Keystone Pipeline Is Dead – The Triumph Of Politics

WASHINGTON – Now it is official. President Obama announced that he is against the proposed Keystone pipeline that would have allowed Canada to ship oil directly from the Province of Alberta to the Texas refineries. The project has been officially killed.

A symbol 

It is no secret that this pipeline had become a target for all the US environmentalists who believe that fossil fuels are bad, if not evil. The argument against this particular project is that it would have delivered an even more potent poison. You see, Canadian oil is extracted from oil sands. The process is messy, and dirty. And it generates more emissions.

Therefore, preventing this pipeline from being built became a crusade.

And now Obama has finally taken a position. It is no wonder that in the end he had to agree with the various environmentalist groups. They are mostly Democrats. Hard to think that he would done anything that would alienate them.

Theological argument 

And what about his argument? Well, his argument is based neither on economics nor on any practical energy policy. In fact, it is akin to a theological argument. America is leading the world in the battle against emissions and climate change, Obama said. By approving a project that increases reliance on a particularly dirty form of fossil energy, America would have tarnished its own credentials.

It would have set a bad example, right before the United Nations Conference on Climate Change to be held in Paris on November 30. This will be a major international event in which all countries are supposed to prove how serious they are on combating climate change. Approving a fossil fuels project right before a global forum in which America will encourage others to commit to reducing oil related emissions would have looked bad.

Therefore, this is not about getting more Canadian oil. This is all about politics, ideology and symbolism.

Negligible impact 

Let’s make it clear. Whether you are for or against the pipeline, at the end of the day, when it comes to global warming this is a non issue. The fact is that having or not having this pipeline does not move the needle in any special way.

Enhanced energy security 

However, it would have been better to approve it for different reasons. The pipeline would have contributed to enhanced US energy security. Indeed, the Keystone pipeline should have been allowed because getting more oil from Canada (as opposed to importing it from OPEC countries in the Persian Gulf) would have added to American energy security. Getting about 800,000 barrel a day from Canada would not have been a revolutionary change. But it would have been a positive incremental step.

And here is why. Notwithstanding the huge increase in US domestic production that took place in the last 5 or 6 years, the US still imports almost 50% of all the oil it consumes. That’s about 9 million barrels a day. This being the case, it would be wise to get more of the oil we absolutely need (until something else will replace it) from Canada, a friendly neighbor, as opposed to importing it from the perennially turbulent Middle East. It is as simple as that.

The Middle East is a mess that we cannot control. Something really bad may happen there; and a major crisis may affect oil flows from the region. Therefore, if we had a choice –and now we do–  let’s further reduce our reliance on oil imported from the Gulf region and let’s get more oil from Canada, a friend and an ally.

Is this really so difficult to understand?

No impact on the environment 

As for the alleged negative environmental impact, the Obama State Department, technically in charge of all reviews regarding the proposed pipeline, stated that building Keystone would not alter US total emissions in any appreciable way.

Therefore, all considered Obama should have allowed this project to move forward. He did not do this for political reasons. Nothing to do with the merit of the case.

Does it make economic sense? 

Now, from a different perspective, one could argue about the wisdom of constructing this new Canada to USA pipeline right at a time in which there is a global oil glut, and oil prices are half what they used to be when people started planning for the Keystone pipeline.

May be it no longer makes economic sense to build it. Fair enough. But this is a business decisions to be made by TransCanada and its partners. It is not up to the President of the United States to decide if a project makes economic sense or not. This project would have been built by a private company, and not by the US Government.

Oil transported by rail 

And one more thing. The green movement applauded Obama’s decision as a good way to preserve the environment, while sending a strong message to the fossil fuels lobby: Watch out. We are going to get you”.

But here is the irony. Without the pipeline, substantial amounts of Canadian oil are and will be imported into the United States. This Canadian oil is loaded on trucks or freight trains.

Now, any energy logistics expert would tell you that these modes of transportation are much more dangerous than a modern, state of the art pipeline. As several train wrecks with explosions and fires caused by the oil loaded on rail cars have demonstrated, transporting oil by train can be a real hazard.

The issue was the pipeline 

But I guess that trains loaded with oil, occasionally derailing and exploding here and there, are not an issue for the environmentalists.

The issue was the pipeline. And now it has been killed. Victory.




Lift The US Oil Export Ban

WASHINGTON – At the time of the first OPEC oil embargo (1973-74), in an attempt to protect shrinking domestic oil supplies, the US Government passed a law that forbids exporting American crude oil. 

