[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
IF YOU BUILD IT: THE KEYSTONE XL PIPELINE AND SMALL BUSINESS JOB GROWTH

=======================================================================

                                HEARING

                               before the

             SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                              MAY 16, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 113-018
              Available via the GPO Website: www.fdsys.gov



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Scott Tipton................................................     1
Hon. Patrick Murphy..............................................     2

                               WITNESSES

Mr. Brent Booker, Secretary Treasurer, Building and Construction 
  Trades Department, AFL-CIO, Washington, DC.....................     4
Mr. Peter Bowe, President and CEO, Ellicott Dredges, Baltimore, 
  MD, testifying on behalf of the National Association of 
  Manufacturers..................................................     6
Mr. Mat Brainerd, President, Brainerd Chemical Company, Tulsa, 
  OK, testifying on behalf of the National Association of 
  Chemical Distributors..........................................     8
Dr. Christopher R. Knittel, William Barton Rogers, Professor of 
  Energy Economics, Sloan School of Management, Massachusetts 
  Institute of Technology, Cambridge, MA.........................    10

                                APPENDIX

Prepared Statements:
    Mr. Brent Booker, Secretary Treasurer, Building and 
      Construction Trades Department, AFL-CIO, Washington, DC....    22
    Mr. Peter Bowe, President and CEO, Ellicott Dredges, 
      Baltimore, MD, testifying on behalf of the National 
      Association of Manufacturers...............................    30
    Mr. Mat Brainerd, President, Brainerd Chemical Company, 
      Tulsa, OK, testifying on behalf of the National Association 
      of Chemical Distributors...................................    38
    Dr. Christopher R. Knittel, William Barton Rogers, Professor 
      of Energy Economics, Sloan School of Management, 
      Massachusetts Institute of Technology, Cambridge, MA.......    42
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Dennis Daugaard, Governor, State of South Dakota.............    47
    Ports-to-Plains Alliance.....................................    49


  IF YOU BUILD IT: KEYSTONE XL PIPELINE AND SMALL BUSINESS JOB GROWTH

                              ----------                              


                         THURSDAY, MAY 16, 2013

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Agriculture, Energy and Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Scott Tipton 
[chairman of the subcommittee] presiding.
    Present: Representatives Tipton, Graves, Luetkemeyer, 
Huelskamp, and Murphy.
    Chairman TIPTON. Good morning. Our hearing will come to 
order.
    I would like to thank all of you for taking the time to be 
able to be here as we examine the potential economic benefits 
of constructing the Keystone XL pipeline and what it would mean 
for small business job growth. We have an excellent panel with 
us today to discuss this very important issue and I look 
forward to hearing all of their thoughts.
    We hear a lot about ``shovel ready'' projects, those that 
can be started immediately, putting Americans to work with good 
paying jobs while building the infrastructure necessary to be 
able to help fuel the economy. We also hear a lot about the 
need to be able to adopt an ``all of the above'' strategy when 
it comes to energy development in our country that utilizes all 
of the resources and technologies available in North America to 
supply us with the affordable energy that we need to be able to 
grow our economy. Both issues are vitally important to our 
economic future.
    The Keystone pipeline can help us reach those goals. It is 
good for job creation, good for energy security, and as I think 
we will see here today, good for small businesses.
    The potential economic benefits of this pipeline to the 
American economy are tremendous. TransCanada, the company 
petitioning the administration to be able to build the 
pipeline, estimates that it would spend approximately $7 
billion to construct the full project. The draft supplemental 
environmental impact study issued by the Department of State 
earlier this year estimated that the pipeline would create 
approximately 42,100 direct and indirect jobs. Those are not 
only construction jobs; those are jobs in lodging, food 
services, transportation, warehousing, and several other 
segments of our economy.
    While individual studies' findings are not broken down to 
the impact of large versus small businesses, 99.7 percent of 
all businesses in the United States are classified as small. 
TransCanada states it has contracts with more than 50 suppliers 
across the United States. Therefore, it is not unfounded to 
presume construction of the pipeline will create thousands of 
jobs for small businesses.
    A study by the Energy Policy Research Foundation concluded 
that the Keystone expansion would provide net economic benefits 
of $100 million to $600 million annually, in addition to the 
immediate boost in construction employment. Similarly, a 2009 
report from the Canadian Energy Research Institute commissioned 
by the American Petroleum Institute predicts that the Keystone 
XL pipeline will add $172 billion to America's gross domestic 
product by 2035 and will create an additional 1.8 million 
person-years of employment in the United States over the next 
22 years.
    Constructing the Keystone XL pipeline will help ensure an 
abundant, nearby, and stable supply of oil which will not only 
enhance our national security and make us less reliant on 
foreign oil imports from unfriendly nations and regions to this 
country; it could have the added economic benefit of keeping 
domestic fuel prices in check which would help ease the 
financial burden on hard-working American families and small 
businesses. This Committee has held several hearings on the 
importance of affordable energy to the viability of small 
businesses. Just as important, according to the project's 
environmental impact statement, construction of the Keystone XL 
pipeline can accomplish these goals with minimal adverse 
environmental effects.
    At a time when we should be focusing on economic growth and 
energy security, moving forward with this project is simply 
commonsense. We have a rare opportunity to create thousands of 
jobs immediately, many through small businesses, and do so in a 
responsible way. Let's build it.
    Again, I would like to thank all of our witnesses for their 
participation and their insights. I now recognize the ranking 
member for his opening statement. Mr. Murphy.
    Mr. MURPHY. Thank you, Mr. Chairman. And thank you all for 
being here this morning to discuss such an important topic, and 
I look forward to hearing all of your testimonies this morning.
    The 875-mile Keystone pipeline project, which has the 
potential to transport 830,000 barrels of oil from Canada to 
refineries in the United States, could have substantial impacts 
on small businesses and job creation in both the short term and 
long term. It is also important to address the environmental 
issues that surround this project proposal.
    This pipeline project has been a controversial issue that 
has generated a great deal of discussion and research, and we 
have a unique opportunity today to clear the misconceptions 
about the benefits and costs of this large project.
    In terms of new jobs the Keystone expansion may create, 
estimates very widely. TransCanada's submission to the State 
Department projects that the pipeline would create more than 
40,000 jobs. On the other hand, research done by Cornell 
University shows that the project would create between 2,500 
and 4,650 in temporary construction jobs, partially because a 
large portion of the primary material input--steel pipe--
probably would not be produced in the United States.
    For small business, the indirect economic effects are key. 
As workers deploy to communities along the pipeline's path, 
significant opportunities may be created for local small 
businesses. In addition, small firms involved in the 
manufacturing of pipeline components stand to benefit should 
this initiative receive regulatory approval. Taken together, 
this project represents real benefits for small businesses.
    While Keystone's potential boost to jobs and local 
businesses has been at the center of the discussion, energy 
prices are another critical factor. While tapping into the new 
sources of oil from Canada seems to carry the promise of low-
end gas prices, understanding whether the pipeline will have a 
meaningful impact on prices is a critical component of this 
discussion.
    Finally, such a large fossil fuel development project must 
include a discussion of its potential impacts on the climate, 
and understanding whether this project would increase or 
decrease carbon emission is important. I am particularly 
interested in the witnesses' perspectives on this matter.
    Keystone XL has the potential to bring both jobs and larger 
energy supplies to the United States. Congress must explore all 
of the fundamental facts of the problems before deciding on 
whether the project can move forward.
    With that in mind I want to thank all of the witnesses and 
thank Chairman Tipton for holding this hearing, and I yield 
back. Thank you.
    Chairman TIPTON. Thank you, Mr. Murphy.
    I would like to take just a moment to be able to explain 
the timing lights that are in front of you. You will each have 
five minutes to be able to delivery your testimony. The light 
will start out as green. When you get to one minute remaining 
it will move to yellow, and finally it will turn to red. And as 
you are all well aware, if you see that you will be bodily 
taken, drawn, and quartered. We would appreciate you trying to 
limit your testimony to that time limit but we will have you 
wrap up as well.
    Our first witness is Mr. Brent Booker, Secretary-Treasurer 
of the Building and Construction Trades Department of the AFL-
CIO. A graduate of the University of Virginia, he is a member 
of the Laborers Local 795 New Albany, Indiana, and has worked 
at Laborers International Union of North American Headquarters 
since 2001. He was elected Labor Secretary, Co-Chairman, and 
President of the National Maintenance Agreement Policy 
Committee in 2009, and represented his organization in 
negotiations with TransCanada for the Keystone XL pipeline.
    Welcome to the Small Business Committee, Mr. Booker. Please 
proceed with your testimony.

 STATEMENTS OF BRENT BOOKER, SECRETARY-TREASURER, BUILDING AND 
CONSTRUCTION TRADES DEPARTMENT, AFL-CIO; PETER BOWE, PRESIDENT 
 AND CEO, ELLICOTT DREDGES; MAT BRAINERD, PRESIDENT, BRAINERD 
CHEMICAL COMPANY; CHRISTOPHER R. KNITTEL, WILLIAM BARTON ROGERS 
  PROFESSOR OF ENERGY ECONOMICS, SLOAN SCHOOL OF MANAGEMENT, 
             MASSACHUSETTS INSTITUTE OF TECHNOLOGY

                   STATEMENT OF BRENT BOOKER

    Mr. BOOKER. Thank you. On behalf of the two million skilled 
craft professionals in the United States and Canada that 
comprise the 13 national and international unions of the 
Building and Construction Trades Department, AFL-CIO, I wish to 
thank you and the members of the Committee for holding this 
hearing today.
    America's building trades unions emphatically support the 
construction of the Keystone pipeline. Our unions have been 
actively involved in this project since its inception almost 
five years ago, and we are adamant in our belief that the 
economic, energy security, and national security benefits 
associated with the construction of this pipeline are too many 
and too significant to allow it to be derailed by a narrow and 
misguided political agenda being advanced by a small minority 
of ill-advised environmental groups.
    Simply put, Keystone XL is in the national interest of the 
United States of America.
    For over four years now, the American construction industry 
has been in the throes of a ``depression.'' While the stock 
markets and the media celebrated the news two weeks ago that 
the national unemployment rate fell to 7.5 percent in April, 
little attention was given to the fact that the national 
unemployment rate for construction workers remains above 13 
percent.
    For many members of our unions, the Keystone XL project is 
not just a pipeline; it is, in fact, in the most literal sense 
of the phrase, a lifeline. Far too many of them have lost their 
homes and are struggling just to put food on the table. And 
given the scrutiny this project has received, any further delay 
by the Obama administration would be unconscionable.
    Unfortunately, they must also face the additional emotional 
burden of having their chosen profession denigrated by a number 
of environmental groups. In its recent Supplemental Draft 
Environmental Impact Statement (SDEIS), the State Department 
effectively dismissed the Keystone oppositions' basic argument: 
which is that the construction of the Keystone pipeline will 
lead to an increased greenhouse gas emission. And even though 
the State Department was not obligated to have analyzed any 
environmental impacts outside of the United States, the SDEIS 
provides a clear life-cycle analysis of greenhouse gas 
production that would be connected to the development of the 
Canadian oil sands, as well as the environmental impact to 
wildlife, forests, threatened and endangered species, and water 
resources. In each instance, all key issues raised by the SDEIS 
have been adequately addressed.
    Misguided groups, like 350.org and the Sierra Club, have 
chosen to impose a value judgment that holds a construction job 
to be of lesser value because by its very nature a construction 
project has a completion date and therefore, that individual 
job will come to an end at some point. They call these jobs 
``temporary'' as a means to diminish their importance and 
validity, and to entice others to join their chorus of 
negativity in the mistaken belief that these jobs have no real 
value to our society.
    It was those types of hard-working professionals who built 
the ``Alberta Clipper'' pipeline project which the Obama 
administration approved way back in August of 2009. Ironically, 
the Alberta Clipper project just happens to be a pipeline very 
similar to Keystone XL in two compelling areas: (1) both are 
roughly 1,000 miles long; and (2) both are specifically 
designed to transport Canadian crude oil from the oil sands 
region of Alberta to refineries in America.
    Upon approval of the construction permit for the Alberta 
Clipper, the State Department said, and I quote, ``The 
department found that the addition of crude oil pipeline 
capacity between Canada and the United States will advance a 
number of strategic interests of the United States.''
    We could not agree more.
    Additionally, the Keystone XL TransCanada has agreed to 
implement 57 safety measures above and beyond those mandated by 
federal agencies relating to the construction, operation, and 
design of the pipeline. Yet, the most effective action they 
took to ensure safe construction of this pipeline was to sign a 
project labor agreement. By embracing a PLA, TransCanada 
recognized the value realized through a partnership with 
America's building trades unions, not the least of which is the 
assurance that the project will be built by the safest, most 
highly trained and productive pipeline workforce found anywhere 
in the world.
    And it also bears noting that the family-sustaining wages 
and benefits that will be paid on this project through the PLA 
will have a dramatic effect on local economies with communities 
all along the proposed route. In fact, over 4,000 workers have 
already performed roughly 1 million hours of work on the 
southern leg of Keystone, running from Cushing, Oklahoma to 
Port Arthur, Texas. And the economic impact from the wages and 
benefits paid through the PLA is noticeable.
    KBMT News in Port Arthur did a recent story detailing how 
the construction of the southern leg was providing a boost to 
the local economy, as workers are spending heavily on things 
like clothing, hotels, and restaurants. Additionally, from 
lumber to sand, and from gravel to fuel, massive quantities of 
materials that are needed for the project are being purchased 
locally up and down the route between Cushing and Port Arthur.
    The Keystone PLA is already proving to be a major 
contributor to the local economies along the southern route, 
and it is also structured to ensure safe, quality construction 
with ``on time, on budget'' results through the steady supply 
of the world's safest, most highly trained, and high productive 
skilled workforce found anywhere on the globe.
    Our unions, in partnership with our signatory contractors, 
invest roughly $1 billion a year of their own money, not 
taxpayers' money, to operate approximately 1,900 skilled craft 
training centers in both the United States and Canada.
    In sum, the Keystone XL project will create tens of 
thousands of good paying jobs here in the United States. It 
will increase the nation's energy security by providing a 
reliable source of crude oil from a friendly and stable trading 
partner. It will further boost the American manufacturing 
resurgence, and it will provide state and local governments 
with new sources of revenue that can help them alleviate 
budgetary problems that will lead to the creation of even more 
jobs. And being a private-funded project will do so without any 
taxpayer dollars. Any further delay by the Obama administration 
is unacceptable.
    Thank you for inviting me to testify today. I appreciate to 
hear your comments.
    Chairman TIPTON. Thank you very much, Mr. Booker, and we 
would like to recognize that our chairman of the full Small 
Business Committee, Sam Graves, is here and we certainly 
appreciate you joining us.
    Up next we have Mr. Peter Bowe, President and CEO of 
Ellicott Dredges in Baltimore, Maryland. Patented in 1885, 
Ellicott is the world's oldest and largest builder of medium-
sized cutter suction dredges. In his over 30 years at Ellicott, 
Peter has served as President, Treasurer, Vice President, 
General Manager, and member of the Board of Directors. He 
received his undergraduate degree from Yale College and his MBA 
from Harvard University.
    Thank you very much for being with us today, Mr. Bowe. 
Please proceed with your testimony.

