CENTER

FOR ECONOMIC AND GIS

RESEARCH

The Economic Impact on Duval and Nassau Counties

of the Proposed Palmetto Pipeline Project

Prepared by
Center for Economic and GIS Research
University of North Florida
Coggin College of Business
Investigators
Harriet Stranahan, Ph.D..
Christopher Johnson, Ph.D.
January 2016

The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

TABLE OF CONTENTS

Executive Summary.3
Economic Effects of New Energy Infrastructure Investment ..........5
Economic Impact Analysis Methodology............7
Economic Impact of the Proposed Palmetto Pipeline Project...........8
Table 1. Employment Impact of Proposed Palmetto Pipeline.....9
Table 2. Labor Income Impact of Proposed Palmetto Pipeline ....9
Table 3. Output Impact of Proposed Palmetto Pipeline .10
Table 4. State and Local Tax Impact of Proposed Palmetto Pipeline.10
Table 5. Duval and Nassau County Annual Ad Valorem Tax Receipts.11
Population Growth and the Energy Gap.......11
Summary and Conclusions....12

The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

Executive Summary
Kinder Morgan, the largest energy infrastructure company in North America is proposing to
expand operations in the southeastern U.S. by building the Palmetto Pipeline Project. The Project will
include the construction of approximately 360 miles of new pipeline to carry refined petroleum products
from Louisiana, Mississippi and South Carolina into South Carolina, Georgia and Florida. The proposed
Palmetto Pipeline will deliver 75,000 barrels per day of new petroleum products to the Port of
Jacksonville and will deliver another 85,000 barrels per day to Augusta and Savannah.
This analysis shows that the proposed Palmetto Pipeline project has a decidedly positive economic impact
on Duval and Nassau County and the region as a whole. From a regional perspective, the Palmetto
Pipeline project finances new energy infrastructure investment, which is one key to a stable and reliable
supply of energy. Perhaps most importantly, the proposed Palmetto Pipeline could increase competition in
the regional energy market leading to lower energy costs in the long run. Building new pipeline capacity
is an effective way to increase competition in the energy market and may benefit consumers and
businesses throughout the region with lower prices over the long term.
Transporting petroleum products by pipeline has many advantages over transporting petroleum products
by highway. If the pipeline results in fewer trucks on the road there will be less highway congestion, less
wasted time, less costly highway maintenance and fewer highway fatalities. The cost of transporting the
energy is much lower by pipeline than by truck, making the new energy infrastructure a good investment
both privately and publically.
In the short run, there are significant job, labor income and local tax benefits associated with the
construction of the Palmetto Pipeline Project. Using IMPLAN, this study estimated all impacts
resulting from these construction related expenditures in Duval and Nassau Counties. The results are
below:
v The proposed Palmetto Pipeline project would have significant impact on employment and
earnings in Duval and Nassau Counties. During construction, the Palmetto Pipeline Project will
generate 253 new jobs in the two county area. This translates to an increase in income of
$4,500,000 for workers in Duval County and $5,300,000 for workers in Nassau County.
v The Palmetto Pipeline project will increase spending on goods and services by over $4,600,000 in
Duval County and by over $4,200,000 in Nassau. Construction spending would result in a
significant boost in economic activity across the two county region.
v There will be a significant impact on tax collections due to the Palmetto Pipeline project. The
proposed Palmetto pipeline project will increase local tax revenues by $344,000 in Duval County
and by over $448,000 in Nassau County during construction.
v Most significantly, Kinder Morgan will pay an ad valorem tax annually on the products shipped
over the pipeline, which will bolster county tax receipts for years to come. Duval County will
gain $675,000 in new tax revenues annually and Nassau will gain $879,000 in new revenues
annually once the project is complete. Over a 5 year period, local tax revenues would increase by
over $7,000,000 in the two county area.

The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

Overall, the proposed Palmetto Pipeline Project is likely to result in better highway safety,
more competition among energy suppliers, increased regional supply of energy products, and lower
energy costs in the long run.
The proposed pipeline will deliver new petroleum products to help sustain the energy
demands of future population and business growth in the Southeast. Historically, every 1 percent
increase in Floridas population leads to a 2.28 percent increase in the petroleum consumption in the
state. Projecting this trend forward, it is anticipated that the Palmetto Pipeline will satisfy, on
average, about 6 percent of the total petroleum demand in the state of Florida over the next 25 years.
At the Jacksonville Metropolitan level, this represents about 60 percent of local petroleum
consumption.