Plenty of oil

Whatever the merit of that policy, now –40 years later– we are in a totally different environment. While in the 1970s we feared shortages, now the world has plenty of new supply.

And we know that America increased its production, in a major way. Time to do away with the export ban? Not so fast, some argue. Even though we are producing a lot more oil, we are still a major net oil importer. It makes no sense to export oil when we are importing it.

This argument would make perfect sense, but only if any oil, regardless of its origin, were essentially the same. But we know that there are different types of oil.

Lift the export ban

And this is why it would make sense to lift the export ban. Many have spoken on this issue, including MIT Professor John Deutch, a highly respected energy expert with a distinguished public service record. (Amplify the Oil boom by Liberating US Exports, The Wall Street Journal, August 12, 2015).

Here are the facts. America now produces a lot more oil. However, much of the additional supply (coming mostly from shale deposits in North Dakota), is light crude. Nothing wrong with that. Except that most US refineries are designed to process heavy crude. For this reason it is more difficult for US shale producers to sell their product domestically. In many instances they are forced to sell at a discount.

If the same shale oil producers were free to sell internationally, they would get better prices from buyers in other countries whose refineries are designed to process light crude.

Buy heavy crude from Canada 

Well, and what about America? If we sell abroad, then we lose some of this additional supply. This means that we shall have to import more. Yes, this is true.

But there is a solution to this. There are enormous quantities of heavy oil in Western Canada. (in fact Canada has the third largest proven oil reserves in the world, surpassed only by Venezuela and Saudi Arabia). Of course, we already import quite a bit of this Canadian crude.

But we could get more, a lot more.

If we built the proposed Keystone pipeline, it would carry much more Canadian crude all the way down to Texas. The Texas refineries are designed to process heavy crude.

Open energy markets 

This way, by opening up different avenues for different types of crude, each one would get to its optimal destination.

This sounds reasonable. But it is very difficult to do, mostly for political reasons. Lifting the oil export ban may be a bit easier. There seems to be a bipartisan coalition in the making in the US Congress that would have enough votes to pass a new law that would repeal the export ban. This is hardly a done deal, but it looks possible.

Keystone pipeline blocked 

Unfortunately, the Keystone pipeline project is blocked, at least until Barack Obama is US President. Indeed, just like exporting US oil, getting more oil from Canada is not based on market forces, old-fashioned demand and supply. Creating this channel for additional supplies of Canadian oil is entirely contingent on President Obama approving the Keystone pipeline. And he will not do this.

Mind you, this pipeline project has been reviewed, assessed, and vetted a million times by the US State Department, the agency technically in charge because this is a pipeline that will go across the Canada-USA frontier. Armies of experts who worked on this for many years could not find any flaws with this project.

Energy policy dictated by ideological prejudice 

But President Obama will not approve it, simply because powerful US environmental groups are opposed to it, as a matter of principle.

They just do not like any new infrastructure that will lead to any oil consumption increase, foreign or domestic. In other words, it is all about ideological prejudice.

Sadly, this is how we craft the energy policy for the most important economic power in the world.




In A Slowing Economy Invest In R&D, Education And Infrastructure

WASHINGTON – America is doing OK, (if compared to declining Europe and Japan),  but not great. The once powerful US economy is not firing on all its cylinders. In fact, it would be appear that some cylinders are missing. 

What happened?

What happened to the once large, sustained US public and private investments in science and technology? And where are all the new start-ups courageously pushed forward by legions of young, enthusiastic entrepreneurs? (Contrary to popular belief, business formation in America is at a 35 year low. These days there are fewer new companies created in the US than in many slow moving European countries). And what happened to the once highly respected US public education system?

Lawrence Summers has good suggestions

Economist Lawrence Summers is aware off all this and has a few good suggestions. The Harvard Professor, and former Secretary of the Treasury (under Clinton) and Director of the US National Economic Council (under Obama), talked to McKinsey. They put this interesting interview on-line.

More R&D

Summers reflects on many different economic issues. He says that we have to redouble our commitment to science and technology. In fact (contrary to popular belief) we never spent a lot on this critical sector. But now we are spending much less than we used to. This is a very bad sign.

Our future prosperity and global competitiveness depends on the pace and quality of innovation. And a big portion of tomorrow’s breakthrough ideas that will be translated into commercial applications will come from basic science programs funded today.