                    STATEMENT OF PETER BOWE

    Mr. BOWE. Good morning, Chairman Tipton, Chairman Graves, 
Ranking Member Murphy. Thank you for having me.
    My name is Peter Bowe. I am here to speak today on behalf 
of my company, Ellicott Dredges and the National Association of 
Manufacturers.
    Ellicott, based in Baltimore, Maryland, is the oldest and 
largest manufacturer of dredging equipment. We built all the 
dredges used in the original construction of the Panama Canal. 
Our dredges are used not just for canals and ports but also for 
mining and environmental cleanups, like the reclamation of 
tailing ponds from oil sands operations in Alberta. Investment 
in infrastructure, especially energy infrastructure, accounts 
for much of our demand, and energy development also funds the 
investment intended to buy our equipment.
    Today, we have 200 employees at our plant in Baltimore and 
a second plant in Wisconsin.
    So why do we care about the Keystone pipeline? What does 
that have to do for us? For us, it's all about jobs. Not the 
construction jobs from the pipeline itself but ongoing jobs 
every year for decades to come, all related to the production 
of oil from the oil sands deposits. This oil needs the Keystone 
pipeline. The oil sands in Alberta are one of the largest 
markets worldwide for dredging equipment. The dredges rehandled 
the tailings generated by the mining process. Tailings are the 
wet waste, which is a combination of clay, sand, and water 
after the oil-bearing bitumen has been removed. All the oil 
sands projects generate substantial volumes of tailings which 
are deposited into ponds. The producers have been criticized 
for water usage but now, because of the tailings reclamation 
process, they recycle 85 to 90 percent of the water used, and 
the dredges are an integral part of the recycling process.
    Alberta government regulations require the producers to 
reclaim these ponds. This is a substantial obligation which 
requires an investment of hundreds of millions of dollars 
annual. For example, Suncor, just one of the producers, has 
said it will invest a billion dollars in just a two year period 
before this process.
    I have enclosed in my written testimony a picture of a type 
of dredge that we make. A typical machine can weigh over 500 
tons or could require us to spend as much as $10 million per 
machine on vendors around the United States and dozens of 
states. Mostly small companies but big ones, too, like 
Caterpillar. When we make a sale from a Canadian oil sands 
environmental project, we rely on these vendors from all across 
the country to export a product which is almost completely 
American made. At any given time, it would not be unusual for 
us to have 20 percent of our 200 employees working on oil 
sands-related projects.
    But it is not just the dredge business which benefits from 
oil sands. Two-way trade between the U.S. and the province of 
Alberta exceeds U.S. trade with U.K., South Korea, or France. 
Twenty-five hundred U.S. companies export goods and services to 
Canada in support of the oil sands. The value of these exports 
is supposed to be between 8 and 15 billion for the next 25 
years.
    Back to the point of how Keystone affects the oil sands 
business which is so important to us.
    There is now a substantial dislocation in the distribution 
network for oil sands. The result is that oil sands product 
pricing is depressed and selling at a big discount compared to 
West Texas Intermediate. This discount is hurting the 
producers, leading them to postpone or even cancel some of the 
oil sands projects. We have seen our workload diminished by the 
impact of this price discount. Oil sands production costs vary 
depending on the project but are estimated at $50-$60/barrel. 
So it does not take much of a discount to make a particular 
project uneconomic.
    A recent Wall Street Journal article from April tells the 
story well. ``Amid a bottleneck of too few pipelines and too 
much new oil across the U.S. Midwest, Canadian producers have 
started agreeing to steeper and steeper discounts to get their 
oil to American refiners, but government officials and industry 
executives and analysists expect continued price swings and 
market pressure until more pipelines are built.''
    The U.S. State Department's 2013 Environmental Impact 
Statement corroborated this conclusion, saying ``These steep 
crude discounts are a disincentive to producers to proceed with 
new extraction projects.'' Growth in domestic U.S. and Western 
Canadian production has put pressure on the crude logistics 
system. This discounting in pricing is expected to continue 
until and unless adequate capacity becomes available to enable 
crudes to move to the U.S. and Canadian markets. Indeed, our 
Canadian clients are postponing new projects which would have 
required our equipment.
    One way or the other, Canadians will eventually solve their 
distribution problems with or without U.S. governmental 
collaboration. To the extent this process is delayed, the 
producers will suffer economic loss and their U.S. suppliers, 
like us, Ellicott Dredges, will suffer as well, including 
diminished employment. We urge you to approve that Keystone 
pipeline expeditiously. We should rely on the proposition that 
Canadians are fully capable of acting as custodians of their 
own environment and that Canadian oil is not only 
environmentally superior to that from say Venezuela but 
certainly more secure politically compared to our other 
existing options.
    Thank you for your time this morning.
    Chairman TIPTON. Thank you, Mr. Bowe.
    Our next witness is Mr. Mat Brainerd. Mat is the chairman 
and CEO of Brainerd Chemical Company headquartered in Tulsa, 
Oklahoma. Brainerd is a 54-year-old family-owned company that 
employs 83 people in its Oklahoma and North Carolina 
facilities. The company serves 3,000 customers nationwide and 
he has been recognized as one of the top 100 chemical 
distributors in the United States. He is testifying on behalf 
of the National Association of Chemical Distributors, for which 
he is currently serving as Vice Chairman of the Board.
    Thank you for being here, Mr. Brainerd, and please proceed 
with your testimony.

                   STATEMENT OF MAT BRAINERD

    Mr. BRAINERD. Thank you, Chairman Tipton. Thank you, 
Chairman Graves, and thank you, Ranking Member Murphy for 
allowing me to testify on this important issue.
    I am the CEO and chairman of Brainerd Chemical Company, and 
I am a small businessman. My father started this business in 
1959 and I have been running this business since 1979. We do 
have 83 employees, as you just mentioned. We have three 
facilities in Oklahoma and North Carolina, and we serve 3,000 
customers. I am the vice chairman of the National Association 
of Chemical Distributors (NACD), on whose behalf I am 
testifying here today.
    The average NACD member has 26 employees and $26 million in 
annual sales, and collectively, we provide ingredients to 
nearly a million businesses. NACD members are leaders in 
health, safety, security, and environmental performance through 
implementation of Responsible Distribution, which is a third-
party verified management system and a condition of membership.
    Chemical Distributors take title to bulk volumes, break 
them down into smaller volumes, and in many cases, blend them 
and transport them to customers. We are a highly specialized 
critical link in the supply chain. Our industry is the 
predominant supplier of chemicals to small business.
    I am not here to discuss environmental impacts or the best 
pipeline route, nor am I qualified to do so. I am well 
qualified to discuss how this pipeline will benefit my company 
and industry.
    The pipeline would help us in three distinct ways. First, 
as with most industries, chemical distribution benefits from 
economic growth. Second, it would reduce our cost for aromatic 
and aliphatic chemicals, diesel, and rail cars. Third, it 
improves the economics of fracturing, which is an important 
market to us.
    My written testimony discusses the economic benefits of 
building the pipeline. Here I will just say that economic 
growth floats all boats and our industry is no exception. I 
want to focus here on how it will reduce costs and improve 
markets for us. Transporting crude is expensive. The pipeline 
would provide a reliable supply of crude from Canada, which 
would lower refining costs, increase our domestic fuel supply, 
and create downward pricing pressure.
    The refining process produces vital products besides fuels. 
Toluene and xylene, for instance, are two of the nine chemicals 
my company buys and distributes and are created by this 
process. Since the beginning of 2012, toluene has averaged 
about $4.50 a gallon and xylene about $3.35 a gallon. In that 
time, I have purchased more than a million gallons of these two 
chemicals alone. Obviously, any price reductions would 
significantly lower my supply costs. Similarly, the pipeline 
should create downward pressure on diesel prices. In an 
industry that depends on trucks to move our products to market, 
fuel costs are very important. As a small businessman, I spend 
approximately $60,000 per month on diesel to move my products 
to market. If prices dropped just 5 percent, that would save 
$36,000 a year or the equivalent of one full-time employee.
    Diesel also is a cost component of receiving chemicals by 
rail from my suppliers. Next month, my rail shipper is charging 
a 27 percent markup for certain goods to defray its costs. I 
also lease railcars. When operating these cars, I must pay a 
diesel surcharge, so any downward pressure on prices help my 
bottom-line.
    One outgrowth of shale oil expansion is the tremendous 
demand for railcars to ship crude oil to market, creating 
currently a backlog of 42,000 railcars. In my business, prices 
to lease railcars have doubled solely due to this shortage. If 
the pipeline is built, it would relieve some of the demand 
pressure. In my competitive industry, the cost savings in 
chemicals, diesel, and tank cars ultimately passes on to my 
customers.
    The shale oil boom has also created a major market for us 
because our products are critical to the extraction process. 
For instance, hydrochloric acid is used to ``acidize'' wells, 
which removes calcium and mineral deposits to increase flow 
through that well. Since pipelines improve the economics of 
operating these fields, it supports this market and my 
industry. It is my hope that the efforts of this Subcommittee 
will expedite permitting the XL pipeline.
    Thank you for allowing me to give this testimony.
    Chairman TIPTON. Thank you very much, Mr. Brainerd.
    I would now like to yield to Ranking Member Murphy for the 
introduction of this witness.
    Mr. MURPHY. Thank you.
    Dr. Christopher Knittel is the William Barton Rogers 
Professor of Energy Economics at the Sloan School of Management 
at the Massachusetts Institute of Technology. He joined the 
faculty at MIT in 2011, having taught previously at the 
University of California at Davis and Boston University. 
Professor Knittel received his undergraduate degree in 
economics and political science from the California State 
University and masters in economics from UC Davis and a Ph.D. 
in economics from UC Berkeley. His research focuses on 
environmental economics, industrial organization, and applied 
econometrics.
    Thank you for being with us today.

