The Unseen Benefits of Oil Pipelines

When a policy related to economics is up for debate, I almost always see people discussing the direct consequences of said policy. It’ll go back and forth that doing X or Y will cause A or B, and which one is more desirable. Rarely is it asked whether X or Y may have consequences elsewhere in society that are not immediately obvious at first glance.

The debate on the use of oil pipelines serves as a prime example. During the major debates, both the left and right seemed to be focus on job creation and environmental concerns. To a single-stage mind, it might seem like the debate ends there. To the multi-stage mind, however, the conversation has only just begun.

A recent publication from the Fraser Institute quantifies these secondary considerations.

Fraser looks at the safety outcomes of different oil transportation methods. According to their paper, “oil and natural gas production is currently outpacing the transportation capacity of our pipeline infrastructure”. For supply to meet demand, only two things can happen: create more transportation or allow demand to outpace supply.

At the surface, it appears that using oil pipelines is just as safe as truck or rail. However, by controlling for the volume of product moved, pipelines quickly become much safer. Specifically, a rail transport is 4.5 times more likely to result in a spill relative to pipelines.

We can see this same thing occurring in other methods of transportation. According to the Manhattan Institute, road-based transportation accounts for 4% of total transportation, but result in 19.95 incidents per billion ton-miles. Pipelines, despite carrying more product, result in less than one.

Costs are also associated with these risks. Whether it be in the form of insurance, preventative action, or incident clean-up, all methods of transportation have costs relative to one another. As stated in the Fraser and Manhattan reports, pipelines are undeniably safer in terms of spillage than any other method and we see that reflected in costs.

The Congressional Research Service determined that railroad transport costs ranged from $10 to $15 per barrel while pipelines only cost $5 per barrel. Although rails can offer advantages, the increased costs are incurred from higher personnel expenses, maintenance requirements, indirect routes, and climate control (4). Furthermore, rail costs are amortized over a lower volume.

In other words, we see the “job creation” because it is immediate and politically convenient. We do not, however, see the cost reductions and safety improvements because they are not immediately realized.

CONCLUSION: For constructive policy debate, we should always think beyond what is initially obvious. Of course any capital undertaking will create jobs, but equally as important outcomes must be considered, such as safety improvements and cost reductions.

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