Of course, innovation cannot be willed into place. And spending more money on R&D is no guarantee of a good return. Many new projects lead to nothing. But a few may lead to incremental innovation, or even to epochal, transformative discoveries.

For sure, if we do not even try, we shall get nothing.

Education is key

We also have to improve the standards of our public education, says Summers. Our future will largely depend on the quality and drive of our human capital. It is a well-known fact that the quality of American public education has deteriorated, a lot. All credible international surveys place American high school kids in the lower half, or worse of all the academic achievement rankings encompassing developed countries.

And this alarming mediocrity in most cases is not due to lack of funding. It is about entrenched and politically protected bad systems that allow the hiring and retention of unqualified teachers. This is unacceptable.

Let’s take care of our infrastructure

And then we have basic infrastructure. Although this issue has become very political, (who sets priorities? Where do we spend the money? Who benefits politically?), common sense would dictate that we should do something, and fast, at least about basic repairs and maintenance. With interest rates at 2%, Summers points out, borrowing money today for public works is extremely cheap. If this is not the right time to build new structures at Kennedy Airport in New York City, (they were built 50 years ago), then when will the right time come?

Yes, we need oil pipelines

In an indirect jab at the Obama administration, Summers also argues in favor of more modern oil and gas pipelines. He observes that without permits to build these pipelines, large amounts of oil are transported by rail. This is cumbersome, very expensive, inefficient, and very dangerous; as a number of recent tragic accidents have demonstrated. (Yes, Mr. President, approve the TransCanada Keystone XL pipeline that will allow oil from Alberta to get to Texas. Canadian oil is better than oil from Saudi Arabia. And right now much of this Canadian oil gets to the US via rail cars).

Expedite environmental reviews

And, finally, there is environmental protection. While we should all be mindful of our duty to protect the environment, says Summers, getting a permit from the competent environmental protection authorities should not take years. By delaying review and approval for this and that, the government slows the economy down.

Companies have to spend larger and larger amounts of time, resources and money to get new projects off the ground. This is a business disincentive. And unjustified delays are often a way to kills projects by bureaucratic suffocation.

Facing “The Great Stagnation”

Yes, we may be indeed in the new era that economist Tyler Cowen appropriately named  “The Great Stagnation”, (this is the title of his seminal book). We are indeed going through a long period characterized by little innovation.

Indeed, with the exception of IT, electronics and biotech, we are still using the basic technologies that were developed 50 or 60 years ago. We have had very few economic breakthroughs. And this is no fun. But we can still bet on the future by investing now in people and in new ideas that may take us somewhere new.

Let’s do something

And, yes, even though this is not glamorous, we should also build a new Terminal at jFK Airport in NYC, and we should finally approve the Keystone XL pipeline that will get us more oil from Canada. No, this is not as exciting as the perfect $ 15,000 electric car that goes a thousand miles on one battery charge, or knee replacement surgery performed by a robot for $ 100.

But it is a lot better than doing nothing.




Keystone Pipeline Killed By Plunging Oil Prices?

WASHINGTON – I suspect that the Keystone pipeline project is dead, or at least is in a coma. And this time I believe it will die of “natural causes”. In the past, I have repeatedly written in support of this proposed (but still under review) TransCanada pipeline that would deliver additional Canadian heavy crude from Alberta, all the way across the United States to refineries in Texas.

Get more oil from Canada

It makes perfect sense to increase our oil supplies from Canada, and cut our imports from OPEC. This is simple common sense. America is producing a lot more oil these days. However, we still buy abroad about half the oil we consume. Therefore, get more of America’s imported energy from Canada, an old ally and a neighbor. Get less of it from far away, unstable countries.

Political opposition

We do know that the project could have been authorized years ago by the US Government. But it has been held hostage by politics. The well-organized US environmentalists have made Keystone into a symbol of all that is wrong with continued dependence on oil, gas and coal.

In their view, by bringing to market more Canadian heavy oil, the Keystone pipeline would accelerate the ongoing environmental devastation that in the long run will kill life on earth. Yes, heavy crude means higher emissions, therefore more greenhouse gases, rising temperatures, and all the rest of it.

Anyway, this extremely vocal ideological opposition managed to freeze the approval process. (I say ideological opposition because in a world that consumes 90 million barrels of oil a day an additional 800,000, most of which would get to market anyway with or without this new pipeline, would not tip the scales).

Therefore, no decision from Washington, while project reviews were followed by more reviews. Of course, nobody expected President Obama to say anything about Keystone before the mid-term elections.

