The Keystone XL Pipeline: What’s in it for Montana?

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The Keystone Oil Pipeline has been a decade-long saga of on-again, off-again construction and never-ending lawsuits. Nebraska’s supreme court recently shut down a challenge to construction through the state, clearing one hurdle. But multiple federal lawsuits remain, including two involving Montana-based groups. In one the plaintiffs include The Northern Plains Resource Council based in Billings, and another includes the Fort Belknap Indian Community. Both lawsuits contend that the Trump administration’s approval of Keystone construction did not undergo lawful review of environmental impacts.

First, a little background on the Keystone’s complicated history. The Western Canadian Sedimentary Basin in Alberta, Canada is extremely rich in oil extracted from tar sands, an especially thick and sticky type of oil that is difficult to refine. Canada’s limited refining capacity isn’t up to the task, but a couple thousand miles to the south is the world’s largest concentration of oil refineries along Texas’s Gulf Coast. The Keystone connects these refineries to the Alberta tar sand fields, which would be economically useless otherwise. The pipeline is actually a system of different segments, and a route from Alberta to the Gulf Coast already exists from construction phases completed in 2016 (see Figure below).

Source: Wikimedia Commons

The controversy of the last several years, and the subject of the current federal lawsuits, has concerned “Phase IV” – an as-yet unconstructed pipeline that both provides a much more direct route to the Gulf and substantially increases pipeline capacity (and this extra capacity is key-Alberta’s government significantly cut oil production last year, citing a shortage of pipeline capacity). Phase IV would cut through Eastern Montana, including a crossing at the intersection of the Missouri and Milk Rivers upstream of important water sources for the region (including the Fort Peck reservation).

Hence the resistance from Montana communities. An iron law of oil pipelines is that they will leak. One analysis found that the US pipelines have experienced leaks at a rate of more than one per day from 2015-2017. The Keystone itself has already leaked several times, including a 2017 spill of over 400,000 gallons into a stretch of farm land in South Dakota (and yet, by some measures pipelines are safer than rail or truck. There is simply no accident-free way to transport oil). The potential impacts of pipeline leaks are widespread, including water and soil contamination, habitat loss, reduction in tourism, among many others. Quantifying these impacts is difficult, but a recent study estimates that environmental damage from pipeline spills in the US is $140 million per year.

What of the benefits? Obviously the primary beneficiaries of the keystone are the Canadian oil extractors and the Texas refineries. Additionally, setting aside environmental damage, if pipelines enable increased oil production it may reduce global oil prices, with widespread short-term economic benefits. And the places in the pipeline’s path do get a boost in construction employment. Estimates of construction jobs to be created by the Keystone project range from 2,500-9,000. However, these jobs only last as long as the 1-2 years required to construct a segment of pipeline (and are also notoriously dangerous). The State Department estimated that number of permanent maintenance jobs created by the pipeline is a grand total of 35.

Multiple Montana groups have decided that these short-term benefits do not outweigh the long-term costs. Whether this calculation compels federal courts to prevent Phase IV construction remains to be seen.

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About Author

Brock Smith is an Assistant Professor in the Department of Agricultural Economics and Economics at Montana State University. He received a PhD from UC-Davis in 2013 and spent three years as a Research Fellow at the Oxford Centre for Analysis of Resource Rich Economies. He mainly studies effects of oil and natural gas shocks in both an international and domestic US setting.

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