Economic Impact of Keystone XL on the US

By, Suman S Ghosh

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 Agenda
 Limitation & Framework
 Recommendation
 Economic Effect – Intro
 Related Analysis
 Risks
 Assessment
 Results & Discussion
 Conclusion
 Question & Answer
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 Limitation & Framework
 The analysis is done from Neutral Standing & for the effects
on the US only.

 The analysis is purely academic and based on publicly

available data.

 Only Economic Forces are considered. Political and Bilateral

issues are ignored.

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 Recommendations
 The economic benefit from Keystone will not be very
significant. The Net benefit can be negative.

 US Government should help US oil refiners to develop a

pipeline from the US Midwest to Gulf for Bakken oils. But
the project should be undertaken after complete Cost
Benefits Analysis.

 Invest in Algae & other Bio fuel development to achieve

energy security.
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 Introduction to Keystone XL
 Keystone Pipeline became operational
in 2010 connecting Athabasca Oil
Sands with the US Midwest (Illinois,
Cushing, Oklahoma.
 0.59 Mbbl/d of synthetic crude
oil and diluted bitumen ("dilbit“)
 Extension of Keystone or Keystone-
XL was proposed in 2008.
 0.7 Mbbl/d of crude oil to delivery
points in Oklahoma and southeastern
Texas

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 Economic Effect - Sources

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 Direct, Indirect & Induced Effects

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 Related Analysis – Perryman Group
 Used proprietary US Multi-Regional Impact Assessment
System.

 Based on Dynamic Input – Output Modeling -

Economist Dr.Wassily Leontief (Nobel Prize)

 Matrix representation of a nation's (or a region's) economy.

Input to an industry is in Column and Output in
Corresponding Row.

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Source : http://en.wikipedia.org/wiki/Input-output_model

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 Perryman Groups Report- Findings
 1. Direct, indirect and induced spending of $20.931 billion,
$9.605 billion in output and 118, 935 person years of
employment due to the construction and development work.

 Savings :“normal” oil price assumptions (equivalent to the

average for all of 2007) is $100.144 billion in total spending,
$29.048 billion in output, and 250,348 permanent jobs.

 In case of high-price (costs per barrel reach the peak levels

observed in the summer of 2008) is $221.305 billion in
spending, $64.193 billion in output, and 553,235 jobs.
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 Related Analysis- Cornell University
Global Labor Institute
 Based on the data provided by TransCanada to US
Government.

 Strongly argues against the claims of TransCanada

 Argues that the Direct Spending on construction will be $3-

$4 billion not $7 billion as claimed.

 The Job numbers for construction will be much lower :

2,500 – 4,600 person years not 2,500-4,650 Jobs
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 Related Analysis : Energy Policy
Research Foundation
 Claims that Canadian
Bitumen will supply oil
to underutilized Gulf
Refineries.
 In turn Heavy Crude
Differential will decrease
and will make processing
heavy crude more
economical.
 Economic benefit due to
capacity utilization.
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 Risks of Keystone - XL
 Aquifers of Nebraska  Source of 78% of the
region’s public water,
83% of irrigation
water in Nebraska and
30% of water used in
the U.S. for irrigation
and agriculture
 The soil is loose and
porous.
 US Governmentt has a
already advised to avoid
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 Risks of Keystone - XL
 CO2 Emission
Bitumen emits a large amount of greenhouse gases during
extraction and processing, disturbance of mined land, and impacts
on wildlife and water quality.