              STATEMENT OF CHRISTOPHER R. KNITTEL

    Mr. KNITTEL. Thank you, Chairman Tipton, Chairman Graves, 
Ranking Member Murphy, and the members of the Committee for 
inviting me here today. My name is Christopher Knittel. I am 
the William Barton Rogers Professor of Energy Economics in the 
Sloan School of Management at MIT. I am also the co-director of 
the Center for Energy and Environmental Policy Research, also 
at MIT.
    Inevitably, discussions related to oil and greenhouse gas 
emissions tend to get overblown. Discussions surrounding many 
of the issues behind the Keystone XL pipeline are no different. 
In my testimony, I will discuss the likely consequences of the 
Keystone XL pipeline along five dimensions: oil prices, 
greenhouse gas emissions, profits, jobs, and national security.
    First, the effect of the Keystone XL pipeline on oil 
prices. Here the economics are pretty straightforward. Energy 
economists and energy analysts tend to agree that, with few 
exceptions, the oil market is a world oil market That is, when 
a barrel of oil is pumped out of the ground, it competes with 
supplies of oil across the entire globe. The world market is an 
artifact of the low cost of shipping oil. A consequence of this 
is that it is very difficult for increases in product in any 
one country to have a long-term impact on the price of oil.
    The situation in the Midwest with Midwest oil and Canadian 
tar sands is, however, one exception. Due to pipeline capacity 
constraints connecting the Midwest and Canada with the Gulf 
Coast, the price of oil selling in Cushing, Oklahoma--known as 
the Western Texas Intermediate, or WTI--is currently selling at 
a discount compared to a barrel of oil in just about every 
benchmark location in the world. Most notably, the Brent crude 
prude reflecting the price of oil in Europe. The discount has 
recently fallen below $10 per barrel, but last year it averaged 
more than $17 per barrel, and has been over $30 per barrel over 
the last 24 months.
    Because of pipeline limitations, oil produced in both 
Canada and North Dakota cannot make it to the Gulf Coast and 
must therefore be refined in Canada or the Midwest. Refineries 
are able to get a discount on this oil because of the limited 
options available to oil producers. Recent work by Severin 
Bornstein of UC Berkeley and Ryan Kellogg of the University of 
Michigan shows that because pipeline capacity for refined 
products is not similarly constrained, the lower price paid by 
the refineries is not passed on to consumers. The benefits 
accrue, instead, to the refineries.
    Building the Keystone and Keystone XL pipelines will push 
the price that producers of North Dakotan and Canadian oil can 
capture closer, if not fully, to the world price. Therefore, 
these pipelines will tend to increase oil prices paid by 
refineries in the Midwest, but the work by Bornstein and 
Kellogg implies that this will not increase the price paid by 
consumers at the price because they are not enjoying that 
discount currently.
    There will be no appreciable change in the world price of 
oil, certainly not enough to base policy decisions on. While 
more supply always puts downward pressure on prices, when 
gauging the size of the supply increase it is important to 
understand the size of the market. To put things in 
perspective, the 800,000 barrels per day that will flow over 
the Keystone XL pipeline represents less than 1 percent of the 
world oil supplies. The increase in oil production that results 
from the pipeline will be even smaller.
    Second, the effect of the Keystone XL pipeline on 
greenhouse gas emissions. Here the economics are also pretty 
straightforward.
    While some have called the XL pipeline ``game over'' for 
the climate, I believe this is simply not true. And this is not 
because I doubt the seriousness of climate change. Much of my 
academic research promotes policies to reduce greenhouse gas 
emissions. It might seem surprising that the XL pipeline would 
have little impact on greenhouse gas emissions given how energy 
intensive Canadian bitumen, or tar sands, is to produce. Tar 
sands are certainly more energy intensive than the average oil 
fined in the U.S., requiring more energy at the extraction 
phase, as the bitumen must be separated from the sand and 
water. More energy also must be used to upgrade the bitumen for 
refining.
    No one can deny that this added energy and the greenhouse 
gas emissions associated with this oil. Two numbers are often 
discussed when it comes to the added greenhouse gas emissions. 
First, the increase in emissions during the production and 
refining stage of Canadian tar sands compared to the average 
oil sold in the U.S. is roughly 80 percent, according to the 
State Department and many other sources. This number ignores 
the fact that the majority of greenhouse gas emissions 
associated with the use of oil is when you burn the oil or burn 
the refined product. Here, the State Department estimates that 
these lifecycle emissions of tar sands are roughly 17 percent 
higher than the average oil sold in the U.S.
    The problem with both of these metrics is that it compares 
it to the average oil. The more relevant comparison is what oil 
the tar sands would replace. A recent Cambridge Energy Research 
Associates analysis found that Canadian tar sands is actually 
cleaner on a greenhouse gas emissions basis than heavy 
Californian oil and heavy Venezuelan oil.
    The main point is that the policy debate has focused on the 
wrong metrics when it comes to greenhouse gas emissions, 
focusing on the average oil sold in the U.S. rather than the 
oil that it would replace.
    Let me just summarize because as my students will attest I 
often go over time and here is no exception.
    The pipeline will have a big impact on profits and will 
also have an impact on jobs. And the most important component 
of the jobs impact is to realize that the economy is currently 
under full employment. And even short-term impacts or short-
term increases in jobs can have very big long-term impacts. 
This is the argument for economic stimulus when the economy is 
in recession. Here, rather than the government doing the 
stimulus, the pipeline will do it itself.
    And with that I will gladly take questions. Thank you.
    Chairman TIPTON. Thank you, Dr. Knittel. And probably 
worthy of note, your students are the ones who wanted me to add 
the line about being drawn and quartered.
    I do appreciate all of your testimony and I know a number 
of our members make an effort to be here. We have multiple 
meetings that are going on that we are supposed to be at 
simultaneously, so I will defer my questions till the end.
    Mr. Luetkemeyer, if you would like to proceed with your 
questions.
    Mr. LUETKEYEMER. Thank you, Mr. Chairman.
    I guess the first question that I have got is with regards 
to the safety of transporting the oil. Is there a problem with 
safety with regards to transporting? Mr. Booker, you build 
them.
    Mr. BOOKER. The pipeline would be the safest method that 
you could deliver oil. At this distance, this amount of barrels 
a day, there is not a safer way to transport the oil than to 
put it in a pipeline.
    Mr. LUETKEYEMER. What kind of safety precautions do you put 
in place when you build a pipeline like this?
    Mr. BOOKER. In this particular pipeline they have gone 
above and beyond. They have put 57 additional. Part of that is 
they have sensors all along the route that is going to be 
monitored 24 hours a day. So if there is a drop in pressure at 
the control center for TransCanada, they will be able to shut 
off the pipeline to mitigate any type of spills that would 
happen.
    Mr. LUETKEYEMER. We have in this country, with the Alaska 
pipeline, we have another pipeline to look at. I think within 
the last years it was built, it was built with a specific 
purpose, to transport oil long distances. What has your 
experience been with regards to that? Are you aware with any 
problems with regards to the Alaskan pipeline?
    Mr. BOOKER. Not that I am aware of. When you look at the 
alternatives of a pipeline versus what is happening today they 
are putting it on the back of railcars and they are 
transporting the oil in the back of a railcar. And the pipeline 
is a huge number of times more safe than putting it on the back 
of a railcar. I am not familiar with there being any accidents 
or major spills with the Alaskan pipeline.
    Mr. LUETKEYEMER. I thought the Russians have built a big 
pipeline across Russia and Europe to deliver oil over there. 
How is that working out? Do they have any problems with that 
one? Are you aware of any?
    Mr. BOOKER. I am not aware of any.
    Mr. LUETKEYEMER. Okay.
    Mr. Knittel, you talked about greenhouse gas, which kind of 
stirred me here a little bit. Can you elaborate a little bit 
longer on your comments that you made with regards to 
greenhouse gas? You thought that this was a better way to 
approach? There would be less green house gas? If you look at 
the transportation of other methods and the way that oil is 
refined, is that basically what you said?
    Mr. KNITTEL. The main thrust of that point is that the 
policy debate has focused on comparing tar sands with the 
average oil refined in the U.S., and that is just the wrong 
metric. The counterfactual or the alternative story that you 
would like to say is suppose we did not have the Keystone XL 
pipeline so tar sands production decreased. The question is 
what oil will replace that tar sands? And it is not the average 
oil sold in the U.S. It is very likely to be Venezuela heavy 
oil, which actually has about a 17 percent or is dirtier than 
tar sands.
    The analogy that I was going to use if I had the time was 
it is like me telling my son he cannot have a bag of chips 
because potato chips are worse than his typical food, only to 
see him put the chips away and grab an ice cream sandwich to 
eat. That is the comparison. The real comparison is what oil 
will this tar sands oil replace? And there is very good reason 
to believe that it would actually replace oil that is even 
dirtier on a greenhouse gas emissions basis.
    Mr. LUETKEYEMER. Okay. So we arguing or we are making 
points today about providing jobs, being cleaner, it is a safe 
way to transport the oil. What is the problem with why can we 
not get this done in your estimation?
    Mr. Bowe, do you deal with this every day?
    Mr. BOWE. I did not get into the politics of it but Mr. 
Booker's comment about the environmental reaction that oil is 
somehow bad, either in general principal it is bad, is not a 
premise I accept myself.
    Mr. LUETKEYEMER. Okay. Mr. Brainerd, what do you think?
    Mr. BRAINERD. You know, all I have to go by is what I 
listen to in the media and it sounds like President Obama has 
an issue with this and he is being pushed on by constituents 
that have given him a lot of money.
    Mr. LUETKEYEMER. Mr. Booker, what do you think? Why can we 
not get this done? You guys have a lot at stake here. You have 
a lot of jobs and it is good for the economy. And Mr. Knittel 
down there, he said there are no greenhouse gas and oil 
emission problems, environmental problems.
    Mr. BOOKER. No doubt, I agree with the doctor. This is 
going to create good jobs, good paying jobs. The hold up, I 
will say what Mr. Brainerd said. When you look at the media, it 
boils down to politics. It boils down to the environmental 
movement, calling this--taking this as their major issue. And 
placing pressure on it. It is our hope and our wish that at the 
end of the day we are going to side with jobs, creating good 
jobs for good Americans.
    Mr. LUETKEYEMER. I see my time is up. It looks like we need 
to find a way to diffuse the issue of the environment. It looks 
like Mr. Knittel did a good job of talking about them along the 
way here. So thank you for your testimony today. I yield back.
    Chairman TIPTON. Thank you very much. Ranking Member Murphy 
is also deferring, so Mr. Huelskamp, if you would like to 
proceed with your questions.
    Mr. HUELSKAMP. Thank you, Mr. Ch airman. I appreciate the 
gentleman testifying here. I want to relay a story to you all 
and ask some follow-up questions.
    Myself and many other members or most of the members of the 
Republican Congress have had an opportunity to meet privately 
with the president of the United States, and this is one issue 
that did come up in discussion. And the president was asked for 
his particular position on Keystone XL. We were hoping we would 
get a little indication from the president that given the 
changes in the proposed route and such that we could move 
forward on the project. What I found interesting was his 
comment that there are two sides on this issue. On one side is 
about everybody in this room and others that would like to see 
it built, and the president indicated on the other side are 
quite a few environmentalist groups that are certainly opposed. 
But what was most interesting was when the president said, 
``And I am in the middle.'' Of course, if you are in the middle 
you could probably let the project go forward given your 
administration has a pretty clear position on that other than 
folks down the line, but the president is certainly on one 
side. He is against construction and moving forward. He is 
against, I guess, the creation of those jobs.
    And maybe Mr. Booker would start. What do we need to tell 
the president, and apparently the closest staff to him, what 
does he need to know in order to encourage him to make the 
right decision for America on this project?
    Mr. BOOKER. Our message is simple. It is about creating 
good paying jobs. You know, putting highly skilled people to 
work to build the safest method of transportation for this oil 
to come down from Canada into the United States to market. So 
it is a jobs message for us.
    Mr. HUELSKAMP. And I appreciate that. And we have been 
talking about jobs for a long time. Of course, the president 
has as well. The economy is not exactly moving forward as any 
of us would hope. That message does not seem to be working with 
the White House. What else can we tell them? I mean, the idea 
that--and I am from Kansas. The pipeline is built to the Kansas 
border and five miles into Nebraska. We are just waiting. We 
have some refinery expansion going on and are waiting for that 
crude as well. What else can we tell the president of the 
United States? Because he single-handedly is the one that is 
holding up this project. I am looking for other suggestions.
    Mr. Brainerd.
    Mr. BRAINERD. I will throw in here for a second. If you 
want to talk about safety, I think Mr. Booker made a good 
comment. If you put it on the pipeline, it is going to be a 
whole lot safer on the pipeline. If you put it in railcars and 
we have derailments, you have a whole lot more environmental 
issues with heavy crude. And the cleanup on that heavy crude we 
have seen in the Gulf. You understand what that is all about. 
If you put it in trucks, it is even worse. So from a safety 
standpoint, that pipeline makes the most sense.
    From an economic standpoint, what it does for this country 
in economic recovery and growth is huge. What it will do 
downstream for the next 20 years is huge. And as I indicate in 
my testimony, we are the downstream benefactors of that crude, 
and what we do with it is put it in the paints and coatings and 
cleaning airplanes and building the PCs, and it goes on and on 
and on, and in clothing, and so forth. So the economic benefits 
just, in my opinion, are incredible.
    I heard what Mr. Knittel said with regard to it being only 
1 or 2 percent of this world; however, if we can displace 
Venezuelan crude, we should be doing business with our friends.
    Mr. HUELSKAMP. Other comments?
    Mr. BOWE. I do not think any of us here want to denigrate 
rail traffic. It is certainly important to the country. But 
again, The Wall Street Journal did a story in the last four 
weeks about a massive increase in rail traffic oil spills as 
the rail is used to move the Balkan oil from North Dakota. They 
are both relatively safe. Clearly, a pipeline is the safest. I 
think we all agree with that. So if you are trying to make a 
choice on that, you cannot argue with the pipeline alternative. 
What will happen is there will be more consequences.
    I think in terms of how to persuade the administration, for 
the foreseeable future the transportation industry in this 
country needs liquid petroleum products in one form or another. 
They cannot be displaced and they will not be displaced. And 
that cost factors into everything that we consume, whether you 
drive a car or not. If you consume any product, there are 
transportation costs built into that. So I think we need to 
acknowledge I do not think it will cause a dependence on liquid 
fuels and say that is not necessarily a bad thing. Energy is a 
big part of economy and our lifestyle.
    Mr. HUELSKAMP. Thank you, gentlemen. I appreciate the 
testimony. I am just trying to find a way to convince folks 
that we would like more jobs. We would like to help grow the 
economy. We would like to become North American energy 
independent. And everybody in that room I mentioned all claimed 
they wanted those goals. And here is one thing that we can 
actually help move to that end. I appreciate your input. I 
appreciate especially Mr. Booker being here today and the other 
gentlemen as well. Thank you. I yield back.
    Chairman TIPTON. Thank you, Mr. Huelskamp.
    I now yield to Ranking Member Murphy.
    Mr. MURPHY. Thank you, Mr. Chairman. Thank you all, again, 
for your testimonies.
    Dr. Knittel, you spoke briefly about the environmental 
impact globally. Have you thought at all or done any analysis 
on the impact to the environment in some of the local 
communities where this pipeline perhaps will be running 
through?
    Mr. KNITTEL. I have not done specific analysis to that, and 
I certainly believe those to be important. And I think that is 
one reason why they changed the route in the first place. And 
again, I believe there are tradeoffs here. My goal in this 
proceeding is to hopefully interject facts related to both 
greenhouse gas emissions, how it will affect oil prices, 
gasoline prices, jobs, and national security. I think on both 
sides, things, like I said, tend to get overblown. It is not 
going to have a large impact on greenhouse gas emissions. It 
also would not likely have a big impact on world oil prices or 
the price paid by consumers at the pump. There are local 
environmental issues that have to be weighed against the 
benefits, just as any investment in fossil fuels.
    The key to the other side of the benefits is that it will 
raise the price that North Dakotan oil producers get for their 
oil, which will have spillover effects on jobs. But I, in no 
way, want to denigrate or reduce the concern or the fact that 
local environmental issues certainly have to be weighed against 
those benefits.
    Mr. MURPHY. You mentioned greenhouse gases. There again, 
just help me clarify. Some groups have indicated that because 
of the pipeline it will speed up the flow of this fuel south, 
this oil south, and that will increase greenhouse gases into 
the atmosphere. And I know that this is very tough to 
calculate. It is sort of fungible these numbers. What is your 
thought on that? Will this really add to it because it is 
getting there quicker?
    Mr. KNITTEL. Well, there is probably little doubt that it 
will increase production of tar sands in Canada, but if that 