The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

Overview
Kinder Morgan is the largest energy infrastructure company in North America and owns more
than 80,000 miles of pipeline and more than 150 terminals. These pipelines deliver refined petroleum,
crude oil and other energy products throughout the U.S. and Canada. Kinder Morgan has played an
integral role in building and maintaining an extensive network of energy infrastructure in fast growing
markets including the southeastern U.S. and has over 4000 miles of pipelines and eight terminals in
Florida alone.
Kinder Morgan is proposing the Palmetto Pipeline Project, which will deliver refined petroleum
products from Louisiana, Mississippi and South Carolina to other parts of South Carolina, Georgia and
Florida. The proposed Palmetto Pipeline will deliver 75,000 barrels per day in new petroleum products to
the Port of Jacksonville, and will deliver another 85,000 barrels per day in new product to Augusta and
Savannah.
The purpose of this study is to examine the economic impact of the proposed Palmetto Pipeline
Project in Florida. We first examine the economic effects of having new energy infrastructure investment
within the region. Next, we calculate the economic impact of the proposed Palmetto pipeline project on
economic activity, jobs, labor income and local tax revenues in Duval and Nassau County. Finally, we
estimate the increased demand for petroleum products in Florida over the next 25 years and examine
whether new energy supplied by the proposed Palmetto Pipeline would help fill the projected energy gap.

Economic Effects of New Energy Infrastructure Investment

Roads, rail lines, bridges and other types of transportation infrastructure investment benefit the
overall economy by lowering the costs of transacting business. Similarly, new energy infrastructure
investments, like the Palmetto Pipeline, reduce the costs of transporting energy products into the region.
This may lead to lower cost energy over the long run and benefit the regions long-term economic

The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

growth. This is particularly relevant because Florida and Georgia are among the fastest-growing
states as measured by population growth and energy demand. The Palmetto Pipeline Project would
help alleviate any shortages of refined petroleum products in the near future.
The addition of a new pipeline may also increase competition in the regional energy market.
An increase in the number of competitors to the market is likely to improve market performance and
lower prices over the long term. New energy infrastructure is an important first step to building a
competitive energy market.
Transporting petroleum products by pipeline is safer and less costly than by highway. The
Palmetto Pipeline is likely to improve highway safety and lower transportation costs because there
will be a significant reduction in the number of trucks carrying petroleum products from refineries in
Louisiana, Mississippi and South Carolina to Florida. Fewer trucks mean fewer miles driven, less
congestion, reduced emissions, less wasted time, less wear and tear on highways, and fewer highway
fatalities1.
From a regional perspective, the proposed Palmetto Pipeline will reduce the cost of energy
distribution and have other lasting benefits in the state. The new energy infrastructure investment
may lead to improved highway safety, more competition among energy suppliers, and increased
regional supply of energy products. The proposed pipeline will provide new sources of energy to
help sustain the demands of future population and business growth in the Southeast.

Texas Transportation Institute (TTI) estimates that reducing truck traffic results in significant savings across a
broad spectrum of public goods

The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

Economic Impact Analysis Methodology
During construction, new, project related spending will result in GDP growth, more income and
new jobs in Florida. Kinder Morgan proposes building 46 miles of pipeline through Duval and
Nassau Counties and two petroleum metering stations at the Port of Jacksonville. The new
construction spending will generate new economic output (measured as gross revenues or sales), labor
earnings, and employment2. In addition, the proposed project will result in higher tax revenues at the
local, state, and federal levels.
There are several different areas that will be impacted by the proposed Palmetto Pipeline project. The
construction of pipeline and metering stations require highly specialized equipment and management
personnel and this spending will occur throughout the Southeast. Locally, Kinder Morgan will hire a
significant amount construction related labor for the project while specialists, project managers and other
auxiliary staff will re-locate temporarily in Duval and Nassau Counties during construction. These
workers will spend money in the local economy on hotels, restaurants, and fuel, among other things.
These activities will have three distinct effects on the Jacksonville and Nassau County economies:
1) Direct effects are those that can be measured as a direct result of spending in each of the areas
mentioned above. For example, new jobs and higher incomes result when Kinder Morgan hires local
carpenters and general contractors to help complete the project. Additionally, hotels and restaurants
directly benefit from the relocated workforce that utilize their services and businesses daily. The
increase in new jobs, business revenues, and worker income at this stage is called the direct effect
and also the primary impact.

