The Keystone distraction

The Senate will vote soon on what the GOP has made their top legislative priority: expedited approval of the Keystone XL pipeline. Given the realities of today’s crude oil market, the political wrangling over Keystone has a decidedly retro feel. 

The United States has experienced an energy revolution since the Keystone XL pipeline was first proposed seven years ago. Most important is America’s shale oil and gas boom, which has contributed to a sharp drop in global oil prices. With U.S. oil production in particular surging, why do Republicans persist in claiming that Keystone is a matter of such urgent national interest?

The answer clearly has more to do with politics than with the new realities of U.S. energy abundance. 

The energy sector has become an important driver of U.S. investment during our painfully slow economic recovery. Investment is projected to total $890 billion over the next two decades. And all this investment is spawning good, middle-class jobs for Americans. Unfortunately, inadequate infrastructure constrains our ability to take full advantage of such investment and job growth.

Building a new energy infrastructure here for these purposes will create a lot more jobs than Keystone. Some estimates forecast that close to 10 percent of the total U.S. construction workforce will be engaged in the oil and gas construction sector by 2017, about 500,000 jobs.

Bottlenecks have led to price disparities in crude oil produced in the Midwest, which trades at a discount for lack of refinery access. And natural gas often trades at a premium in the Northeast and New England because of too little pipeline capacity to those markets. Some lawmakers in the last Congress recognized these bottlenecks and energy infrastructure constraints due to expanded domestic production and have sponsored legislation to alleviate the problem.

Moreover, U.S. oil and gas exports to the rest of the world are constrained by obsolete laws spawned during the “energy crisis” of the 1970s. Intended to husband America’s dwindling reserves of fossil fuels, such laws no longer make sense in this new era of shale energy abundance. Instead of continuing the fight over Keystone, lawmakers should be using their political capital to repeal those laws and allow U.S. producers to freely trade oil and gas on world markets, like any other commodity.

Supporters of Keystone also argue that the project will create American jobs. Accurately estimating the number of jobs the Keystone project would create, however, is difficult. History suggests we ought to treat the most glowing claims skeptically. When the Trans-Alaskan Pipeline was proposed in the early 1970s, for example, estimates for job creation were all over the place. Similarly, job creation estimates for the Keystone XL pipeline construction are inconsistent.

The partisan battle over Keystone has engendered exaggeration on both sides. Building the pipeline wouldn’t be an environmental catastrophe, since the Canadians are going to develop their energy resources in any case. And as noted above, Keystone probably wouldn’t yield the immense economic and geopolitical benefits Republicans claim. 

In 2008, crude oil prices frequently reached record highs in excess of $140 per barrel, and U.S. crude oil production stood at five million barrels per day. Today, expanded domestic crude oil production, weakened global demand, and OPEC’s unwillingness to curtail their production have created an oil glut resulting in crude oil being traded at almost a third of the 2008 price.

House Republicans already have passed the Keystone bill. While some Senate Democrats support the bill, it seems unlikely proponents can muster the 67 votes necessary to overcome a promised presidential veto. So there’s a good chance the GOP’s Keystone gambit will waste time, squander good will, and set a stridently partisan tone for the new Congress. And lawmakers will miss the real opportunity: Moving American energy to consumers here at home and around the world.

Freeman is a senior fellow and director of the Energy Realism Project at the Progressive Policy Institute.