comes at the reduction of heavy Venezuelan oil then there might 
actually be a benefit in terms of greenhouse gas emissions. 
Again, climate change is one of the most important issues that 
our country has to address. And I think there is a long list of 
policies that I would encourage policymakers to adopt, but most 
of those are going to focus on finding alternatives to oil in 
the long run and other fossil fuels in the long run. Using the 
Keystone XL pipeline as somewhat of a symbolic argument against 
oil is probably not an effective use of our time in terms of 
reducing greenhouse gas emissions.
    Mr. MURPHY. So you do not necessarily think that this will 
not bring down oil prices for us domestically. How do you think 
domestic consumers will benefit from this?
    Mr. KNITTEL. Well, so, as mentioned, you know, currently 
the refineries in the Midwest and also Canada are paying a 
lower price for the oil that they use to refine. In typical 
cases that would be passed on to consumers, but because refined 
product pipeline capacity is not constrained they are able to 
shift those refined products throughout the U.S. So they are 
able to capture those rents or those profits from that lower 
price. So as the pipeline is built, what would inevitably 
happen is it will push the price--the Midwestern and Canada 
price of oil up towards the world price of oil. Because the 
current discount is not being passed on to consumers, the 
increase in the price paid by the refineries will also not be 
passed on to consumers. So there would be little impact in the 
price that consumers pay at the pump.
    Mr. MURPHY. Mr. Brainerd, we touched briefly on the idea 
that if this oil is not brought south through Keystone XL, that 
we will, in fact, be using Venezuela oil, perhaps, or maybe 
from somewhere else. Explain to me with your chemical company 
what the effects would be if it is Venezuelan versus Canadian 
versus something else.
    Mr. BRAINERD. As far as the products that we get from the 
downstream oil it would not make a difference. The crude that 
is used is refined and cleaned, and whether it has to be 
cleaned with higher solids or heavy oils does not affect us. It 
really is part of the refining process.
    Mr. MURPHY. And what do you expect to have for jobs for 
your own company if Keystone XL were to go through? What would 
happen? I mean, would you hire? What would happen with your 
company?
    Mr. BRAINERD. Well, we are back to economic recovery and 
growth. What happens in my industry if--or my business if we 
have a reduction in cost of diesel or reduction in the cost of 
supply of chemicals we buy, that will be passed on to our 
customers in the grand majority of the cases. And the reason 
for that is we have a very competitive marketplace. We are 
selling commodities, so as the price drops it is passed on to 
the end-user. As the end-user gets a better price, you are 
going to see better economics from that.
    So what I am saying is we are able to, again, create 
economic recovery and growth.
    Mr. MURPHY. Thank you.
    Mr. Bowe, it sounds like, from what I understand, if we do 
not, in fact, build this Keystone XL, that Canadians will build 
pipelines east and west out of their country and it will 
happen. How does that affect your company with the dredges? 
Will you continue to supply them? Are you in touch with the 
Canadians already? Have they reached out to you to say, ``Hey, 
if you all do not get your act together and do this that we are 
going to need your help building these dredges and other 
assets?''
    Mr. BOWE. Well, eventually, when oil sands are produced, it 
will create this reclamation demand. So anything that 
accelerates the development of oil sands will lead to the type 
of work that my company is involved in. I think that the 
Keystone makes so much sense because it is about getting the 
pipeline to refineries which already exist, which could use it. 
So the alternatives eventually will be decided on, whether that 
is going to the Asian markets, but that has its own other set 
of problems. It would certainly delay the impact on us. And 
when and if that happens we will sell dredges, whether there is 
a Keystone pipeline built or not. But in the meantime, we are 
absolutely hearing from the Canadian construction firms that 
service the oil sands that the oil sands producers are having 
trouble economically and pushing that trouble onto them in 
terms of price pressure on the bids that they have to make or 
even canceling or delaying projects all together.
    Mr. MURPHY. Just out of curiosity, I read a report recently 
that said 74 percent of manufacturers are having shortages 
finding qualified labor for building certain items. Are you 
seeing that within your company? It sounds like you use a mixed 
sourcing of small businesses up to Caterpillar.
    Mr. BOWE. Yeah. We have a skilled workforce of machinists, 
mechanics, and a lot of engineers. I would say that actually 
the labor market is tight for skilled people already and we 
hire in Baltimore and the western side of Wisconsin.
    Mr. MURPHY. Thank you. I yield.
    Chairman TIPTON. Thank you, Mr. Murphy.
    I think I would like to start with Mr. Booker and go back 
to one of your first comments that I think is very disturbing. 
You mentioned 13 percent unemployment among construction 
workers. And I guess coming from my district out in Colorado, 
my two largest communities, Grand Junction and Pueblo, 
Colorado, have a real unemployment level right now sitting 
around 20 percent. So I truly question some of the statistics 
that we are seeing coming out of the federal government in 
regards to the employment rate dropping in this country and 
seeing some of the recovery going on because it may be in 
isolated areas, but we are seeing people that really need to be 
able to get back to work.
    Mr. Booker, I would like to be able to get your comment. 
AFL-CIO, you deal with a variety of different industries. Has 
it been your experience, been your observation that to the AFL-
CIO that you have seen improvements in technology, that we are 
doing things safer in an environmentally better way? Do you 
have a dedicated workforce that wants to be able to do the job 
right?
    Mr. BOOKER. No doubt about it. You know, since 2008, when 
we went into the recession, at the fourth quarter of 2008, the 
construction industry has been hit the largest. Statistically, 
if you look it has been hovering around at least two times what 
the national average has been. The last couple months the 
construction industry unemployment has dropped down a little 
bit, but those numbers do not take into account the hundreds of 
thousands of people who left the construction industry to go 
find work in other industries.
    The economic impact of this project and other construction 
projects is going to drive the economy back. If it was the 
first one in, it is usually the last one out, but when the 
construction picks up that means the economy is heading in the 
right direction.
    So we have the people, we have the skills for the people. I 
said in my comments we spend by the building trade unions a 
billion dollars a year on a training infrastructure, at 1,900 
training facilities all across the United States and Canada. 
These people are ready to work. We have the people available to 
work. We just do not have the jobs right now.
    Chairman TIPTON. So would it make sense to you if we can 
create American jobs on American soil to be able to put 
Americans back to work, we do not require any federal funds at 
all, let us just get the job done, the Keystone pipeline XL, 
would that fit that?
    Mr. BOOKER. Oh, without a doubt. You took the words out of 
my mouth.
    Chairman TIPTON. Great. I appreciate it. And also, just to 
follow up, and if a few of you would like to make a comment on 
this as well, basically a lot of the decisions that you are 
seeing right now boil down to politics. Do you think it would 
be advisable to be able to recommend to this president, to this 
Congress, that it is about time that we put people rather than 
politics first and let us get back to work? Mr. Booker.
    Mr. BOOKER. Again, you took the words out of my mouth. Put 
the politics aside. Let us look at the facts. Let us look at 
what this project means. Let us look at this being a privately 
funded project, $7 billion investment that is going to create 
tens of thousands of jobs for American workers, highly skilled 
workers making an honest living, a respectable wage with health 
care benefits, with pension benefits. This project will create 
that. So yes, please, let us put the politics aside and let us 
get this thing approved and let us let Americans go to work and 
build the world's safest pipeline.
    Chairman TIPTON. Mr. Bowe, would you concur with that?
    Mr. BOWE. I would. I think environmentalists are people, 
too, but the trouble is that many of them are extremists who 
frankly would like to see businesses like mine--they would not 
care if it was put out of business because they do not care if 
we have cars and trucks that move goods around this country. 
And I think the majority of people do want that type of 
activity going on. So we should move ahead with this as quickly 
as we can.
    Chairman TIPTON. Mr. Brainerd.
    Mr. BRAINERD. Thank you, Congressman.
    I think one quick comment. We talked so much about what is 
going on today and what this will do for us today, but we do 
not talk a lot about what it is going to do for the next 20 
years. And the downstream benefits of this project long term 
are tremendous. The jobs that it is going to put in play now 
are important, but the jobs it is going to put in play long 
term are also tremendous.
    Another aspect of the pipeline is that there are two 
locations--Cushing, Oklahoma being one of those--where we are 
also going to get domestic oil that is going to plug into this 
pipeline that we have not otherwise had in the past. And again, 
I defer to Dr. Knittel as he discusses the 1 or 2 percent 
coming out of Canada. But we are also going to be getting this 
large volume of oil that we are currently trying to figure out 
how to move out of the Dakotas, out of the north, and putting 
that economically on that pipeline so that it can move into the 
refineries economically.
    I go back to the same thing with diesel. Maybe I am not an 
economist--and I am not--but as I watch these things happening 
and I am watching how we plug into this pipeline, the 
infrastructure of our country being built, this is how we build 
recovery.
    Chairman TIPTON. Mr. Knittel.
    Mr. KNITTEL. To address your question, certainly facts 
should always drive policy and we should always put the 
politics aside. And the facts here, there are important facts 
on both the pro side and the con side--the effect on jobs, the 
effect on profits, the shrinking of the WTI Brent price gap. 
That is the benefit. We do have to weigh those against 
environmental concerns. One of the main thrusts of my testimony 
though is that those are going to tend to be more local 
environmental concerns rather than greenhouse gas emissions. 
And those are the facts that we want to focus on in 
determining.
    Chairman TIPTON. I would like to go maybe a little bit on 
the environmental end of it. We have some people here 
representing industry, workers in industry. Do you happen to 
believe that it is important--do you like clean air? Do you 
like clean water?
    Mr. BOOKER. Absolutely. I mean, our members every day are 
involved in projects. We certainly endorse the ``all of the 
above'' energy strategy. Our members, where they work, they 
live in those towns and they want the clean water and the clean 
air. We build solar plants. We build wind turbines. We build 
nuclear. We build power plants. We build natural gas power 
plants. We are stewards of our environment. We support a clean, 
healthy, safe environment without a doubt. This project, you 
know, what Dr. Knittel said, it does not have the impact that 
the environmental extremist groups are saying that it has. The 
facts do not point to that.
    Chairman TIPTON. Mr. Bowe.
    Mr. BOWE. I think one constituency that has not spoken 
today is the Canadians. I think speaking for myself, I have 
faith that the Canadian people care at least as much about the 
environment as we do. They have a reputation for that and I 
think we need to give them credit for the efforts they take on 
their part as it relates to the supply of this resource.
    Chairman TIPTON. Mr. Brainerd.
    Mr. BRAINERD. I cannot talk from the refiner's side; I can 
only talk from the downstream product side, the products coming 
out of the refineries. But from the clean air standpoint, 
absolutely. We always say give the chemicals to the people who 
know how to handle it so that we do not have the pollution, so 
that we do not have the air emission, so that people who know 
how to handle the chemicals properly are not causing the 
environmental concerns.
    Chairman TIPTON. Do you make every effort to do it in an 
environmentally safe and sound way?
    Mr. BRAINERD. Absolutely. And that is part of the NACD's 
responsible distribution commitment and third party 
verification. We do what we are responsibly supposed to be 
doing with the chemicals and we do it through a third party 
verification program proving that we are doing this correctly.
    Chairman TIPTON. I appreciate that. I think that is 
probably one of the big challenges we always face. Rather than 
moving into camps of yes and no, we ought to be able to seek 
those opportunities to be able to create a win-win and this 
seems to be a scenario in which we can actually be able to 
achieve that.
    Dr. Knittel, I think one of the great opportunities that we 
get from all of our testimony is to be able to learn things, 
and that is the purpose of these hearings. For me, it was 
remarkable to be able to hear that the Canadian tar sands, 
which by the sound might be more harmful or actually safer than 
some of the oil that we are importing currently from Venezuela, 
to be able to come in and to be able to develop that resource 
here.
    I do want to move on one other point, I think the 
importance for this company, being able to put our people back 
to work. Will Canada sell their product one way or the other?
    Mr. Bowe, you mentioned the Canadians. Will they sell that 
product to either the United States or if we do not want to buy 
it, if we are not going to authorize this, will that then head 
west towards China?
    Mr. BOWE. Well, Dr. Knittel mentioned there is a world 
market for oil, and certainly there is. And the world market 
takes into account the cost of transportation, the cost of 
refining. So the Canadian oil sands are a resource looking for 
a market. And the bottlenecks in the distribution and logistics 
prevent that from happening, so that is somewhat a factor of 
market economics. As oil prices go up, if they do go up 
globally for whatever reason, then that would make the oil 
sands more economic to get them to China, for example. But 
because it is a global market, if oil sands is good on the 
market it will tend to reduce prices they otherwise would be. I 
mean, if you were the owner of that resource you would be 
looking to develop it. You would be looking to get it to 
market. And we hope that it happens. If oil prices go lower for 
whatever reason, then they become less economic and that would 
delay the time period when they might go to any end-use market.
    Chairman TIPTON. I am willing to bet if you build dredges 
and somebody on the East Coast was not willing to buy one, you 
will find a market on the West Coast or down in the Gulf. You 
will sell your product. That has got to be part of the job.
    Mr. BOWE. Most of our business is exports.
    Chairman TIPTON. Most of your business is actually exports. 
And I think when we look at this, talking about some of the 
environmental impacts, if that pipeline were to be built west 
rather than coming south, then it is going to be put on ships. 
What is going to be the environmental impact as we are burning 
the fuel to be able to transport that over? And who is going to 
do it and develop that and refine that product in a more 
environmentally sound way--the United States of America or 
China? And we are downwind from China, by the way. So it would 
probably be a good thing to be able to develop that resource 
here.
    I know we have taken a little more of your time than we 
probably were scheduled for but I think this is an incredibly 
important topic. When we are looking at really being able to 
benefit the American consumer, I always thought it was very 
interesting when President George H. W. Bush was taking about 
American moving to an ``all of the above'' strategy, to be able 
to create American energy security, to develop American 
resources on our soil, the futures market dropped 10 percent 
while he was talking. So I am a supply guy, and I think if we 
were creating that here many of us that are a little more 
seasoned that can remember the oil embargo by the Arabs back in 
the `70s, when we started moving, under Jimmie Carter's 
direction to be able to create American security in this 
country, ironically the prices started to come down out of the 
Middle East. If we start to compete as Americans, if we develop 
and work with friendly neighbors with the Canadians, we can 
develop energy right here and get our people back to work. And 
I think when I am talking to the families in my district, I am 
seeing hearts that are broken right now because moms and dads 
are worried about being able to provide for their children.
    Mr. Booker, Mr. Bowe, Mr. Brainerd, Dr. Knittel, I 
appreciated your comments, it is time for us to put the 
politics aside. Let us put Americans back to work. The time is 
now. Let's build this. Let's get the job done. And if we are 
talking, going back to Mr. Huelskamp's statement, in terms of 
what we can do, if you want to work with us, contact us and I 
think the ranking member will be with us there as well. Let us 
bring some of those AFL-CIO members here. Let's bring people 
that are building some of those dredges. Let's get some of our 
chemical folks here. Let's bring in some of your students that 
are probably going to be looking for a job when they graduate 
as well. Let's meet right here on the capital and let's send a 
message right now to this president and this Congress. Let's 
put America back to work. Thank you, gentlemen, for coming.
    I do want to take one moment, a personal privilege here, 
and she has stepped out. So she is going to have to go to the 
videotape here, but Lori Salley, who is on our staff, was just 
recently married, and we certainly want to be able to 
congratulate here.
    Thank you all for coming. Did you have any further 
questions that you would like to follow up with, Mr. Murphy?
    Mr. MURPHY. Thank you, Mr. Chairman. I just want to thank 
you all again for your time. I certainly learned a lot today 
and I am open for any follow up if anything comes up, and I 
look forward to working with you all in the future. Thank you.
    Chairman TIPTON. Great. Well, as many of you know, H.R. 3, 
the Northern Route Approval Act is scheduled to be on the House 
floor next week. For these reasons and many more, I urge my 
colleagues to be able to support this very important 
legislation.
    I ask unanimous consent that members have five legislative 
days to be able to submit their statements and supporting 
materials for the record.
    Without objection, so ordered. This hearing is now 
adjourned.
    [Whereupon, at 11:08 a.m., the Subcommittee was adjourned.]