2
Economic output is the total value of production by industry for a given time period. Labor income includes
wages, salary and benefits of employees as well as income for self-employed individuals. Employment includes
full-time and part-time employees, and self-employed.

The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

2) Indirect effects occur when businesses and new employees, which are the beneficiaries of the direct
spending, buy goods and services from other local establishments. For instance, when general
contractors and construction firms purchase materials and supplies from local firms, this action
generates economic activity in the region. These subsequent rounds of business purchases are
classified as secondary or indirect effects.

3)

Induced effects occur when firms expand hiring to accommodate the higher demand. Workers
incomes in the community increase as does their new spending. This new spending is counted as the
induced effect. For example when construction workers and other new employees spend their
increased earnings on auto maintenance, banking services, home repair and other goods and services
in the community, these expenditures are counted as induced effects.

The total economic impact of the proposed Palmetto Pipeline spending includes all three effects.
While the largest portion of the impact comes from the direct effects, both the indirect and induced effects
add to the economic multiplier of an initial spending investment as it ripples through the economy,
adding to new business revenues and labor income in Duval and Nassau County.
Tracing economic impacts as they flow through a local economy is a complex task. To aid
economists, a method called input-output modeling was developed. Input-output models are
mathematical representations of how the various industry sectors and final demands of an economy are
linked. The most widely used input-output tool is IMPLAN, which is an acronym for Impact Analysis
for Planning. It is a method that allows researchers to build a model that is individually tailored for a
given year and geographic location. IMPLAN was chosen because it is the most current and widely
accepted representation of current inter-sector relationships. Furthermore, it accurately represents Nassau
and Duval Counties industrial composition. IMPLAN is quite detailed, as it breaks the economy down
into more than 509 sectors. The models can be modified to suit different situations and the results of

The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

IMPLAN are thoroughly peer reviewed and well accepted throughout the academic and professional
community. IMPLAN requires detailed spending and tax information as model inputs.
Economic Impact of the Proposed Palmetto Pipeline Project
Table 1 shows the employment impact of the proposed Palmetto Pipeline on the local economy.
The total employment impact includes the Direct, Indirect and Induced effects combined. The results
show that the project would have a large and significant impact on employment and earnings in Duval
and Nassau Counties. During construction, the Palmetto Pipeline Project will generate 253 new, wellpaying construction jobs in Florida. Table 2 shows that Duval County workers will have $4,500,000 in
higher income. The pipeline construction project will raise incomes and Nassau County, as well.
Workers incomes in Nassau County will increase by over $5.3 million during the construction period.
Table 1. Employment Impact of Proposed Palmetto Pipeline
Duval

Nassau

Two County Region

Direct Impact Jobs

89

123

212

Indirect Impact

Induced Impact

19

15

34

Total

112

141

253

Table 2. Labor Income Impact of Proposed Palmetto Pipeline

Duval

Nassau

Two County Region

Direct Impact

$3,553,848

$4,862,422

$8,416,270

Indirect Impact

$188,990

$90,148

$ 279,138

Induced Impact

$847,504

$441,780

$1,289,284

Total

$4,590,344

$5,394,351

$9,984,695

The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

Table 3 Shows the Impact on total output in the two county area. The Palmetto Pipeline project
will raise output by over $4.6 million in Duval County and by over $4.2 million in Nassau County.
Construction spending would result in a significant boost in economic activity in these two counties.
Table 3. Output Impact of Proposed Palmetto Pipeline
Duval

