|By Sean McClurg, Mitsubishi Hitachi Power Systems America|
The Keystone Pipeline is no stranger to controversy from environmentalists in the United States.
The project first started construction in 2008, and was divided into four phases. Phase one connected the pipeline from Hardisty, Alberta to Steele City, Nebraska and finally to Patoka, Illinois. This is the longest of the four phases and spans 2,147 miles and was completed in February of 2010. Phases 2 and 3 are to be completed by early 2015 and the combined span will total 773 miles, bringing the pipeline from Nebraska to the gulf coast of Texas. All phases of the project have drawn controversy, however none more controversial than Phase 4.
It takes a more direct route from Alberta Canada to Steele City, Nebraska spanning 1,000 miles of new pipeline. It critically integrates the US oil reserves from the Bakken oil formation in Montana into the pipeline system. The most controversial piece of this new pipeline is its route directly over the Ogallala Aquifer in Nebraska. The future of US oil demands are well defined by market analysts, conversely the future supply is essentially a blank script. What will the future US demand for fossil fuels spell for the Keystone Pipeline?
Due to environmental regulation and delays to the fourth phase of the Keystone Pipeline, TransCanada’s original $5.4 Billion price tag is now estimated to increase to $8 Billion. There is less incentive for U.S. investors to make the project progress due to a recent significant decrease in oil prices. The United States imports nearly 8 million barrels of crude oil a day and much of that is imported from OPEC countries. OPEC’s primary producer is Saudi Arabia, currently producing approximately 9 million barrels of oil every day. This large production value is nearly tripling OPEC’s quota for Saudi Arabia, and the Saudi’s are feeling pressure from OPEC and other large oil producers to step down production. This sudden influx of Saudi oil is a large reason why the global cost of oil has dropped so far. This is an ideal position for the U.S. consumer, seeing prices of under $3 a gallon for unleaded gasoline for the first time in over five years. However this hurts the U.S. oil production market as well as investors incentive to invest into U.S. oil pipelines and fracking projects. Saudi Arabia understands what its low prices are doing to the U.S. oil production. Fracking is a far more expensive process than traditional oil extraction; one can deduce that Saudi’s are currently using their ability to increase oil exports to gain a competitive advantage over their competition. In turn the increased oil production by Saudi Arabia and other OPEC nations has decreased the global price of Crude Oil to under $60 per barrel.
On Nov. 18, 2014 the Senate failed to pass legislation to allow phase 4 of the pipeline to come to fruition. The Keystone pipeline isn’t likely to see an excess of funding any time in the near future from to the federal government due unexpectedly low oil prices, which is a short term win for U.S. consumers. Economists estimate the price cut in gasoline will save the U.S. consumers a total of $65 billion a year. However if we want to become energy independent from the OPEC nations, the Keystone Pipeline is a step in the right direction. It will allow North American produced oil and natural gas to be supplied to power plants in the eastern half of our country while helping to stabilize the price of gas.
This year’s Midterm Elections provided monumental change to the political landscape bringing in Republican congressional control that hasn’t been seen since January of 2007. Starting in 2015, Republicans will hold 54 seats in the senate, 246 in the house and 31 governorships. Contrary to popular belief Republicans still support strict environmental standards. The current cap and trade approach has been supported by multiple Republican presidents including G.W. Bush. The cap and trade approach is marketed as the “most environmentally and economically sensible approach to controlling greenhouse gas emissions.” What will this change in political landscape spell for the Keystone Pipeline and the EPA’s new Clean Power Plan? Will a Republican controlled Congress, the EPA and environmental groups work together to agree on funding and approval for the Keystone pipeline and provide a light at the end of the tunnel?
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