President Obama continues to delay approval for construction of the northern leg of the Keystone XL pipeline, a $5.3 billion project that would bring Canadian oil sands production to U.S. refineries on the Gulf Coast.
When the president speaks publicly about the project, his remarks are misguided, vague and noncommittal. In an interview he gave to The New York Times in July, for example, the president responded to a reporter’s comment that many labor unions support the project. “Well, look, they might like to see 2,000 jobs initially,” said Mr. Obama. “But that is a blip relative to the need. So what we also know is, is that oil is going to be piped down to the Gulf to be sold on the world oil markets, so it does not bring down gas prices here in the United States.”
If these comments represent the economic principles the president is using to evaluate the Keystone XL pipeline, we’re in a lot of serious trouble.
According to the president, it seems government permission for the deployment of private capital should be determined only by the number of direct jobs it produces. If that’s the president’s single metric for evaluating proposals, maybe the United States should just return the entire economy to 17th-century agricultural practices. Everyone would certainly have a job. The economy, however, would function at such a low level that poverty would run rampant, and the federal government would have limited funds for basic needs such as food stamps.
The fundamental principle that projects should be evaluated on economic value seems to be lost on the Obama administration. Projects with high net value deliver higher returns to capital, employment growth and new revenues for federal, state and local governments. Yet getting approval from the government remains a major undertaking, fraught with project-killing regulatory risk — even in this era of low economic growth.
Meanwhile, the economic damage from the president’s seemingly endless indecision continues to pile up. TransCanada, the owner of the Keystone pipeline, purchased $2 billion worth of steel pipe two years before the anticipated regulatory approval, never expecting the United States would turn down a pipeline when unlimited volumes of Canadian oil sands already cross the border by rail and truck every day. Mr. Obama is also requiring that the project add no net additions to greenhouse-gas emissions. His prerequisite raises some obvious questions: Is he planning to ban further shipments by rail and truck? Does he have a plan to prevent the Canadian producers from selling oil in other markets around the world?
Since 2008, combined U.S. and Canadian oil production has expanded by more than 3 million barrels a day. That increase in production will drive down imports shipped into the U.S. via supertanker to fewer than 3 million barrels a day by 2022. While that certainly is good progress, the increased domestic production also requires a large-scale build out of transportation infrastructure throughout North America. Despite this, the administration has put off the Keystone pipeline’s approval for years. As Sen. Heidi Heitkamp, North Dakota Democrat, pointed out recently in a public meeting on Keystone XL in Washington, it has already taken longer to get approval for the project than it did to defeat Nazi Germany.
There are consequences to the president’s indecision. Few if any Canadian companies will propose new cross-border pipelines. No sane company will ever again preorder steel pipe with the expectation that the U.S. regulatory approval process will be both timely and reasonable. Even if other cross-border pipelines are proposed, future projects will await full regulatory approval before any pipeline company will order pipe or equipment, adding at least two years to construction time. If the president was really interested in job growth, he would put more effort in trying to contain the regulatory and political risks associated with his administration’s policies.
It’s also important to remember that refineries always have a choice between Canadian oil and petroleum products from less-friendly countries such as Venezuela. Mr. Obama also has a choice: promote oil imports from a close and strategic ally, where more than 90 cents of every dollar of oil purchased is repatriated to the United States, or rely on imports from the country that is offering asylum to Edward Snowden. It really shouldn’t be that difficult to choose.
Lucian Pugliaresi is president of the Energy Policy Research Foundation Inc.