                            A P P E N D I X

[GRAPHIC] [TIFF OMITTED] T1198.001

    Mr. Chairman and Members of the Committee,

    On behalf of the two million skilled craft professionals in 
the United States and Canada that comprise the thirteen 
national and international unions of the Building and 
Construction Trades Department, AFL-CIO, I wish to thank you 
and the members of this Committee for holding this hearing and 
delving into the economic and job creation aspects associated 
with the construction of the Keystone XL pipeline.

    America's Building Trades Unions emphatically support the 
construction of the Keystone pipeline which will move oil from 
deposits in Canada to existing refineries in Texas, Oklahoma 
and the Midwest. Our unions have been actively involved with 
this project for almost 5 years now, and we are adamant in our 
belief that the economic, energy security, and national 
security benefits associated with the construction of this 
pipeline are too many and too significant to allow it to be 
derailed by a narrow and misguided political agenda being 
advanced by a small minority of ill-advised environmental 
groups.

    Keystone was conceived, designed and built to transport 
Canadian and U.S. crude oil production to U.S. refineries. 
Phases I and II are currently operating safety, supplying 
domestic crude oil to domestic refineries, which is helping to 
displace offshore imports from dangerous and unfriendly regimes 
and regions around the world. Phase III will be completed by 
the end of this year, and will operate in the same, safe manner 
as Phases I and II. The Keystone XL leg will reduce the cost 
and improve the safety and efficiency in the movement of crude 
oil in the United States. That, combined with jobs, 
investments, tax revenue and energy security benefits, points 
to an unmistakable conclusion that Keystone XL will be of 
considerable benefit to the U.S. economy and to U.S. consumers.

    Simply put, Keystone XL is in the national interests of the 
United States of America.

    And the men and women that I am privileged to represent are 
the ones that are on the front lines of understanding what this 
project really means for America.

    For over 4 years now, the American construction industry 
has been in the throes of a ``depression.''

    I did not say recession, I said depression.

    While the stock markets and the media celebrated the news 
two weeks ago that the national unemployment rate fell to 7.5 
percent in April, little attention was given to the fact that 
the national unemployment rate for construction workers remains 
above 13 percent.

    So, when I say that skilled craft professionals in America 
are the ones that are on the front lines of understanding what 
this project truly means to America, those numbers are the 
foundation upon which I base that observation.

    And yet, those of us who understand the importance of the 
construction industry continue to scratch our heads over the 
lack of attention to this national crisis in an industry whose 
recovery and overall health is, according to a recent report 
from the St. Louis Federal Reserve Bank, and I quote, ``a 
necessary ingredient for strong and sustained recovery of 
economic activity and a reduction in the unemployment rate.''

    In other words, as the construction industry goes, so goes 
the U.S. economy.

    But, you wouldn't know that from watching our reading the 
news.

    With the exception of the first Friday of every month when 
the Department of Labor releases its monthly jobs report, the 
economy and the long-term job disaster that's been enveloping 
the country for five years now goes virtually unmentioned by 
the national news media. The plight of many millions of 
Americans who are actually out of work, and especially those 
who work in the construction industry, is apparently not very 
newsworthy.

    It is hard to believe that what the Center on Budget and 
Policy Priorities calls the ``longest, and by most measures 
worst economic recession since the Great Depression'' 
consistently fails to garner any attention among the media and 
many of our nation's elected leaders.

    For many members of our unions, the Keystone XL project is 
not just a pipeline; it is, in the most literal sense of the 
phrase, a life-line. Far too many of them have lost their homes 
and are struggling just to put food on the table.

    And given the unprecedented scrutiny this project has 
faced, any further delay by the Obama Administration would be 
unconscionable.

    Unfortunately, they must also face the additional emotional 
burden of having their chosen profession denigrated by a number 
of environmental groups.

    In its recent Supplemental Draft Environmental Impact 
Statement (SDEIS), the State Department effectively dismissed 
the Keystone opposition's basic argument: which is that the 
construction of the Keystone pipeline will lead to increased 
greenhouse gas emission. And even though the State Department 
was not obligated to have analyzed any environmental impacts 
outside of the United States, the SDEIS provides a clear life-
cycle analysis of greenhouse gas production that would be 
connected to the development of the Canadian oil sands, as well 
as the environmental impact to wildlife, forests, threatened 
and endangered species, and water resources. In each instance, 
all key issues raised by the SDEIS have been adequately 
addressed.

    In fact, more than 12,000 pages of documents have been 
published on KXL--including four federal environmental reviews 
in the past five years--and in each instance the conclusion is 
the same: there will be no discernible impact on greenhouse 
gases through the construction of this pipeline.

    So now, after having the validity of their climate change 
argument debunked by the State Department, the environmental 
community has now resorted to attacking the nature of the work 
that members of our unions have chosen as careers.

    Misguided groups like 350.org and the Sierra Club have 
chosen to impose a value judgment that holds construction jobs 
to be of lesser value because by its very nature a construction 
project has a completion date and therefore that individual job 
will come to an end at some point. They call these jobs, quote 
``temporary'' as a means to diminish their importance and 
validity, and to entice others to join their chorus of 
negativity in the mistaken belief that these jobs have no real 
value to our society.

    When self-imposed moral arbiters like 350.org or the Sierra 
Club dismiss out of hand the thousands of jobs that will be 
created through the construction of the Keystone XL project, 
then they are, in effect, dismissing the lives, families, 
careers--and even the basic existence--of millions of hard-
working Americans who work to construct, repair and advance 
this great nation.

    And it was those types of hard-working professionals who 
built the ``Alberta Clipper'' pipeline project which the Obama 
Administration approved way back in August of 2009. Ironically, 
the Alberta Clipper project just happened to be a pipeline very 
similar to Keystone XL in two compelling areas: Number One, 
both are roughly 1,000 miles long; and Number Two, both are 
specifically designed to transport Canadian crude oil from the 
Oil Sands region of Alberta, to refineries in America.