Nassau

Two County Region

Direct Impact

$1,566,065

$2,171,828

$3,737,893

Indirect Impact

$565,788

$388,263

$ 954,051

Induced Impact

$2,481,601

$1,725,668

$4,207,269

Total

$4,613,455

$4,285,760

$8,899,215

Table 4 and Table 5 show the effect of the proposed project on state and local tax revenues.
There will be a significant impact on local tax collections due to the Palmetto Pipeline project. During
construction, the proposed Palmetto Pipeline Project will increase tax revenues by $344,000 in Duval
County and by over $448,000 in Nassau County.
Table 4. State and Local Tax Impact of Proposed Palmetto Pipeline Project Construction
Duval

Nassau

Two County Region

Employee Compensation Related

$2,956

$8,781

$11,737

Business Tax on Production and Imports

$307,723

$393,700

$ 701,423

Household Taxes

$25,958

$40,997

$66,955

Corporate Taxes

$8,015

$5,207

$13,222

Total

$344,652

$448,685

$793,337

More significantly, the ad valorem tax receipts on energy shipments through the pipeline will
bolster county coffers for years to come. Kinder Morgan will pay an ad valorem tax annually on the
products shipped over the pipeline. Duval County will gain $675,000 in new tax revenues annually and

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The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

Nassau County will gain $879,000 in new revenues once the project is complete. Table 5 shows the value
of those taxes over a 5 year planning horizon. Over a five- year period local tax revenues would increase
by over $7,000,000 in the two county area.
Table 5. Duval and Nassau County Annual Ad Valorem Tax Receipts
Duval

Nassau

Two County Region

Annual County Level Taxes

$675,000

$879,000

$1,554,000

Net PV of Tax Payments over 5 Years at 2%

$3,181,000

$4,143,000

$7,324,000

Population Growth and the Energy Gap

The city of Jacksonville, its surrounding suburbs, and indeed the entire state of Florida continue
to attract thousands of new residents annually. Not surprisingly, the rapid population growth and new
development increases demand for energy supplies and refined petroleum products. In addition to the
standard economic impacts previously discussed, it is important to understand to what extent the Palmetto
Pipeline will help address the anticipated growth in demand for petroleum products. To accomplish this
task, the first step is to estimate the historical relationship between population growth and petroleum
consumption in Florida. This relationship is used to project future petroleum consumption in Florida
using projected population numbers for the state over the next 25 years. Once the projected increase in
consumption is estimated, the study calculates what percentage of this increased demand will be satisfied
by the installation of the new pipeline.
To estimate the historical relationship between petroleum consumption and population growth in
Florida, data from the U.S. Energy Information Administration (EIA) from 1983-2014 are utilized in a
standard time series regression equation along with the states population numbers from the U.S. Census
Bureau. The petroleum data provided by the EIA is total annual petroleum consumption, which includes
distillate fuel oil, jet fuel, gasoline, and residual fuel oil. The model estimates petroleum consumption as a

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The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

function of population growth over 32 year period from 1983-2014 and finds that on average a 1%
increase in the annual Florida population during this time period is associated with and 2.28% increase in
petroleum consumption. The U.S. Census Bureau estimates the projected population increases in the state
of Florida through 2040. Using these projections and the estimated historical relationship between
petroleum consumption and Florida population allows for projections of petroleum consumption from
2015 -2040. Those projections show a steady increase in the petroleum consumption in the state over the
25 year period. Specifically, between 2015 and 2040, the percentage increase in total annual consumption
in Florida is about 87%, with an average increase of about 2.5% each year.
The Palmetto Pipeline will bring 70,000 barrels/day of petroleum to the Port of Jacksonville.
Based on estimates provided by Kinder Morgan, petroleum consumption in the Jacksonville MSA
(including gasoline, ethanol, and diesel) is around 81,000 barrels/day, representing about 10% of the
petroleum consumption for the state of Florida, which is currently about 863,500 barrels/day. Using this
information, Table 6 provides estimates of the percentage of the increased demand for petroleum that will
be satisfied by the Palmetto Pipeline in Florida. The data are shown in five year intervals for the time
period between 2016 and 2040. Because the estimates assume that the pipeline capacity will remain fixed
over this time period, the percent demand satisfied by the pipeline will decline over time. As the table
indicates, for the state of Florida area, the pipeline fulfills 7.35% of total state petroleum demand for
2016-2020 with the amount declining to 4.48% by 2036-2040. The table also expresses this data relative
to the local demand, assuming that demand for petroleum in the Jacksonville Metro will remain roughly
10% of total state demand. However, if Jacksonville Metro grows at a faster pace relative to the rest of
the state, this may overstate the percent of local demand that is satisfied by the pipeline.