 Oil Price Increase

 US Gulf coast refineries are not ready for processing Bitumen

 Oil that will be piped to the US Gulf coast will actually used to serve
the foreign markets. Even TransCanada admits in their proposal “The
resultant increase in the price of heavy crude is estimated to provide
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in annual revenue to the Canadian producing industry of
US $2 billion to US $3.9 billion.”
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 Risk Assessment - Assumptions
 Oil price, economic inefficiency and loss due to oil spill are
the major drivers of risk.
 I have used the economic impact for high and low oil price as
the total spending due to increased utilization mentioned in
Perryman report.
 For cost of Oil spillage I used the figure 750 million which is
expected historical cost for cleaning in case of oil spillage.
(Droitsch, Report: Keystone XL tar sands pipeline more of an
economic liability than benefit)
 There is 100% chance of some kind of economic inefficiency.
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 Economic S Ghosh
inefficiency is the loss on Estimated Economic
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copydue to inaccurate assumptions. 6:51:48 PM
 Risk Assessment - Model
Economic Inefficiency 60%

Cumulative
Spending Inefficincy -Low Oil
(Billion $$) Probability Price Loss Probability
Normal Oil Price 100.144 .8 loss -60.084 100%
High Oil Price 221.305 .2

Loss due to inefficiacy

-HighOil Price Probability Pipe Spills Cost Probability
Loss -132.783 100%Big 100.1 -75.075 0.25
Mediaum 91 -68.25 0.5
Small 81.9 -61.425 0.25

Cost of Spill -0.75

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All figures are in Billion $ 6:51:48 PM
 Risk Assessment - Model
25%
High
-35.015
-75.075 -35.015

100% 50%
High Oil Spill Medium
-28.19
-60.084 -2819% -68.25 -28.19

25%
Low
0% -21.365
Low Inefficiency Level -61.425 -21.365

100.144 -28.19 25%

High
25.069
-75.075 25.069

0% 50%
Low Oil Spill Medium
31.894
0 31.894 -68.25 31.894

25%
Low
38.719
Yes Oil Price? -61.425 38.719

0 20.272 25%
High
13.447
-75.075 13.447

100% 50%
High Oil Spill Historical
20.272
-132.783 20.272 -68.25 20.272

25%
Low
100% 27.097
High Inefficiency Level -61.425 27.097
Extent the Pipeline?
1 221.305 20.272 25%
20.272 High
146.23
-75.075 146.23

0% 50%
Low Oil Spill Historical
153.055
0 153.055 -68.25 153.055

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25%
Low
159.88
-61.425 159.88

no

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0

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0 0
 Risk Assessment - Results
Economic Probability of High Oil Price
Inefficiency 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0% 31.894 44.0101 56.126 68.243 80.358 92.4745 104.5906 116.707 128.823 140.939 153.055
10% 21.88 32.784 43.689 54.593 65.498 76.402 87.307 98.211 109.116 120.02 130.925
20% 11.866 21.559 31.252 40.944 50.637 60.33 70.023 79.716 89.408 99.101 108.794
30% 1.852 10.333 18.814 27.295 35.777 44.258 52.739 61.22 69.701 78.185 86.663
40% 0 0 6.377 13.647 20.916 28.186 35.455 42.725 49.994 57.264 64.533
50% 0 0 0 0 6.055 12.113 18.1711 24.228 30.287 36.345 42.403
60% 0 0 0 0 0 0 0.8872 5.733 10.58 15.426 20.272
70% 0 0 0 0 0 0 0 0 0 0 0
80% 0 0 0 0 0 0 0 0 0 0 0
90% 0 0 0 0 0 0 0 0 0 0 0
100% 0 0 0 0 0 0 0 0 0 0 0

200
0% 150
20%

Payout(Billion $$)
100 150-200
40%
50 100-150
Prob. High Oil 60% 0 50-100
Price

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80% 0-50

100%

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 Will Keystone XL Actually increase cap.
Utilization ?
 This to be true
Capacity Utilization of Gulf Refineries = f ( Heavy Crude Diff.)
But Regression Results :
SUMMARY
OUTPUT

Regression Statistics
Multiple R 0.227787711
R Square = 5%
R Square 5%
Adjusted R Square 0.043713856
Standard Error
Observations
0.057772696
118
The Above relation is not correct.
ANOVA
df SS MS F Significance F
Regression 1 0.021188677 0.021188677 6.348316647 0.013109828
Residual 116 0.38717139 0.003337684
Total 117 0.408360068