A different obstacle: low oil prices

But now, with the elections behind us, there is a different obstacle: plummeting oil prices. Yes, oil prices have collapsed. In a very short time they have gone from $ 100 per barrel to less than $ 70. However, the very high cost of extracting and then shipping Canada’s heavy oil has remained the same.

They way it looks, in this brand new market Canada’s oil has become too expensive, and therefore its may no longer be competitive. Of course, it is for the Canadians to decide when the pain of lower and lower prices will be too high and stop, (or at least cut down), production.

Canadian oil is too expensive

However, right now I do not see how Canadian companies can extract, deliver and sell their super expensive oil and make a reasonable profit, assuming that oil prices will stay below $ 70 per barrel. Add to this that the projected cost of constructing the Keystone pipeline, because of all the changes and delays, has gone up: from $ 5.4 billion to about $ 8 billion.

Taking all this together, I think that Keystone, unless oil prices recover soon and significantly, does not make much economic sense any more.

Will Canada sell its oil below cost?

Whatever the sound geopolitical and energy security reasons for building this pipeline, in the end the companies involved have to make money. If Canadian crude is priced out of the market (at least for a while) because it is way too expensive, I do not see that many buyers.

Unless the Canadians are willing to bet on future higher prices while absorbing heavy losses by selling now their oil below cost, Keystone will not happen any time soon.

 

 




Opposition To Keystone Pipeline Part Of An Ideological Anti-Oil Argument

WASHINGTON – The US Senate just had a vote on the Keystone pipeline that would transport Canada’s oil to refineries in Texas. Those in favor narrowly lost. If they had won, most probably president Obama would have vetoed the bill. (The same bill had already been passed by the House). This is almost surreal.

Keystone should have been approved long ago

Indeed, in a normal country the Transcanada Keystone XL pipeline project would have been approved years ago, as a matter of course.

Upon completion and approval of a rigorous environmental assessment, (all this has been done, multiple times actually), the US Federal Government would have concluded that it is in the economic and national security interest of the United States to construct a pipeline that will bring more than 830,000 additional barrels of oil a day extracted from Canada’s oil sands (located in the Alberta Province) into the US market.

We need oil

Whatever we can say or argue about global warming and climate change, for the time being our entire transportation system, from diesel locomotives to heavy trucks, buses and private cars, runs on oil-derived fuels.

This may change in the future. We may soon have cost-effective electric cars, fuel cells engines, and what not. But we are not there yet.

Therefore, as we still need to import a lot of oil, (notwithstanding a most remarkable increase in US production thanks to shale oil), it makes perfect sense to get more of it from Canada, a neighbor, a solid ally and a major trading partner.

Let’s get it from Canada

Yes, as long as we must import about half the oil we consume every day, it makes sense to get more of it from a friendly neighbor, rather than buying it from Saudi Arabia or other OPEC countries.

In this context, the Keystone pipeline, while not absolutely vital, becomes an important addition to our critical energy infrastructure, because it would allow us to get more oil from Canada. Indeed, via this new pipeline we would add to our total supply, (830,000 barrels of oil a day is not exactly a drop), this way increasing US energy security. Basic common sense indicates that, as long as we depend on oil imports, it is a lot better to rely on close by, friendly producers of this strategic commodity.

As I said at the beginning, in a normal country, having reviewed the overall energy scenario and America’s ongoing dependency on imports, the US Government would have quickly approved the Keystone project.

Not a normal country

But we are not in a normal country. And this is because (sadly) any debate on the continuing use of carbon based energy in America has now acquired a religious dimension. Given this transformation, Keystone is no longer a pipeline project. If you are a true green, being against Keystone is about virtue, righteousness and morality.

If you are against oil, you are moral and virtuous. You agree that carbon based energy is demonic stuff, because you know that its use will destroy the planet. Therefore the Keystone pipeline should be opposed on moral grounds, just as any other device that will encourage us to use more oil.

On top of it, this pipeline will bring into our sacred land the worst kind of oil. This brew is heavy, therefore it is the worst polluter. One more reason to oppose any pipeline that will bring it to us. (Never mind that this evil Canadian concoction is currently transported into the US every day via rail cars, a far more dangerous system than a pipeline, as many accidents demonstrate).

And you thought that America is a modern country whose leaders are inspired by pragmatism in promoting choices that favor economic growth.

Energy has become an ideological subject

It is a real tragedy that energy is now an ideological subject, even though ideological bias is disguised as science. Look, even if we accept that global warming is both real and man-made, at the moment there is not a lot that we can do about what causes it, unless we want to cripple our carbon dependent economies.

