Keystone XL Pipeline: Vital Oil Line or Needless Environmental Risk?

It's been billed as the mother of all oil battles -- that may be an overstatement, but one thing is certain: the Keystone XL Pipeline is a high-stakes fight.

On one side is the state of Nebraska, which will be impacted by the pipeline, which will cross the Ogallala Aquifer, an underground water supply that is the No. 1 water source to the nation's farmland, including eight states. Nebraska has been joined by environmental groups, such as Friends of the Earth. Nebraska wants the $7 billion, 2,000-mile, 36-inch proposed pipeline that runs from Canada to the Gulf of Mexico re-routed away from the aquifer.

The Keystone XL pipeline will have a transporting capacity of 510,000 barrels per day (bpd), which will bring total Keystone Pipeline System capacity up to 1.1 million bpd, when added to the existing Keystone Pipeline. Oil traded down 86 cents to $78.38 per barrel on Thursday at mid-day.

On the other side are business groups, pipeline operator TranCanada Corp. (TRP) and labor unions, and the U.S. Government. Businesses see the pipeline as an essential build-out of the nation's oil infrastructure, and unions see about 20,000 direct and jobs/spin-off jobs. The U.S. government sees a largely benign pipeline: an environmental impact statement issued in late August said the pipeline would cause minimal impact on the environment.

Pipeline advocates say the extra oil transported in the pipeline largely from the Canadian oil sands region is needed to reduce the U.S.'s dependence on Middle East oil.

Pipeline opponents counter with the fact that about 75 percent of the oil likely to flow through the pipeline has already been contracted for purchase by foreign customers.

The Obama administration will decided whether to approve the project by December; if approved pipeline operations would start in 2013.

Energy/Economic Analysis: Is the Keystone XL pipeline in the national interest? Probably, but more must be done to safeguard the environment, particularly the Ogallala Aquifer. Those safeguards should include spill recapture deployment equipment to quickly capture oil from any spills that may occur, and increased pipeline shut-off capability, to stop the flow of oil that much quicker.

The Keystone XL pipeline is a tough call, but the bias is toward building the project, even if most of the oil is destined for foreign customers: the pipeline will add hundreds of thousands of oil barrels per day to the global oil market -- oil that is sorely needed.