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Intercept
Coefficients
0.850574742
Standard Error t Stat
0.016297545 52.19036148
P-value
2.1147E-82
Lower 95% Upper 95% Lower 95.0% Upper 95.0%
0.818295403 0.882854082 0.818295403 0.882854082

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X Variable 1 0.19440654 0.07715811 2.519586602 0.013109828 0.041585186 0.347227894 0.041585186 0.347227894

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 Results & Discussion - Benefits
Benefits Level
Economic Benefit during the construction work- Although the spending and output figures are acknowledged

Direct, indirect and induced spending of $20.931 by other stakeholders the job figures are doubtful.

billion, $9.605 billion in output and 118, 935

person years of employment

Economic benefit due to increased capacity As I showed in previous section there is no correlation

utilization of the Gulf Coast refineries - $100.144 between Heavy Crude differential and Capacity utilization of

billion in total spending, $29.048 billion in output, the Gulf refineries. So, the claimed economic effect is not

and 250,348 permanent jobs completely credible.

Value creation through easy transport of Bakken This is for sure an positive impact but the economics is not

oil to Gulf of Mexico. significantly high.

Energy security for the US Although virtually Keystone XL creates some energy

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security for the US, energy security for cannot be achieved

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 Results & Discussion - Risk
Risks Severity
Effect on Aquifers of Nebraska The effect will be severe. Currently US Government

asked TransCanada to avoid the Sand Hills of Nebraska.

CO2 Emission. Even if the Bitumen is not supplied to the US it will be

supplied to other countries. So, the emission does not

depend on Keystone XL.

Oil Price increase- according to Washington Post US is already suffering from high oil prices. Any price

the oil prices will increase by $6 a barrel and increase will be detrimental for the US economy.

prices at the pump in parts of the country by

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about 20 cents a gallon. (Sinclair, 2012)

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 Conclusion
 Keystone XL has some economic potential but not to the extent
claimed by TransCanada.

 Potential risks of High Oil prices will have significant detrimental

effect on the US economy.

 If only the economic measures considered this project is less

beneficial for the US than the risk.

 But if we also consider US- Canada relations and political

instability in the major oil producing areas in world, Canadian
bitumen can be a stable source of crude
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 Recommendations
 The economic benefit from Keystone will not be very
significant. The Net benefit can be negative.

 US Government should help US oil refiners to develop a

pipeline from Midwest to Gulf for Heavy oils. But the project
should be undertaken considering complete Cost Benefits
Analysis.

 Invest in Algae & other Bio fuel development to achieve

energy security.
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 Q&A

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 [UNIVERSITY OF CALGARY]

Economic Effect of
Keystone Project on the US
An Academic Exercise

Suman Sourav Ghosh

4/11/2012

This report is prepared to discuss the cost benefit analysis for Keystone XL
project to understand the potential effect of the pipeline on the US
economy. This is totally an academic analysis based on publicly available
data from a neutral standing.

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 Table of Contents
Introduction to Keystone XL Pipeline ..................................................................... 3

Why Keystone XL is important? .......................................................................... 4

Economic Impact of Keystone: ............................................................................... 5

Related Literature .................................................................................................. 6

Analysis .................................................................................................................. 8

Risks of KeystoneXL: ......................................................................................... 10

Aquifers of Nebraska: .................................................................................... 10

CO2 Emission: ................................................................................................ 10

Oil Prices: ....................................................................................................... 11

Risk Assessment:............................................................................................... 11

Results & Discussion: ........................................................................................... 13

Conclusion & Recommendation ........................................................................... 14

Appendix - 1 ......................................................................................................... 15

Heavy Crude Differential................................................................................... 15

Exhibit-1............................................................................................................... 16

Exhibit-2............................................................................................................... 17

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 Introduction to Keystone XL Pipeline
In 2008 Calgary based Transcanada filed an application with the US Department of

State to extend its Keystone Pipeline to Gulf of Mexico. The Keystone pipeline became

operational in June’2010 and is 3,456 Km long. It connects the Athabasca Oil Sands

(Hardisty, Alberta) in Canada and Illinois.