    Upon approval of the construction permit for the Alberta 
Clipper pipeline, the State Department said, and I quote, ``The 
department found that the addition of crude oil pipeline 
capacity between Canada and the United States will advance a 
number of strategic interests of the United States.''

    We couldn't agree more. And since the Keystone XL pipeline 
will originate in the exact same town as the Alberta Clipper--
specifically, Hardisty, Alberta--the conclusions reached by the 
State Department in relation to the Alberta Clipper should 
agree to Keystone XL and guide the decision to approve the 
construction permit.

    Now, I know it may be difficult for hard-core environmental 
extremists to believe this, but America's Building Trades 
Unions actually agree with the notion that our nation needs to 
begin the shift to a less carbon-intense society. After all, a 
vast portion of our members enjoy, embrace and work to protect 
the natural resources of the United States. And we have a 
significant number of our members employed today building solar 
and wind farms; retro-fitting commercial office buildings to 
make them more efficient; and working to lessen the 
environmental impact of hundreds of existing power plants 
across the nation. But, we are also realistic to know that a 
complete transition to renewable energy in America will take 
decades.

    The fight over Keystone is not a fight about oil vs. 
renewable energy. That's a complete fallacy. The United States 
will be reliant on fossil fuels for decades because renewable 
energy has not advanced to the point where it alone can provide 
base load, affordable, and accessible power for our nation's 
growing energy needs.

    So, the fundamental question then becomes: Where do you 
want to get your oil from? The Keystone XL project offers 
America the choice of either importing the oil that we will 
need from a trusted ally like Canada, or to continue to rely on 
oil supplies in dangerous regions of the world that do not 
share American values.

    When confronted by environmental activists who oppose this 
project, our unions have asked them to pay a visit to a 
military hospital or veteran rehabilitation center and speak to 
the brave men and women of our armed forces who have sacrificed 
so much in Afghanistan and Iraq in order to secure our energy 
interests in that region of the world. Ask those heroes, we 
say, if they would prefer to see America rely upon Canada for 
crude oil, rather than the Middle East.

    Regardless of the negative characterizations and 
denunciations bandied about by the project's opponents, there 
remains an indisputable fact that jobs will be created and 
supported in the extraction and refining of Canadian oil; the 
construction of the pipeline itself; and in the U.S. 
manufacturing and service sectors.

    And it is worth noting that TransCanada agreed early on to 
construct this pipeline under a Project Labor Agreement.

    The PLA was signed by TransCanada Corporation, the Laborers 
International Union of North America, the International 
Brotherhood of Teamsters, the United Association of Plumbers 
and Pipefitters, the International Union of Operating 
Engineers, the International Brotherhood of Electrical Workers, 
and the Pipeline Contractors Association.

    Additionally, TransCanada has agreed to implement 57 safety 
measures above and beyond those mandated by federal agencies 
relating to the construction, operation and design of the 
pipeline.

    Yet, the most effective action they took to ensure the safe 
construction of this pipeline was to sign a project labor 
agreement.

    By embracing a PLA, TransCanada recognized the value 
realized through a partnership with America's Building Trades 
Union, not the least of which is the assurance that the project 
will be built by the safest, most highly trained and productive 
pipeline workforce found anywhere in the world.

    But, they also recognized our capacity for effective 
grassroots advocacy, which we have demonstrated though our 
efforts here in Washington, DC, as well as in cities and towns 
all along the pipeline route. Whenever there was a field 
hearing or town hall meeting, rank and file members of our 
unions were there in force delivering a pro-jobs, pro-Keystone 
message.

    And it also bears noting that the family-sustaining wages 
and benefits that will be paid on this project through the PLA 
will have a dramatic effect on the local economies of 
communities all along the proposed route.

    In fact, over 4,000 workers have already performed roughly 
1 million hours of work on the southern leg of Keystone, 
running from Cushing, Oklahoma to Port Arthur, Texas. And the 
economic impact from the wages and benefits being paid through 
the PLA is noticeable.

    KBMT News in Port Arthur did a recent story detailing how 
the construction of the southern leg was providing a boost to 
the local economy, as workers are spending heavily on things 
like clothing, hotels and restaurants.

    Additionally, from lumber to sand, and from gravel to fuel, 
massive quantities of materials are being purchased locally up 
and down the route between Cushing and Port Arthur.

    In sum, the Keystone PLA is already proving to be a major 
contributor to the local economies along the southern route. 
And it is also structured to ensure safe, quality construction 
with ``on time, on budget'' results through the steady supply 
of the world's safest, most highly trained and highly 
productive skilled craft workforce found anywhere on the globe.

    Allow me to elaborate on that last point for a 
moment...because it is important not only in the context of 
this project, but it speaks to some broader misconceptions 
about who we are and the contributions America's Building 
Trades Unions make not only to our industry, but to our society 
at large.

    Our unions, in partnership with our signatory contractors, 
invest roughly $1 billion per year to operate approximately 
1,900 skilled craft training centers in both the United States 
and Canada.

    By way of example, one of those training centers is located 
in Tulsa, Oklahoma, and is operated by Local 798 of the United 
Association of Plumbers and Pipefitters. Local 798 is widely 
regarded as ``the pipe-liners local.''

    Few industries have seen more rapid or more constant change 
than the pipeline industry. Constantly emerging new 
technologies and ever-changing demands mean constant 
challenge--not least of all for the men and women who must 
master new technologies and meet the demands of the pipelining 
workplace. Through the most extensive and technologically 
advanced training found anywhere in the world, Local 798 is 
giving its members access to the training they need not only to 
keep pace with industry change, but to ensure the safe and 
environmentally sound construction of pipelines like Keystone 
XL.

    Local 798's training is specifically designed to assist its 
members in keeping up-to-date with all the new technologies in 
welding, fabrication, inspection, bending-engineering and any 
other areas that benefit the industry and, most importantly, 
ensure the safe construction of pipelines.

    In addition, the Local 798 Training Center collaborates 
with contractors in developing specific welding procedures for 
specific jobs, and provides welder testing services for any 
pipeline construction job--domestic or overseas, on-shore or 
off-shore.

    And to be sure, each of the other signatory unions to the 
PLA are similar in their innovative and state-of-the-art 
approaches to skilled craft training and workforce development.

    These are the types of highly trained skilled craft 
professionals that will be developed to build the Keystone XL 
pipeline.

    And speaking of highly trained professionals, PLAs like the 
one governing the Keystone project are routinely used to 
provide career training pathways for our nation's transitioning 
military veterans. Through the ``Helmets to Hardhats'' program, 
our unions have provided jobs and apprenticeship opportunities 
for tens of thousands of military veterans over the course of 
its ten year history.

    And the Keystone project will not only create jobs with 
family-sustaining wages and benefits, but it will also spur an 
economic multiplier effect across the U.S. economy. According 
to the State Department Environmental Impact Statement, 
construction of the Keystone XL pipeline will:

     Contribute roughly $3.4 billion to our nation's 
GDP;

     Drive the purchase of an estimated $3.1 billion 
worth of construction materials and support services;

     Directly employ thousands and thousands of 
construction workers;

     Produce total expected earnings by the workers on 
this project in the neighborhood of $2 billion.

     And last but not least, support the creation of 
tens of thousands of additional jobs throughout the United 
States.

    And those jobs include ones being created by Siemens, which 
has been manufacturing the heart of the Keystone project--the 
237 electric, and emissions-free, motors that will drive the 
pumps that transport the oil through the pipeline.

    According to Siemens, building these motors required 450 
highly skilled workers at their plant in Norwood, Ohio. The 
company recently invested more than $40 million to refurbish 
and re-tool the plant to meet the manufacturing needs of 
today's economy.

    Construction of this pipeline will also produce needed 
government revenue at the federal, state and local levels. And 
these new resources can then provide the wherewithal for state 
and local governments to invest in new schools and other forms 
of needed infrastructure improvements. In fact, the Department 
of State estimates that 31 counties across three states will 
collect a total of $35 million in property taxes.

    To be clear, the Keystone XL project will create tons of 
thousands of good paying jobs here in the United States and 
Canada. It will increase the Nation's energy security by 
providing a reliable source of crude oil from a friendly and 
stable trading partner. It will further boost the American 
manufacturing resurgence. And it will provide State and local 
governments with new sources of revenue that can help them 
alleviate budgetary problems that will lead to the creation of 
even more jobs.

    And being a privately-funding project, Keystone will 
accomplish all of this without the need for taxpayer dollars.

    The choice is clear and, again, any further delay by the 
Obama Administration is unacceptable.

    Thank you for inviting America's Building Trades Unions to 
express our views before the Committee today.
                        Testimony of Peter Bowe


             President of Ellicott Dredge Enterprises, LLC


              Before the House Committee on Small Business


             Subcommittee on Agriculture, Energy and Trade


         Hearing on: Oil Sands Create US Manufacturing Exports


                              May 16, 2013


    Good Morning, Chairman Tipton, and Ranking Member Murphy, 
and members of the Subcommittee on Agriculture, Energy and 
Trade.

    My name is Peter Bowe. I am pleased to be with you here 
today to speak on behalf of my company, Ellicott Dredges, LLC, 
and the National Association of Manufacturers (NAM).

    Ellicott Dredges, based in Baltimore, Maryland, is the 
oldest and largest U.S. manufacturer of dredging equipment. We 
built all of the dredges used in the original construction of 
the Panama Canal over a century ago. Since our founding in 1885 
we have built over 2500 dredges with prices as high as $30 
million and as low as one hundred thousand dollars. These 
dredges are used not just for canals and ports, and niche 
markets like beach restoration, but more often for mining and 
for environmental cleanups like lake desiltation or PCB 
removal, or case in point here, reclamation of tailing ponds 
from oil sands production in Canada. We export over half of our 
sales, selling to over twenty countries a year. Investment in 
infrastructure, especially energy infrastructure, accounts for 
much of our demand, and energy development often funds the 
investment needed to buy our equipment.

    Today we have 200 employees in the US with factories in 
Baltimore and Wisconsin as well as two small factories in 
Europe. We employ skilled manufacturing positions, like 
mechanics and machinists, as well as dozens of degreed 
engineers.

    So what does the Keystone pipeline have to do with us, and 
why do we care? For us, it's all about jobs, not construction 
jobs for the pipeline itself, but ongoing jobs every year for 
decades to come, all related to the production of oil from the 
Alberta oil sands deposits.

    This oil needs the Keystone pipeline.

    The oil sands in Alberta are one of the largest markets 
worldwide for dredging equipment. Our dredges are used to 
rehandle the tailings generated by the mining process. Tailings 
are the wet waste which is a combination of clay, sand, and 
water after the oil-bearing bitumen has been removed. All the 
oil sands projects generate substantial amounts of tailings 
which are deposited into ponds. Oil sands producers have been 
criticized for water usage, but now, thanks to tailings 
reclamation, they recycle 85% to 90% of the water they use, and 
dredges are an integral part of the recycling process.

    Alberta government regulations require the oil producers to 
reclaim these ponds, to restore the land to a self-sustaining 
condition. This is a substantial obligation which requires an 
investment of hundreds of millions of dollars annually. For 
example, Suncor, one of over a dozen oil sands producers, has 
said it will invest a billion dollars for tailings reclamation 
over a two year period.

[GRAPHIC] [TIFF OMITTED] T1198.002

    Shown above is a picture of one type of dredge or pumping 
equipment we make for the oil sand producers. A typical machine 
can weigh over 500 tons. It is carefully designed, with safety 
and long term reliability and efficiency as important 
considerations. A machine like this could require us to spend 
as much as $10 million on vendors located around the United 
States like gear boxes from Ohio or upstate New York, or 
electrical equipment from Illinois, or steel fabrications from 
Wisconsin, Kentucky or South Carolina, or foundry parts from 
Pennsylvania, Alabama, Georgia, or Mississippi, or cranes from 
Kansas. And year in, year out, Caterpillar, which provides us 
with diesel engines, is our single biggest supplier. So we buy 
from both big and small companies. When we make a sale for a 
Canadian oil sands environmental project, we rely on literally 
hundreds of vendors from across the country to export a product 
which is almost all American-made--and though I am reluctant to 
admit it, we have a few American competitors also serving the 
same market which add to the favorable economic impact that oil 
sands development has on American manufacturing and American 
exports.

    At any given time, it wouldn't be unusual for 20% of our 
employees to be working on oil sands-related projects.

    It is certainly not just the dredge business which benefits 
from oil sands exploration and development.

