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Wolfram: Pipelines will boost the economy

Gary Wolfram

As one of his first actions, President Donald Trump signed orders that would allow movement forward on two major infrastructure projects that had been stalled by the Obama administration. Although all the particulars are not yet in place, a path now exits for the completion of the Keystone XL and Dakota pipelines.

The Keystone pipeline is crucial to moving oil from Canada’s oil sands to refineries in the Gulf Coast. And the Dakota pipeline will carry oil from North Dakota oil fields to a hub connecting various pipelines in Illinois.

Energy is an important part of any economy, and pipelines serve as the transportation network for oil and natural gas. A recent study by the Manhattan Institute has shown that pipelines are substantially safer than rail or truck for transporting oil or natural gas. As the study notes, one is more likely to be struck by lightning than be killed in a pipeline incident. The Fraser Institute in a 2015 study found that rail transportation, when compared to pipelines, is over 4.5 times more likely to experience such an incident.

Pipeline transport is also much cheaper than on-land transportation. A train consisting of 84 cars will carry 60,000 barrels of oil. By contrast, a pipeline like the Keystone XL would transport 700,000 barrels of oil per day. That means it would take about 1,000 train cars to transport as much oil in a day as a pipeline. While there are fixed costs associated with a pipeline, the net cost is substantially lower.

Reliable and inexpensive energy is a key to any advanced economy. The Keystone and Dakota pipelines will serve to improve energy reliability, while reducing costs. It’s easy to forget that there are critically important uses for oil and gas that usually aren’t part of the discussion. For example, oil and gas are raw materials used in many pharmaceuticals, including antiseptics, antibiotics and the coating in time-release pills.

In addition to the economic advantages of lowered energy costs, construction of these pipelines will result in thousands of construction jobs. It is estimated that the Keystone project alone will add 40,000 jobs, ranging from construction workers to those employed in the manufacture of the materials used to construct the pipeline. The Dakota pipeline is estimated to generate 12,000 jobs directly and indirectly.

While it is true that a substantial number of these jobs will last only during the construction period, this is true of any project.

And the benefits derived from individual construction projects add up.

There is also the fact that, as with any transportation project, such as a highway or light rail, the pipelines will have to traverse land and perhaps water. This is true, for example, of the interstate highway system. One aspect of oil and gas pipelines is that much of it lies underground, and therefore the land above can be used for other purposes. This is not to say there are no costs to construction of a pipeline, but rather that the benefits outweigh the costs.

There are indeed environmental concerns. But these have been taken into account. Both pipelines have met extensive study and regulation. Is it possible there will be a spill? Yes, but there is a much lower probability of a spill than problems that would ensue if there were an alternative means of transport.

Trump’s willingness to proceed with the Keystone XL and Dakota pipelines will be a boost to our economy and provide us with a safer and cleaner way of developing our nation’s energy sources.

Gary Wolfram is the William Simon Professor of Economics and Public Policy at Hillsdale College.