It was designed to deliver 0.59 Mbbl/d of

synthetic crude oil and

diluted bitumen ("dilbit") to multiple

destinations in the United States, which

include refineries in Illinois, Cushing oil

distribution hub in Oklahoma. The

proposed Keystone XL pipeline will

transport 0.7 Mbbl/d of crude oil to

delivery points in Oklahoma and

Fig. 1 Proposed Keystone Pipeline Source:
southeastern Texas. The planned http://www.transcanada.com/images/content/Pipeline_Projec
ts/KeystoneXL_Map_hd.jpg
pipeline would begin near Morgan, Montana at the international border of the United

States and extend to delivery points in Nederland and Moore Junction, Texas. There

would be some delivery points at Curshing, Okhlaoma. Many other U.S pipelines and

systems will get access to the delivery points. According to market conditions the

refining point would be decided. (EXECUTIVE SUMMARY: Final Environmental Impact

Statement for the Proposed Keystone XL Project, 2011)

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 Why Keystone XL is important?
Keystone XL is important for Canada because it will provide stable market for its oil

sand industry. But there are many reasons it is important to the US. Many issues came

up while discussing should the US Department of State accept or reject the project (the

project was rejected by Obama administration in January 2012 but open to alternative

route avoiding environmentally sensitive areas of Nebraska. (Alberts, 2012)

- The first issue is US energy security. As the Figure-2 shows, historically US

production of Crude oil is much

less than demand. Due to that

the US is heavily dependent on

imported crude oil. Currently

Canada is the largest supplier of

Crude oil (The Value of the

Canadian Oil Sands: Fig. 2: US Crude Production, Import & Demand; Source :(The
Value of the Canadian Oil Sands: An Assessment of the Keystone Proposal to, 2010)

An Assessment of the Keystone Proposal to, 2010). Due to reduction of

Venezuela supply the US needs Canada as energy partner.

- Keystone XL is supposed to create significant number of jobs in the US which is

suffering from continues shrinking job figures. There is some controversy over

the actual job figures. I will discuss about that in the ‘Economic Impact’ part of

this report.

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 - The broader impact of the investment during the set up of the pipeline is

significant and gives the current economic downturn it will be an economic boost

for the US.

- Many of the current discussions on the pipeline issue do not consider the

suffering the US heavy oil refineries which will be benefitted if the pipeline is

made.

Economic Impact of Keystone:

Before I talk about the economic impact of Keystone XL I will discuss about how

economists estimate the effect of a particular effect on economy. (Economic Impact

Assessment, 2011)

Economic impact is the positive or negative effect of an event on the financial well being

of the community. The community can be a

municipality, province or a whole country. The

effect can be measure from change in 1.

Employment levels, 2. Value added or GDP of

the region, 3. Aggregate wages and salaries, 4.

Wealth and 5. Business Output. Fig. 3: Sources of Economic Impact

Source : http:// www.reddi.gov.on.ca/ guide_ecimpactassessment. htm

But impact on the above mentioned

factors can be of different types:

1. Direct impacts are the immediate economic

Fig. 4: Direct, Indirect & Induced Impact

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 activities generated by a project or development. For example a new plant in a

locality pays

employees $100,000, purchases $300,000 from the local suppliers and pays a

property tax of $50,000, and then the direct impact of the plant on the local economy

is $450,000.

2. Indirect impacts are the production, employment and income changes in other

businesses/ industries in the locality which supplies to the project or development.

As an example due to increased demand the suppliers recruit more people.

3. Induced effects are due to the increased consumption level of the locality due to

direct or indirect job creation.