    Two way trade between the USA and just the province of 
Alberta is more than with the UK, South Korea or Francs.\1\

    About 2500 US companies export goods and services to Canada 
in support of oil sands--Ellicott Dredges is just one of 
those.\2\ The value of those exports annually is projected to 
range from $8b up to $15B, for the next 25 years!\3\

[GRAPHIC] [TIFF OMITTED] T1198.003

    Back to the point of how Keystone XL is likely to affect 
the oil sands business, which is so important to Ellicott's 
business: the Committee is probably already aware that the type 
of oil from oil sands serves certain specific refineries and 
that there is now a substantial dislocation in the current 
distribution network for oil sands product. The result of this 
dislocation is that oil sands product pricing is currently 
depressed and selling at a big price discount compared to oil 
price benchmarks such as the West Texas Intermediate (WTI) or 
Brent.

    This discount is hurting the oil producers, leading them to 
postpone or even cancel oil sands project developments. We have 
seen our workload diminished by the impact of this price 
discount. Oil sands production costs vary depending on the 
specific project, but have been estimated at 50-$60/BBL. It 
doesn't take too much of discount to make oil sands uneconomic 
from a market perspective.

    A recent Wall St Journal article tells the tale as well as 
anyone could. (WSJ, April 9/2013) ``Amid a bottleneck of too 
few pipelines and too much new oil across the U.S. Midwest, 
Canadian producers have started agreeing to steeper and steeper 
discounts to get their oil to American refiners, their only 
foreign buyers.

    But government officials, industry executives and analysts 
expect continued price swings and market pressure until more 
pipelines are built.

    In January and February, Canadian heavy crude at times 
traded as much as $40 cheaper than U.S. benchmark oil. 
Recently, that differential has fallen back down to less than 
$20 a barrel. Because of the Midwest glut, U.S. oil trades at 
its own discount to international blends.

    There's still strong demand for Canada's heavy crude, which 
many U.S. Gulf Coast refiners prize. But getting it to those 
buyers has become extremely difficult at U.S. output 
increasingly fills up the pipelines and storage facilities in 
between. That's results in a market where refiners, not 
producers, are calling the shots.

          ``At the very core of it [Canadian producers] are 
        competing to sell into refiners, and the refiners will 
        just drop their prices,'' said Don Moe, vice president 
        for supply and marketing at MEG Energy Corp., a 
        Calgary-based oil-sands producer,'' End of WSJ 
        citation.

    The US State Department's own 2013 Market Analysis, 
conducted as part of its Draft Environmental Impact Statement, 
corroborated this conclusion, that a lack of pipeline capacity 
is negatively affecting production and new project 
development.\4\

    That report noted:

    ``...a $30 reduction in oil price, (such as) a decrease 
from $100 to $70, would result in all projects with a breakeven 
above $70 being delayed or cancelled'' ....Sec 1.4-55) and

    ``The incremental cost of ...rail versus pipeline is 
between $2 and $7.50'' (1.4-56) and

    ``These steep crude discounts are a disincentive to 
producers to proceed with new extraction projects.'' (1.4-59)

    They also noted: ``Until late 2010, WTI and Brent oil 
prices moved in parallel with only small differentials between 
them. Beginning in early 2011, that situation changed. Growth 
in domestic US and Western Canadian production put pressure on 
a crude logistics system that was designed to take crude oils 
to the Central US rather than out to the Coasts. The 
discounting has persisted into 2013 and is expected to continue 
unless and until adequate capacity becomes available to enable 
crudes to move to US and Canadian coastal markets.'' (1.4-58)

    Our Canadian clients are in fact postponing new projects 
which would have required our equipment for tailings recovery. 
Best case they are leaning heavily on suppliers like us for 
difficult price concessions to offset some of their logistics 
costs problems.

[GRAPHIC] [TIFF OMITTED] T1198.004

    One way or the other, Canadians will eventually solve their 
distribution problems, with our without US governmental 
collaboration. To the extent this process is delayed, the 
producers will suffer economic loss, and their US suppliers, 
like Ellicott Dredges, will suffer as well...including 
diminished employment.

    We urge the Congress and the Administration to approve the 
Keystone pipeline as expeditiously as possible. We should rely 
on the proposition that the Canadians are fully capable of 
acting as custodians of their own environment, and that 
Canadian oil is not only environmentally superior to that from, 
for example, Venezuela, but is certainly more secure 
politically compared to our other existing options. Thank you 
for the opportunity to testify this morning. I would be happy 
to answer your questions.

    Footnotes

          \1\ Dan Lederman, South Dakota State legislator, 
        presentation for National Conference of State 
        Legislatures, 11/7/11

          \2\ Canadian Assoc of Petroleum Producers fact sheet, 
        Feb, 2012

          \3\ See number 1

          \4\ U.S. Department of State. March 2013. Draft 
        Supplementary Environmental Impact Statement. Website: 
        http://keystonepipeline-xl.state.gov/documents/
        organization/205654.pdf. Accessed May 13, 2013.
                       Testimony of Mat Brainerd


            Chairman & CEO, Brainerd Chemical Company, Inc.


      Vice Chairman, National Association of Chemical Distributors


     On behalf of the National Association of Chemical Distributors


                        Before a Hearing of the


    The Subcommittee on Agriculture, Energy and Trade of the House 
                      Committee on Small Business


                   2360 Rayburn House Office Building


                              May 16, 2013


    Thank you, Chairman Tipton and Ranking Member Murphy, for 
allowing me to testify before your subcommittee on this 
extremely important issue. I am the Chairman and CEO of 
Brainerd Chemical Company, Inc., and I am a small businessman. 
Brainerd Chemical is a 54 year old company and I have been the 
owner since 1979, when I took over from my father, who started 
the company in 1959. We have 83 employees at three facilities 
located in Oklahoma and North Carolina, allowing the company to 
serve 3000 customers nationwide and become one of the top 100 
chemical distributors in the United States. I am an active 
member of the National Association of Chemical Distributors 
(NACD) in which I currently serve as Vice Chairman of the 
Board, having previously served as its Treasurer and also 
Chairman of the Government Affairs Committee. I also serve as 
Chairman and President of the International Council of Chemical 
Trade Associations.

    I am here today to represent the chemical distribution 
industry on behalf of the National Association of Chemical 
Distributors. NACD and its over 400 member companies are vital 
to the chemical supply chain providing products to over 750,000 
businesses. The average member company has 26 employees, $26 
million in sales, and 3 facilities. They make a delivery every 
seven seconds while maintaining a safety record that is more 
than twice as good as all manufacturing combined. NACD members 
are leaders in health, safety, security, and environmental 
performance through implementation of NACD's Responsible 
Distribution program, a third-party verified management 
practice system established in 1991 as a condition of 
membership.

    It is my hope that my testimony here today will help dispel 
the notion that the construction of the Keystone XL pipeline is 
not of concern to small businesses, but solely to the titans of 
industry in the oil and refining industries. This is simply not 
the case. Small businesses like mine and my colleagues in the 
chemical distribution industry would be directly and 
beneficially affected by its construction, leading to reduced 
costs for both ourselves and, ultimately, our customers.

    Chemical distribution serves the role of taking title to 
bulk volumes of chemicals, breaking them down into smaller 
units, in some cases blending them, and transporting them to 
customers. Since we transport chemicals, we are appropriately a 
heavily regulated industry. Thus, we serve a highly specialized 
and critical function and are a critical link in the chain of 
manufacturing our nation's goods. Of particular importance to 
this committee, it should be noted that, while we serve large 
manufacturers, our industry primarily is the predominant 
supplier of chemicals to small businesses. It is through the 
existence and health of our industry that hundreds of thousands 
of small industrial users and manufacturers are able to 
operate.

    I am not here to discuss environmental impacts or the best 
routes for building the pipeline. Quite simply, these issues 
are beyond my expertise and area of knowledge. What I am well 
qualified to discuss, however, is how construction of this 
pipeline will benefit my company and the chemical distribution 
industry.

    The pipeline would transport crude oil from the oil sands 
region of Alberta, Canada, to the existing Keystone Pipeline 
System in Nebraska. It also could accept U.S. crude from the 
Bakken oil fields in Montana and North Dakota. Of particular 
interest to me, a second segment of the Keystone XL pipeline 
system, the Gulf Coast Project, is proceeding separately to 
connect existing pipeline facilities in Oklahoma to refineries 
in Texas, and is expected to be completed in 2013. When 
completed, the entire Keystone XL pipeline system would 
ultimately have capacity to transport 830,000 barrels of crude 
oil per day to U.S. market hubs. This is an important 
opportunity for my industry and the country.

    My industry would benefit from building the pipeline in 
three distinct ways. First, like many industries, chemical 
distribution benefits from economic growth generally. Second, 
building the pipeline would reduce our costs for aromatic and 
aliphatic chemicals, diesel and rail tank cars. Third, it would 
benefit the economics of hydraulic fracturing, which is an 
important market that many in our industry serve.

    Chemical distribution would benefit not only from direct 
cost reductions, but from economic growth. Much has been 
written about the economic benefits of the pipeline. For 
instance, the Energy Policy Research Foundation found that 
``the Keystone expansion would provide net economic benefits 
from improved efficiencies in both the transportation and 
processing of crude oil of $100 million-$600 million 
annually.'' These transportation cost efficiencies would create 
a downward pressure on prices for the products created by crude 
oil. A report from the Canadian Energy Research Institute 
(CERI) estimated that as oil sands increases in Canada, 
economic activity quickens and demand for US goods and services 
increase rapidly, indirectly resulting in more than 300,000 new 
U.S. jobs, as well as $40 billion in GDP in 2020.

    Currently, moving crude to U.S. locations is expensive. If 
Canada cannot move its crude economically, it may well seek 
other markets; Asia is one potentially attractive market. Many 
have expressed concern that if we do not construct the 
pipeline, we could lose access to this market permanently. If 
we do build the pipeline, the reliable supply of crude from 
Canada will result in lower refining costs and more efficient 
refinery operations. A reliable source of heavy crude will 
increase our domestic fuel supply and reduce our exposure to 
volatility in unstable foreign regions, thus alleviating upward 
price pressures.

    To understand why the pipeline is directly important to my 
industry, you need to understand fluid catalytic cracking 
(FCC), also known as ``cat cracking.'' Cat cracking is one of 
the most important conversion processes used in petroleum 
refineries. It is widely used to convert the high-boiling, 
high-molecular weight hydrocarbon fractions of petroleum crude 
oils to more valuable gasoline, olefinic gases, and other 
products. The fluid catalytic cracking process breaks large 
hydrocarbon molecules into smaller molecules through catalyst, 
heat and pressure to vaporize and then break the hydrocarbons. 
There are a number of products that come out of this process, 
including aliphatics which are formed by the initial breakup of 
the large molecules and are further converted to aromatics such 
as toluene and xylene.

    The reason for walking through this process is to show how 
crude oil becomes a chemical product that I buy and then 
distribute to my customers. Toluene and xylene, for instance, 
are two of the nine chemicals that my company distributes that 
are created by the cat cracking process. In short, these 
refineries are my suppliers and my industry's suppliers. Since 
the beginning of 2012, costs for toluene and xylene have 
averaged about $4.50 and $3.35, respectively. In that time, I 
have purchased more than a million gallons of these two 
chemicals alone. Obviously, any opportunity to lower costs 
would have an enormous impact on my costs.

    These products are in turn shipped to my customers. The 
economics of the pipeline is that it should result in increased 
cracking of lower cost crude, combined with reductions in 
imports from other countries such as Venezuela. With increases 
in the amount of crude transported through pipelines, feedstock 
costs to make toluene and other chemicals can be expected to 
drop. With the increased supply available through shifting 
refining to a source of crude that is transported at lower 
cost, it should put downward pressure on prices. Since our 
industry is fiercely competitive, much of these savings will be 
passed onto our customers.

    Similarly, the pipeline should result in decreased diesel 
costs. In April, national average diesel fuel costs were 
reported to be $3.93/gallon. In an industry that depends on 
trucks to move our products to market, fuel cost is of 
tremendous importance to our industry. As a small businessman, 
I spend approximately $60,000 per month on diesel to move my 
products to market. If prices dropped just 5%, that would save 
$36,000 per year, or the equivalent of a full time employee. 
Again, in our competitive industry, some of these savings 
ultimately would be passed onto customers, and ultimately, the 
cost of finished goods.

    The cost of diesel also impacts the cost of receiving 
chemicals by rail from my suppliers. For instance, for this 
coming June, my shipper will be charging a 27 percent mark-up 
for certain goods to defray rail diesel costs to move these 
chemicals from the refiners to my facility. Additionally, I 
lease rail tank cars. When operating these cars, I must pay a 
diesel cost. So any downward pressure on diesel prices will 
help my bottom line.

