March 23, 2015

Keystone XL Pipeline Veto Aftermath

By Tim Maverick, Commodities Correspondent, Wall Street Daily 
As expected, the Keystone XL Pipeline legislation was vetoed by President Obama, and the vote to override the veto failed in the Senate.
Graphic Source: Wikipedia

Where does that leave us now that the politicos have moved on to fight about something else?
A pretty interesting place for our nation’s energy infrastructure.
Railway companies are growing hesitant to ship oil. And the pipeline buildout continued unabated across the country, regardless of the kibosh on Keystone.

Trains and Oil: A Dangerous Combination

The railway’s reluctance is understandable.
Fiery derailments involving crude oil near population centers certainly don’t make for good public relations.
Four recent derailments – two in the United States and two in Canada – have highlighted the danger. All four incidents involved long oil trains of about 100 cars that met all regulatory requirements.
Obama’s veto of the pipeline has further impeded the North American oil-by-rail boom. Some pundits have even gone as far as dubbing these oil trains, “Obama Trains.”
And rightly so. Apparently, it’s okay to have millions of barrels of flammable oil on trains rumbling through America’s neighborhoods, large and small, but not okay to build pipelines to transport oil in a safer manner.
The Intermodal Safety on the Transport of Oil, a 2013 Canadian study by the Fraser Institute, clearly showed that the movement of oil and gas by pipeline is the safest mode.
Specifically, the study showed there was less than one incident for every billion tons of oil transported one mile.
With trains, the incidence rate rose to two incidents. And with trucks, the incidence rate skyrocketed by 10 times, to 20 incidents.
One of the authors of study, Kenneth P. Green, said in a recent article that these numbers shouldn’t surprise anyone. He says that pipelines are fixed infrastructure with little exposure to the elements, less risk for operator or mechanical failure, and a greater capacity for real-time monitoring. Not to mention that pipelines are often built away from population centers.

Pipeline Buildout Boom

Apparently, someone is listening because there is a pipeline buildout boom going on in our country, despite the Keystone veto. In the last decade, our pipeline network has expanded by nearly a quarter.
There have been more than 11,600 miles of pipeline added to our country’s oil network. Since 2012 alone, about 3.3 million barrels of oil-carrying capacity has been added. That is five times more oil than the Keystone pipeline’s projected capacity!
More are in the works. Since 2012, there have been over 50 pipeline projects approved.
Despite the Keystone veto, more of the Canadian heavy crude that some environmentalists are concerned about is making its way into the United States. It’s ironic because the production and usage of this very type of oil is one of the main environmental risks cited by Keystone pipeline opponents.
Two major pipelines – Enterprise Products Partners’ (EPD) Oklahoma-to-Texas Seaway Twin and Enbridge’s (ENB) Illinois-to-Oklahoma Flanagan South pipeline – increased Canadian oil flowing to the Gulf Coast by 12% from November to December alone.
Enbridge’s existing mainline system feeds Flanagan, so no U.S. government approval is needed.
The sheer number of pipeline project approvals tells us that oil pipelines will continue to be built in the United States.
I’m happy for this outcome as someone who had a train car filled with oil derail about a mile away from my home. Luckily, it was very heavy oil and near-zero temperatures. Still, pipelines are the safer choice.
Courtesy Wall Street Daily (EconMatters article archive Here)   

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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