For practical uses the indirect and induced effects are estimated using multipliers. Let’s

say multiplier for a specific locality is 2.5, so and $100,000 direct investment will create

economic impact equivalent to $250,000 in which $150,000 is indirect and induced.

Related Literature
Two of the most important and highlighted studies on Keystone XL are “The Impact of

Developing the Keystone XL Pipeline Project on Business Activity in the US: An

Analysis Including State-by-State Construction Effects and an Assessment of the

Potential Benefits of a More Stable Source of Domestic Supply” by Perryman Group

and “Pipe dreams?” by Cornell University Global Labor Institute.

Finding in Perryman Report:

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 Perryman group used proprietary ‘US Multi-Regional Impact Assessment System’ to

estimate the economic impact. The basic modeling technique employed in this study is

known as dynamic input-output analysis. Using extensive survey data, industry

information, and a variety of corroborative source materials a matrix describing the

various goods and services (known as resources or inputs) required to produce one unit

(a dollar’s worth) of output for a given sector is produced. The base information is then

mathematically simulated to generate evaluations of the magnitude of successive

rounds of activity involved in the overall production process. (THE PERRYMAN GROUP, 2010)

The major findings are - Direct, indirect and induced spending of $20.931 billion, $9.605

billion in output and 118, 935 person years of employment due to the construction and

development work. The report also accounts for the savings stemming from permanent

increase in stable oil supplies. The savings under “normal” oil price assumptions

(equivalent to the average for all of 2007) is $100.144 billion in total spending, $29.048

billion in output, and 250,348 permanent jobs. In case of high-price (costs per barrel

reach the peak levels observed in the summer of 2008) is $221.305 billion in spending,

$64.193 billion in output, and 553,235 jobs.

Although the report talks about savings from permanent source of Crude it does not

describe the details

Finding in “Cornel” Report:

Cornel report majorly analyzed the claims of job creation by Keystone XL project. It

denies the number of direct employment. The report also introduces environment

effects. The report also points out that direct investment on the construction is much

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 less (around 20%) than claimed. This implies that the economic effect of the

construction and development work will be much less than claimed by Perryman

Groups report. Also, Cornels report claims that there can be loss of jobs due to the

pipeline. (Pipe dreams? Jobs Gained, Jobs Lost by the Construction of Keystone XL, 2011)

Analysis
Even if we accept claims in Cornels report estimated economic effect of the Pipeline

extension is not only from the construction work. Major source of economic effect (83%)

is the savings which will arise due to the pipeline extension. In this part we will try to

understand the sources of savings.

Energy Policy Research Foundation published a paper in November’2010 (The Value of

the Canadian Oil Sands: An Assessment of the Keystone Proposal to, 2010) which describes the

sources:

1. As we already saw that

demand of crude oil in the

US is increasing

continually. The US is

hugely dependent on import

to serve this demand.

Historically major source

Fig. 5 : US Energy Districts
was Venezuela and

2. Mexico. Heavy crude oil from these countries gets processed in the plants in

southern states (PADD III). Therefore facilities in this area (56 plants) are suited for
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 processing of heavy crude and also bitumen. As production of crude in Venezuela

decreased during 2008, the plants in PADD III became underutilized. As this plants

call for high investment, Break Even Utilization is high. Less capacity utilization eats

away the profit margin from existing production. Decrease is supply drove down the

Heavy Crude discount which is the difference of prices at which the heavy and light

crude is sold, which in turn decreased the profitability of Heavy crude conversion.

Expecting future demand Energy companies made huge investment in the Golden

Age (2005-2008) which is increasing the refinery capacity incrementally. As the Fig.

6 shows utilization of refineries is continually decreasing. (John R. Auers, 2010)

Extension of Keystone Pipeline will make possible for Canadian Heavy Oil to reach

the PADD III plants. Higher

capacity utilization for these plants

means more jobs, value creation

and energy stability. Again supply

of higher supply of Heavy

Crude will drive down the price for

it and in turn increase the Crud

Fig. 6 : Historical Trend of % Heavy Crude Differential
discount to process heavy crude more profitable.