Sure enough, burning oil derived gasoline is bad, because it produces the greenhouse gases that cause global warming. However, the trouble is that for the moment we have no cost-effective real alternatives to oil-derived fuels.

We have made quite a bit of progress here and there. Our cars are now much more efficient, while on balance they pollute a lot less. Increased use of mass transit systems reduces the number of cars on the road. Biking to the office also helps a bit.

But we still do not have a real breakthrough, a “game changer”. Which is to say that, for the time being, we are stuck with oil. This does not mean that we have to “love” oil. This simply means that we recognize that it is indispensable.

Let’s invest in research

By all means, let’s invest more in research in non carbon fuels. Let’s push the envelope. Let’s come up with real alternatives. Everything else being equal, if tomorrow Tesla Motors, (or any other innovator), comes up with a cheap, reliable, and efficient electric car everybody will buy one.

And this will be the end of the oil era. No more drilling, no more wells, no more pipelines, no more refineries, and no more internal combustion engines. Good bye Exxon, BP, Total, Shell and Chevron. But we are not there yet.

Given all this, demonizing the oil that we still badly need is stupid and infantile. Like it or not, for the time being we depend on it. Therefore, let’s get more of it from Canada, our friend and ally.

Let’s build the Keystone pipeline.

 

 




After The Release Of The National Climate Assessment Report, Forget About Approval Of The TransCanada Keystone Pipeline

WASHINGTON – The US Government just released the congressionally mandated National Climate Assessment. As you can imagine, the emphasis is on mostly negative, man-made changes to the climate and therefore to the environment. Things are not looking good, according to the report. That said, the good news is that, by limiting certain human activities, especially concerning the use of fossil fuels, we can improve our outlook. 

Is regulation the best tool?

Assuming that the report is correct, it is not entirely clear to me that regulatory actions aimed at restricting the use of fossil fuels will be able to reverse whatever damage has already been inflicted on the environment.

I know that this is a difficult and divisive subject. Still, many scientists who do not deny the reality of man-made climate change believe that it is a lot more cost-effective to invest scarce resources in actions aimed at mitigating the impact of climate change rather than trying to reverse it by curbing the use of this or that.  Anyway, this is a truly complicated subject that cannot be addressed in just a few words.

Forget about the Keystone pipeline

Still, on a more practical level, one of the most immediate (politically motivated) policy consequences of this report is that we may as well forget about any decision on the already controversial Keystone pipeline that could carry almost 800,000 barrels of Canadian oil a day from Alberta down to Texas refineries.

This project has already been demonized by all the US environmentalists as something that would trigger a real catastrophe. It has been said that buying and then refining this Canadian heavy oil is basically a criminal act, as this is oil is a super pollutant that will damage the air, the atmosphere and everybody coming in contact with it.

It all about politics

Well, let’s say that this is at least an exaggeration. But this belief is firmly held by lots of Democrats. And Obama does not want to offend them (there is a national election coming up in November) by authorizing the project.

Sure enough, if we were thinking strategically, if we were thinking US energy security, it would make a lot of sense to increase US oil imports from Canada, a stable and dependable ally, as opposed to buying the same oil from OPEC countries. This is obvious.

But Obama cannot talk energy security with the environmentalists in his own party. And so he has tried to be clever by creating an endless project review process that allows him to delay a decision without openly offending anybody.

Some Democrats may suffer

True enough, there are some Democrats, mostly Senators running for re-election, who may suffer politically because of this, since their centrist constituents are actually in favor of the Keystone pipeline. But the White House is not inclined to approve such a controversial project just a few months before the November mid-term elections.

Still, for anybody who might have harbored any residual hope regarding approval of the Keystone pipeline, the just released National Climate Assessment report should put the issue to rest.

The report says that carbon is bad

Now we have heard it from higher authority: carbon based energy is bad. We should use less, not more. Never mind that the issue at stake here is not consuming more oil but decreasing our dependence on OPEC oil. As we have to import almost half the oil we consume anyway, it would be wiser to buy it from a friend close by, rather than from the Persian Gulf.

Regarding the pipeline, the real issue is energy security  

And yes, Canadian heavy oil may indeed pollute more, but I do not believe that using more of it will make such a big difference, if we take into account global emissions of greenhouse gases dominated by thousands of super dirty Chinese and Indian coal-fired power plants that the US environmentalists cannot close down.