Tuesday, August 30, 2011

Weighing in on the Keystone XL Pipeline

There's been an awful lot of fuss going on about the keystone XL pipeline in the last month or so. Dozens of environmental groups have latched on to the permitting of the pipeline, which is to carry syncrude from Canadian heavy tar oil to the United States, as the issue of their lifetimes. The New York Times carried an editorial by one of them, detailing their rationale and calling on President Obama to make the environmental decision of a lifetime.

I hope he walks out on the White House lawn and slaps this guy on the face.

The Keystone XL pipeline controversy is a farce. Extreme environmentalists have doctored the numbers to suit their propaganda needs and unnecessarily demonized Canadian producers. That editorial is an excellent example of their propaganda: "acidic crude oil" (all crude is acidic, and oil companies routinely handle more acidic and sour crudes), "highly sensitive terrain" (already traversed by multiple pipelines).  Here's the alternative picture:

Syncrude from Canada emits 70% more carbon dioxide during extraction and refining than conventional oil does, its true. But then following extraction and refining, we burn it. Focusing on the extraction stage unnecessarily demonizes the process. Over the entire lifecycle of an oil product from syncrude, emissions are only 7-15% greater.

Will the blocking of the keystone XL pipeline stop syncrude operations in Canada? No. Oil prices are high enough that Canadian producers will simply find a different market, and that market is likely to be in East Asia - i.e. China. Were this pipeline initiative to fail, the most plausible alternative is a pipeline to Canada's west coast, where it'd be sold on the international market.

There isn't much wrong with shipping to China per se, except that shifting our main source of fuels from the middle east to Canada has probably been the single greatest energy security coup in American history. Some energy economists have contended that the building of the Keystone XL pipeline to Houston will still cause the oil to be shipped to China; there are some merits to that argument, namely that foreign producers with stakes in American refining companies will pressure for the purchase of their oil. To me, however, this seems less likely than it might seem to be. Saudi Arabia has recently quit targeting 30% of their exports to the US, and Venezuela has production problems of its own, to name two examples. And even then, this argument continues to ignore that as American energy consumption increases, we can take advantage of the captive supply provided by that pipeline. After all, all things being equal, Canadian producers' delivery point prices will favor American producers. 

So, to summarize, blocking the keystone XL pipeline does a whole lot of nothing to the environment as extraction will continue, doesn't benefit the American economy or American energy security, and isn't as bad as it's made out to be.

"But wait," you might say, "it will extend America's dependence on oil!" Truth is, America is dependent on oil and will remain so for at least the next fifty years at least. Where we get it from won't matter. Stopping the supply of oil from Canada won't do anything to reduce American dependence on liquid hydrocarbons, sustained high prices will. The extent to which blocking a supply pipeline will impact American prices is the only mechanism by which this might act... and frankly, in a liquid global market for oil, it won't do much at all.

The only guaranteed effect I foresee from this pipeline is the mitigation of the price spread between West Texas Intermediate (WTI) at Cushing, OK, and the global price for oil. As I've blogged about before, WTI has been going for cheap because it is landlocked and has had an influx of syncrude from Canada that it can't unload fast enough. The increased WTI prices aren't likely to have an effect on gas prices in the United States as a whole (probably only in Kansas, Oklahoma, and the Texas panhandle due to the limited overland transport radius) and will increase profits for the companies that deliver to that location, including Canadian syncrude manufacturers. I suppose that's why they're doing it.

Environmental short-sightedness like opposition to Keystone XL will only hurt the American economy and our short-term energy security. And as a final, more general comment, it's immature activism like this in the energy arena that makes me want to puke. If you really want to help the environment, reduce dependence on oil and decrease carbon dioxide emissions, then work to build smart grids or build a renewable energy infrastructure. Or spend the money you devoted to going to Washington to retrofit your house with better insulation, double or triple paned windows, or (if it makes sense) small scale solar thermal water heaters or solar PV panels. Handcuffing yourself to the White House fence might be easier and more dramatic, but being a publicity whore is more damaging to the environment than hundreds of other things you can be doing. 

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