3. Light-Sweet Bakken crude oil from the Willinston. TransCanada’s Keystone

expansion project has the potential to link light-sweet Bakken crude from the

Williston Basin (North Dakota, Montana, and Saskatchewan) could be send to the

refineries of Gulf for the first time. As the production of Bakeen oil is increasing

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 connecting the source with the largest oil refineries will make sense. TransCanada

is currently obtaining commitments from interested Bakken producing companies

wishing to utilize the Bakken Market link Project.

Risks of Keystone-XL:

Aquifers of Nebraska:

The proposed Keystone XL pipeline would go over the sand hills of Nebraska. This

poses a big environmental risk. The biggest aquifer of world which supplies 78% of

the region’s public water, 83% of irrigation water in Nebraska and 30% of water

used in the U.S. for irrigation and agriculture. The soil of thee sand hill is loose and

porous further increasing the chances of mixing of oil with water in case of any

pipeline accident. This is one of the biggest reason why the US government has

not the permitted the proposed route.

CO2 Emission:

Bitumen emits a large amount of greenhouse gases during extraction and

processing, disturbance of mined land, and impacts on wildlife and water quality.

The amount of emission is significantly higher than the conventional light oils. Also,

bitumen in oil sands cannot be pumped from a conventional well, the sand must be

mined, and usually using strip mining or open pit techniques, or the oil can be

extracted with underground heating methods. These methods require large

amounts of water and natural gas which adds to the environment footprint.

(Parfomak, Nerurkar, Luther, & Vann, 2012)

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 Oil Prices:
Natural Resources Defense Council of US claims that the Keystone actually increases

price of gas in the US. The reasons being:

1. The refineries in the US Gulf coast are not exactly ready for processing Bitumen.

To make them ready to process bitumen significant investment will be required.

2. Oil that will be piped to the US Gulf coast will actually used to serve the foreign

markets. Also, these refineries produce more diesel than gas. So, there will be

actually a negative impact on Gas prices. Even TransCanada admits in their

proposal “The resultant increase in the price of heavy crude is estimated to

provide an increase in annual revenue to the Canadian producing industry of the

US $2 billion to the US $3.9 billion.” (Parfomak, Nerurkar, Luther, & Vann, 2012)

Gas price increase can severely affect the already suffering the US economy.

Risk Assessment:
Please refer to ‘Exhibit-1’. I have assumed that

a. Oil price, economic inefficiency and loss due to oil spill are the major

drivers of risk.

b. I have used the economic impact for high and low oil price as the total

spending due to increased utilization mentioned in Perryman report.

c. For cost of Oil spillage I used the figure 750 million which is expected

historical cost for cleaning in case of oil spillage. (Droitsch, Report: Keystone

XL tar sands pipeline more of an economic liability than benefit)

d. There is 100% chance of some kind of economic inefficiency.

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 e. Economic inefficiency is the loss on Estimated Economic Impact due to

inaccurate assumptions.

Refer to Exhibit-1 (Table-2) we can see that if the Economic Inefficiency is more

than 70%, Payoff will be negative or Zero whatever the Probability of High Oil Price

is. In our case Economic Efficiency depends upon the assumed relation between the

Heavy Crude Differential and Capacity utilization of the Refineries. Let us review the

argument closely–

Supply of bitumen to the refineries of Gulf of Mexico will decrease the price of price

of heavy crude and increase the Heavy Crude differential which in turn will increase

the capacity of utilization refineries’ in Gulf of Mexico. Increased utilization of the

refineries will create positive economic effects.

The above statement will be true when the capacity utilization is a function of Heavy

Crude differential. To verify this postulation I calculated the Heavy Crude differential

percentage (appendix- 1) (Maya Vs LLS). When I run a regression of ‘Heavy Crude

differential’ and ‘Capacity utilization percentage’ (Capacity utilization as dependent

variable the results are as Exhibit-2. The R-Square is only 5%. It shows that there is

no co-relation between Heavy Crude Differential and Capacity utilization of the

refineries in Gulf of Mexico.

