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

[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

U.S. GOVERNMENT PRINTING OFFICE
81-198 WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected].

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.

[GRAPHIC] [TIFF OMITTED] T1198.005

[GRAPHIC] [TIFF OMITTED] T1198.006

[GRAPHIC] [TIFF OMITTED] T1198.007

[GRAPHIC] [TIFF OMITTED] T1198.008

[GRAPHIC] [TIFF OMITTED] T1198.009

[GRAPHIC] [TIFF OMITTED] T1198.010

[GRAPHIC] [TIFF OMITTED] T1198.011

[GRAPHIC] [TIFF OMITTED] T1198.012

[GRAPHIC] [TIFF OMITTED] T1198.013

[GRAPHIC] [TIFF OMITTED] T1198.014

[GRAPHIC] [TIFF OMITTED] T1198.015

[GRAPHIC] [TIFF OMITTED] T1198.016

[GRAPHIC] [TIFF OMITTED] T1198.017

[GRAPHIC] [TIFF OMITTED] T1198.018

[GRAPHIC] [TIFF OMITTED] T1198.019

[GRAPHIC] [TIFF OMITTED] T1198.020

[GRAPHIC] [TIFF OMITTED] T1198.021

[GRAPHIC] [TIFF OMITTED] T1198.022

[GRAPHIC] [TIFF OMITTED] T1198.023

[GRAPHIC] [TIFF OMITTED] T1198.024

[GRAPHIC] [TIFF OMITTED] T1198.025