    The rapid expansion of shale hydraulic fracturing has been 
a boon to the nation. One negative impact to the chemical 
distribution industry, however, is that this expansion has 
created tremendous and sudden demand for rail tank cars to 
service bringing crude oil to market due to the lack of a 
pipeline to serve this function. This demand competes directly 
with many in our industry's need to ship chemicals from 
suppliers to their facilities by rail. Raid tank car 
manufacturers have responded to this and been building new cars 
as quickly as possible, but there still remains a 42,000 rail 
tank car backlog. The result is that the cost to lease rail 
cars has increased dramatically. In my business alone, prices 
have about doubled solely due to this shortage. If the Keystone 
XL pipeline is built, there will still be increased demand for 
rail tank cars as compared to before the shale oil boon, but 
the demand pressure will somewhat ease, and consequently, so 
will the lease price for these cars.

    The shale oil boon has also created a strong market for our 
products. This is now a major market for our products, as our 
products are critical to keeping shale oil flowing in the 
extraction process. For instance, hydrochloric acid is used to 
``acidize'' a well, removing calcium and mineral deposits in 
order to increase flow. Similarly, xylene, which I referred to 
previously, is used as a paraffin breaker, thereby dissolving 
paraffin and allowing increased flow. Surfactants are sometimes 
used alone or in conjunction with these chemicals to lower 
surface tension and allow minerals or paraffin to pass through 
the well. These are just some of the chemicals I and my 
industry colleagues sell to shale oil producers. A pipeline 
with a receiving station to accept crude from shale oil fields 
greatly benefits the economics of operating this type of field; 
thus it creates a more favorable market for our members of my 
industry. In this instance, the Keystone XL pipeline will be 
able to accept crude from the Bakken oil fields in Montana and 
North Dakota.

    Mr. Chairman and Ranking Member, thank you again for 
allowing me to testify today before this subcommittee on behalf 
of NACD. I hope it has provided additional insight on the 
importance of the Keystone XL pipeline to small businesses and 
the chemical distribution industry.


                    STATEMENT OF CHRISTOPHER KNITTEL


          WILLIAM BARTON ROGERS PROFESSOR OF ENERGY ECONOMICS


   CO-DIRECTOR, CENTER FOR ENERGY AND ENVIRONMENTAL POLICY RESEARCH,


                 MASSACHUSETTS INSTITUTE OF TECHNOLOGY


                U.S. HOUSE COMMITTEE ON SMALL BUSINESS,


             SUBCOMMITTEE ON AGRICULTURE, ENERGY, AND TRADE


  ``IF YOU BUILD IT: THE KEYSTONE XL PIPELINE AND SMALL BUSINESS JOB 
                                GROWTH''


                              MAY 16, 2013


                         EMAIL: [email protected]


                          PHONE: 617-324-0015

    Thank you Chairman Tipton, Ranking Member Murphy, and 
members of the Committee for inviting me here today. My name is 
Christopher Knittel. I am the William Barton Rogers Professor 
of Energy Economics in the Sloan School of Management at the 
Massachusetts Institute of Technology, I am the Co-Director of 
the Center for Energy and Environmental Policy Research also at 
the Massachusetts Institute of Technology, and Co-Founder of 
the E2e Project, a joint project between the Center for Energy 
and Environmental Policy Research and the University of 
California Energy Institute to study the economics behind 
energy efficiency.

          I. Introduction

    Inevitably, discussions related to oil and greenhouse gas 
emissions tend to get overblown. Discussions surrounding many 
of the issues behind the Keystone XL pipeline are no different. 
In my testimony, I will discuss the likely consequences of the 
Keystone XL pipeline along four dimensions: (1) oil prices, (2) 
greenhouse gas emissions, (3) jobs, and (4) national security.

          II. The effect of the Keystone XL pipeline on oil 
        prices

    Here the economics are pretty straightforward.

    Energy economists and energy analysts tend to agree that, 
with a few exceptions, the oil market is a world oil market. 
That is, when a barrel of oil is pumped out of the ground, it 
competes with supplies of oil across the entire globe. The 
world market is an artifact of the low cost of shipping oil. A 
consequence of this is that it is very difficult for increases 
in production in any one country to have a long-term impact on 
the price of oil.

    The situation in the Midwest and Canadian tar sands is, 
however, one exception. Due to pipeline capacity constraints 
connecting the Midwest and Canada with the Gulf Coast, the 
price of a barrel of oil selling in Cushing, Oklahoma--known as 
Western Texas Intermediate, or WTI--is currently selling at a 
discount compared to a barrel of oil in just about every other 
benchmark location in the world, most notably the Brent crude 
price reflecting the price of oil in Europe. The discount has 
recently fallen below $10 per barrel, but last year averaged 
more than $17 per barrel, and has been over $30 per barrel 
during the last two years.

    Because of limitations on pipeline capacity, oil produced 
in both Canada and North Dakota cannot make it out to the Gulf 
Coast and must therefore be refined in Canada or the Midwest. 
Refiners are able to get a discount on this oil because of the 
limited options available to oil producers. Recent work by 
Severin Borenstein of UC Berkeley and Ryan Kellogg of the 
University of Michigan shows that because pipeline capacity for 
refined products is not similarly constrained, the lower price 
paid by refineries is not passed on to consumers. The benefits 
accrue, instead, to refineries.\1\
---------------------------------------------------------------------------
    \1\ Severin Borenstein and Ryan Kellogg, ``The Incidence of an Oil 
Glut: Who Benefits from Cheap Crude Oil in the Midwest?'' forthcoming 
in The Energy Journal. Available at http://ei.haas.berkeley.edu/pdf/
working--papers/WP231.pdf.

    Building the Keystone and Keystone XL pipelines will push 
the price North Dakotan and Canadian oil producers can capture 
closer, if not fully, to the world price. Therefore, these 
pipelines will tend to increase oil prices paid by refiners in 
the Midwest, but the work by Borenstein and Kellogg implies 
that this will not increase the price paid by consumers at the 
---------------------------------------------------------------------------
pump.

    There will be no appreciable change in the world price of 
oil, certainly not enough to base policy decisions on. While 
more supply always puts downward pressure on prices, when 
gauging the size of the supply increase it is important to 
understand the size of the market. To put things in 
perspective, the 800,000 barrels per day that will flow over 
the Keystone XL pipeline represent less than 1 percent of world 
oil supplies. The increase in oil production that results from 
the Keystone XL pipeline will be even smaller.

          III. The effect of the Keystone XL pipeline on 
        greenhouse gas emissions

    Here the economics are also pretty straightforward.

    While some have called the Keystone XL pipeline ``game 
over'' for the climate, I believe it is simply not true. This 
is not because I doubt the seriousness of climate change. Much 
of my academic research promotes policies to reduce greenhouse 
gas emissions. It might seem surprising that the Keystone XL 
pipeline would have little impact on greenhouse gas emissions 
given how energy intensive Canadian bitumen, or tar sands, is 
to produce. Tar sands are certainly more energy intensive than 
the average oil refined in the US--requiring more energy at the 
extraction phase, as the bitumen must be separated from the 
sand and water it is found with. More energy must also be used 
to upgrade the bitumen for refining.

    No one can deny this added energy and the greenhouse gas 
emissions associated with the oil. Two numbers are often 
discussed when it comes to these added greenhouse gas 
emissions. First, the increase in emissions during the 
production and refining stage of Canadian bitumen compared to 
the average oil sold in the US is roughly 80 percent, according 
to the State Department and many other sources.\2\ This number, 
however, ignores the fact that the majority of the greenhouse 
gas emissions associated with oil use come when you burn the 
refined product. These emissions are the same regardless of the 
source oil. The policy debate should focus on the emissions 
over the oil's entire life cycle. Here the State Department 
estimates that these ``lifecycle emissions'' of tar sands are 
roughly 17 percent higher than the average oil sold in the 
US.\3\
---------------------------------------------------------------------------
    \2\ The Congressional Research Service estimates this to be between 
70 to 110 percent higher. http://www.fas.org/sgp/crs/misc/R42537.pdf.
    \3\ The Congressional Research Service estimates this to be between 
14 to 20 percent higher. http://www.fas.org/sgp/crs/misc/R42537.pdf.

    The problem with both of these metrics, however, is that 
the average oil sold in the US is not the relevant comparison, 
on both accounts. Trying to assess whether the Keystone XL 
pipeline will increase the greenhouse gas emissions worldwide 
from their current levels, the relevant comparison is that 
between the emissions of the oil from the Canadian tar sands 
and the oil that it will replace, which is not necessarily the 
---------------------------------------------------------------------------
average oil refined or sold in the US.

    A recent Cambridge Energy Research Associates analysis 
finds that the average Canadian tar sands oil is cleaner than 
heavy Californian and heavy Venezuelan oil.\4\ These two 
sources are the likely oil sources that Canadian tar sands 
would replace. Given this, it is possible that the Keystone XL 
pipeline might actually reduce greenhouse gas emissions.
---------------------------------------------------------------------------
    \4\ IHS CERA, ``Oil Sands, Greenhouse Gases, and U.S. Oil Supply: 
Getting the Numbers Right,'' HHS Cambridge Energy Research Associates, 
Inc., 2010. Similar conclusions, although not as stark, are reached in 
the Congressional Research Service study.

    The main point, however, is that the policy debate has 
focused on the wrong metrics when it comes to greenhouse gas 
emissions. Focusing on the average oil sold in the US is like 
convincing my four-year-old son, Caiden, to not eat a bag of 
potato chips because potato chips are less healthy than the 
typical food he eats, only to see him put the chips away and 
---------------------------------------------------------------------------
grab an ice cream sandwich.

    Finally, in the absence of the Keystone XL pipeline, some 
of the oil will leave North Dakota and Canada in some other--
less efficient--way. This may be through rail or using 
inefficient local refineries and shipping the refined products 
through refined-product dedicated pipelines. These 
inefficiencies have their own greenhouse gas consequences.

          IV. The effect of the Keystone XL pipeline on profits

    Here the economics are also pretty straightforward.

    One of the most compelling arguments for building the 
Keystone XL pipeline is that it will increase the profits of 
oil producers, not only in Canada, but also along the entire 
pipeline route--most notably North Dakota, the second leading 
oil producing state in the country. As I mentioned, currently, 
oil selling as far south as Cushing, Oklahoma sells at a 
discount price relative to the world price for oil. The farther 
north you go, the greater the likely discount, as these 
resources get further away from pipeline capacity.

    Currently, Canada exports about 3 million barrels per day 
to the US \5\ and North Dakota produces about 800 thousand 
barrels a day.\6\ Therefore, even today's roughly $8 price 
difference reduces producer revenues by $30 million a day. 
Building the Keystone XL pipeline would increase the revenues 
of not only the oil companies using the pipeline, but also 
those of companies getting their oil out through alternative 
methods. This is because once the pipeline is built (and even 
before), the price gap between oil sold in this region and the 
world price will decline, if not be eliminated completely. Even 
production not using the pipeline will be able to command the 
world price. This is a very good reason for building the 
pipeline.
---------------------------------------------------------------------------
    \5\ http://www.eia.gov/dnav/pet/hist/
LeafHandler.ashx?n=PET&s=MTTIMUSCA2&f=M.
    \6\ http://www.eia.gov/dnav/pet/
pet--crd--crpdn--adc--mbblpd
--m.htm.

    Finally, any discussion of policy related to oil production 
should include some discussion of its impact on national 
security. There is the potential for a small benefit from a 
national security perspective. Increasing the amount of oil we 
import from Canada can reduce military conflict that is, 
---------------------------------------------------------------------------
partially at least, dependent on oil production.

    However, in a global oil market where the price of North 
Dakota and Canadian oil will depend directly on world supply, 
and also realizing that the Keystone XL pipeline is likely to 
have no impact on how much oil our allies import from other 
countries, the national security benefits are likely to be 
small.

          VI. Summary

    To summarize, the Keystone XL pipeline relates to many 
issues concerning oil markets. Understanding the effects of the 
pipeline on energy prices, greenhouse gas emissions, and energy 
security is straightforward. The pipeline will push the prices 
for oil in the Midwest and Canada closer to the world price, 
but these price increases will not be felt by consumers.

    The pipeline will have little impact on greenhouse gas 
emissions. While this seems inconsistent with the fact that 
Canadian tar sands are more energy intensive than the average 
oil refined in the US, the focus on the average oil is 
misplaced. There is good reason to believe that additional 
supplies of Canadian tar sands will displace even dirtier oil 
from Venezuela. This is where the policy discussion should 
focus.

    Finally, I circle back to one of the main topics of the 
hearing: jobs. The pipeline's effect on jobs is amplified by 
the fact that the economy is still recovering from the Great 
Recession. When an economy is at less than full employment, 
short-term stimulus measures, such as governmental stimulus or 
capital-intensive projects like the Keystone XL pipeline, can 
have longstanding effects beyond the short-term employment 
effects tied to the actual project. While these are complex and 
difficult to measure, from a timing perspective, there is no 
better time.

    I would like to thank the entire committee once again for 
inviting me to participate in this discussion. I will gladly 
respond to any questions.

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