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 Results & Discussion:
Benefits Level

Economic Benefit during the construction Although the spending and output figures are

work- Direct, indirect and induced acknowledged by other stakeholders the job

spending of $20.931 billion, $9.605 billion figures are doubtful.

in output and 118, 935 person years of

employment

Economic benefit due to increased As I showed in the previous section there is no

capacity utilization of the Gulf Coast correlation between Heavy Crude differential

refineries - $100.144 billion in total and Capacity utilization of the Gulf refineries.

spending, $29.048 billion in output, and So, the claimed economic effect is not

250,348 permanent jobs completely credible.

Value creation through easy transport of This is for sure a positive impact but the

Bakken oil to Gulf of Mexico. economic is not significantly high.

Energy security for the US Although virtually Keystone XL creates some

energy security for the US, energy security for

cannot be achieved when it is dependent on

import.

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 Risks Severity

Effect on Aquifers of Nebraska The effect will be severe. Currently the US

Government asked TransCanada to avoid the

Sand Hills of Nebraska.

CO2 Emission. Even if the Bitumen is not supplied to the US it

will be supplied to other countries. So, the

emission does not depend on Keystone XL.

Oil Price increase- according to US is already suffering from high oil prices. Any

Washington Post the oil prices will price increase will be detrimental for the US

increase by $6 a barrel and prices at the economy.

pump in parts of the country by about 20

cents a gallon. (Sinclair, 2012)

Conclusion & Recommendation

Keystone XL has some economic potential but not to the extent claimed by

TransCanada. On the other side the potential risks of High Oil prices will have

significant detrimental effect on the US economy. If only the economic measures

considered this project is less beneficial for the US than the risk. But if we also

consider US- Canada relations and political instability in the major oil producing

areas in world, Canadian bitumen can be a stable source of crude.

My recommendations:

1. The economic benefit from Keystone will not be very significant. The Net

benefit can be negative.

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 2. US Government should help the US oil refiners to develop a pipeline from

Midwest to Gulf for Heavy oils. But the project should be undertaken

considering complete Cost Benefits Analysis.

3. Invest in Algae & other Bio fuel development. Bio- Fuels can be produced

indigenously. Not dependent on international effect. Significantly less

emission.

Appendix - 1
Heavy Crude Differential is the percentage discount of the Heavy Crude in relation

with light crude as Heavy crude is more expensive to produce.

Heavy Crude Differential =

(Price of ‘Light light Louisiana sweet’ crude – Maya Heavy Crude Price) / Price of LLS

Source of Data: Bloomberg

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 Exhibit-1
Table -1: Input (Figures are in billion $)
Economic Inefficiency 60%
Cumulative
Sending
(Billion $$) Probability Inefficincy -Low Oil Price Loss Probability
Normal Oil Price 100.144 0 loss -60.084 100%
High Oil Price 221.305 1

10%
Loss due to inefficiacy -HighOil Price Probability Pipe Spills Cost Probability
Loss -132.783 100% Big 100.1 -75.075 0.25
Mediaum 91 -68.25 0.5
Small 81.9 -61.425 0.25

Cost of Spill -0.75

25%
High
-35.015
-75.075 -35.015

100% 50%
High Oil Spill Medium
-28.19
-60.084 -2819% -68.25 -28.19

25%
Low
0% -21.365
Low Inefficiency Level -61.425 -21.365

100.144 -28.19 25%

High
25.069
-75.075 25.069

0% 50%
Low Oil Spill Medium
31.894
0 31.894 -68.25 31.894

25%
Low
38.719
Yes Oil Price? -61.425 38.719

0 20.272 25%
High
13.447
-75.075 13.447

100% 50%
High Oil Spill Historical
20.272
-132.783 20.272 -68.25 20.272

25%
Low
100% 27.097
High Inefficiency Level -61.425 27.097
Extent the Pipeline?
1 221.305 20.272 25%
20.272 High
146.23
-75.075 146.23