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The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

Table 6. Percent of Future Petroleum Demand Satisfied by
Palmetto Pipeline
Jacksonville Metro

State of Florida

2016-2020

73.47

7.34

2021-2025

63.23

6.32

2026-2030

55.45

5.54

2031-2035

49.46

4.94

2036-2040

44.80

4.48

Summary and Conclusions

These results relied on conservative assumptions about Right of Way payments and local
spending3. The study used state of the art software providing region-specific information with the most
current data available. The analysis suggests that Palmetto Pipeline Project will be a driver of business
revenues and labor income in Duval and Nassau Counties. During construction, these two counties can
expect to gain about 253 new jobs as a result of the project. This translates into significant gains in labor
income. Duval County should see labor incomes rise by over $4.5 million. In Nassau County, the
construction of the pipeline will raise local incomes by over $4.3 million. There will also be significant
new spending on goods and services during construction of the proposed Palmetto pipeline. Spending on
goods and services will increase by $4.6 million in Duval County and by more than $4.2 million in
Nassau County as a result of Palmetto pipeline construction. Local tax collections in both counties
increase as a result of the construction project by more than $790,000.
In the longer term, this project provides a reliable source of local tax revenues to Duval and
Nassau Counties. Ad valorem annual taxes on products carried through the Palmetto Pipeline Project will
yield significant tax revenues for the two counties over the long term. Duval County will raise an

3

Based upon information provided by Kinder Morgan Project Managers, most spending for the project is on
specialized labor and equipment. Less than 10% of total project spending occurs in the local area.

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The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

additional $675,000 in ad valorem taxes annually as a result of the project and Nassau County will collect
an additional $879,000. Over a five-year time horizon that translates into more than 7 million additional
tax dollars in the two county region.
The Palmetto Pipeline project finances new energy infrastructure investment which is a critical
component of a stable and reliable supply of energy needed by the fast-growing Southeast. Perhaps most
importantly, the proposed Palmetto Pipeline should increase competition in the regional energy market
leading to lower energy costs in the long run. Building new pipeline capacity is an effective way to
increase competition in the energy market, which will likely benefit consumers and businesses throughout
the region.
Transporting petroleum products by pipeline has many advantages over transporting petroleum
products by truck over the highway. Transporting petroleum products by pipeline is safer and less
costly because there will be fewer trucks on the road, less highway congestion, less transportation time,
less costly highway maintenance and fewer highway fatalities. The cost of transporting the energy is
much lower by pipeline than by truck, making the new energy infrastructure, a good investment.
Overall, the proposed Palmetto Pipeline Project is likely to result in better highway safety,
more competition among energy suppliers, increased regional supply of energy products, and lower
energy costs in the long run. The proposed pipeline will deliver new petroleum products to help
sustain the energy demands of future population and business growth in the Southeast. In the short
run, there are significant job, labor income and local tax benefits associated with the Palmetto
Pipeline Project construction. In the longer run, ad valorem taxes will boost county tax revenues
significantly.
In addition, the Palmetto Pipeline Project will help meet the demand for petroleum in the
state of Florida and Jacksonville Metropolitan area. Florida is one the fastest growing states in the
nation and with this growth comes increased petroleum consumption. The historical relationship

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The Economic Impact of the Proposed Palmetto Pipeline Project in NE Florida

between population growth and petroleum growth in Florida indicates that on average a 1 percent
increase in population is associated with a 2.28 percent increase in petroleum consumption. The
Palmetto Pipeline, which will bring 70,000 barrels/day of petroleum to the Port of Jacksonville, will
satisfy on average about 6 percent of the total state demand for petroleum in Florida, or an
equivalent 60 percent of demand in the Jacksonville Metropolitan area. This represents a significant
contribution to the state and regional energy supply.

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