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PunditFact: No, the Koch brothers won't make $100 billion if Keystone XL gets built

Crews work on construction of the TransCanada Keystone XL Pipeline near County Road 363 and County Road 357, east of Winona, Texas in 2012. [ Associated Press ]
Crews work on construction of the TransCanada Keystone XL Pipeline near County Road 363 and County Road 357, east of Winona, Texas in 2012. [ Associated Press ]
Published Nov. 20, 2014

Keystone XL pipeline opponents are stoking fear about the $8 billion project by connecting it to two of the biggest bogeymen in politics: Charles and David Koch.

The claim goes that the Koch brothers stand to make $100 billion if Keystone gets built. The figure, which would effectively double the Kochs' net worth, has bounced around liberal circles and was repeated this month by progressive radio talk show host Thom Hartmann.

PunditFact's message: Take it with a block of salt.

The $100 billion estimate is far from a neutral analyst's prediction, based instead on the far-out calculations of a group that wants the pipeline, and the Koch brothers, to fail.

First, let's put $100 billion in perspective. That's half as much as Facebook's value, about the same as the Dominican Republic's GDP and, as we said, approximately equal to the Kochs' combined reported net worth.

If the brothers had a sure windfall on their hands, you might think they would be actively promoting the pipeline, or at least be positioned to pounce by reserving space in it or actively drilling in the area.

But the Kochs have repeatedly told reporters and lawmakers that the company has no involvement in the pipeline and is not a proposed customer. For the record, "we are supportive of it," Koch Industries spokesman Rob Tappan told PunditFact. Pipeline builder TransCanada has also tried swatting down Koch connections, saying Koch Industries has "absolutely nothing" to do with the pipeline.

Koch Industries is, however, a major player in the Canadian oil market. The Washington Post identified the company in April as the largest foreign leaseholder of acres of Canadian oil sands.

An Alberta Energy spokesman told us the agency could not confirm the Post's analysis of Koch-leased lands — estimated to be between 1.12 million to 1.47 million acres — because "organizations like Koch can change and occasionally restructure."

Even so, the considerable amount of land leased by the Kochs does not automatically signal that the Kochs will get a sure $100 billion payout, or any payout. Many of the Koch land leases, the Post reported, came before Keystone was proposed, the company has not reserved space in the pipeline, and the pipeline route would not run near Koch-owned refineries.

Why $100 billion?

The $100 billion profit claim stems from a 2013 report from the International Forum on Globalization. While that group may sound neutral, it in fact opposes "free market" institutions such as the World Trade Organization and International Monetary Fund. The group also makes no secret of its opposition to the pipeline and Koch Industries.

Experts we consulted were struck by the report's bias, with chapters devoted to victims of "Koch greed" and the Kochs' vast web of nonprofit spending for political aims, as well as its claims about the Keystone XL pipeline. Experts in energy, economics and business called the methodology behind the figure "absurd" and "puzzling."

In an email, International Forum on Globalization executive director Victor Menotti said his group kept the methodology "simple to give people a credible idea of what Koch has at stake with Keystone."

The group came up with two numbers — experts didn't vouch for either — and multiplied them together to come up with the Kochs' potential profits.

The group assumed that the land leased by Koch Industries would contain about 15 billion barrels of "profitable-to-produce" Canadian tar sands oil.

The group assumed a $15 gross production per barrel due to Keystone XL.

Multiply one by the other and you get $90 billion. Round it up and you get headlines.

Counting the ways

We consulted four experts in energy economics and the petroleum industry to review the group's report and offer their analysis. They identified 10 major flaws. We'll highlight a few. (The full version is available on PunditFact.com.)

Price of oil is down: When the report was released, oil prices were about $100 a barrel. They've since fallen to about $75 a barrel, a drop that cuts profits.

Oil without Keystone: The report mistakenly assumes that other methods to transport crude oil sands would not happen if the pipeline is rejected.

Not realistic: The amount of oil the group says the Kochs will pump through the pipeline (15 to 16 billion barrels) is "enough to fill Keystone XL to capacity for about 80 years if you assume that all the oil is shipped as diluted bitumen," said Andrew Leach, a professor of energy policy at the University of Alberta.

What about taxes?: The report does not factor in taxes or royalties that need to be paid to the Canadian government, another factor that eats into the assumption of $15 profit per barrel, said Detlef Hallermann of Texas A&M University.

Every acreage is not equal: The report assumes the geology of the leased land is uniform and will yield uniform amounts of oil. But that is not how it works in Alberta's boreal forests. "That would be too easy," said Anastasia Shcherbakova of the University of Texas at Dallas.

So yes, the Kochs hold oil leases in Canada. And yes, they could benefit if the Keystone XL pipeline gets built.

But trying to extrapolate their oil-sands leases into a specific profit figure is sheer folly. The authors of the report that tried to do so made so many assumptions and mistakes that experts deemed their analysis "absurd."

In PunditFact terminology, that means Pants on Fire!