0% 50%
Low Oil Spill Historical
153.055
0 153.055 -68.25 153.055

25%
Low
159.88
-61.425 159.88

no
0
0 0

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 Table -2: Output (Figs. are in billion$)

Economic Probablity of High Oil Price

Inefficiency 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0% 31.894 44.0101 56.126 68.243 80.358 92.4745 104.5906 116.707 128.823 140.939 153.055
10% 21.88 32.784 43.689 54.593 65.498 76.402 87.307 98.211 109.116 120.02 130.925
20% 11.866 21.559 31.252 40.944 50.637 60.33 70.023 79.716 89.408 99.101 108.794
30% 1.852
Prob. High Oil Price 10.333 18.814 27.295 35.777 44.258 52.739 61.22 69.701 78.185 86.663
40% 0 0 6.377 13.647 20.916 28.186 35.455 42.725 49.994 57.264 64.533
50% 0 0 0 0 6.055 12.113 18.1711 24.228 30.287 36.345 42.403
60% 0 0 0 0 0 0 0.8872 5.733 10.58 15.426 20.272
70% 0 0 0 0 0 0 0 0 0 0 0
80% 0 0 0 0 0 0 0 0 0 0 0
90% 0 0 0 0 0 0 0 0 0 0 0
100% 0 0 0 0 0 0 0 0 0 0 0

Exhibit-2
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.227787711
R Square 5%
Adjusted R Square 0.043713856
Standard Error 0.057772696
Observations 118

ANOVA
df SS MS F Significance F
Regression 1 0.021188677 0.021188677 6.348316647 0.013109828
Residual 116 0.38717139 0.003337684
Total 117 0.408360068

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 0.850574742 0.016297545 52.19036148 2.1147E-82 0.818295403 0.882854082 0.818295403 0.882854082
X Variable 1 0.19440654 0.07715811 2.519586602 0.013109828 0.041585186 0.347227894 0.041585186 0.347227894

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 Works Cited
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.

Droitsch, D. (Report: Keystone XL tar sands pipeline more of an economic liability than benefit, March
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http://www.worldweatherpost.com/2012/03/12/report-keystone-xl-tar-sands-pipeline-more-of-an-
economic-liability-than-benefit/#.T4TYzKt8Dn0

Economic Impact Assessment. (2011, November 07). Retrieved March 2012, from Ontario: Ministry of
Agriculture, Food and Rural Affairs: http://www.reddi.gov.on.ca/guide_ecimpactassessment.htm

(2011). EXECUTIVE SUMMARY: Final Environmental Impact Statement for the Proposed Keystone XL
Project. United States Department of State Bureau of Oceans and International Environmental and
Scientific Affairs.

GROUP, T. P. (2010). The Impact of Developing the Keystone XLPipeline Project on Business Activity in the
US. Waco, Texas: THE PERRYMAN GROUP.

John R. Auers, P. (2010). U.S. Refining Industry Darkest before the Dawn? Turner Mason& Company.

Parfomak, P. W., Nerurkar, N., Luther, L., & Vann, A. (2012). Keystone XL Pipeline Project: Key Issues .
Congressional Research Service.

(2011). Pipe dreams? Jobs Gained, Jobs Lost by the Construction of Keystone XL. Cornell university global
labor institute.

Sinclair, P. (2012, March 8). Why Keystone will Raise Gas Prices. Retrieved March 22, 2012, from Climate
Crocks : http://climatecrocks.com/2012/03/08/why-keystone-will-raise-gas-prices/

(2010). The Value of the Canadian Oil Sands: An Assessment of the Keystone Proposal to. Washinton DC:
Energy Policy Research Foundation.

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