The Keystone Pipeline Debacle

Robert Bachman, a friend from Calgary and a distinguished reservoir engineer, sent me this e-mail on November 11, 2011: “Michael, I am really looking forward to your comments on the Keystone debacle. You know as well as I do that the U.S. has just stabbed its best friend in the back. It will take a while to sink in here in Calgary, but I guess we have to put all our hopes on the approval of Enbridge's Northern Gateway pipeline. It will certainly face its own regulatory challenges. Forcing Canada to more international markets may be a good thing for us in the long run. Not so sure it is good for you. Plan B for the U.S.: Kiss and make up with Hugo.”

Bob is a gentle soul, not prone to hyperbole. Something must have boiled over in him to send that message. Here is my take on the issue.

Feeding the Ideological Divide
The Keystone pipeline debacle shows that the ideological divide in America’s climate and energy wars has now become an insurmountable chasm. It is an all-out war with no prisoners taken, not unlike so many other cultural, social and economic issues that only nasty and protracted election campaigns can ever resolve with the winners bound to be exhausted and the losers permanently sour.
For economic and energy pragmatists, the 1,700-mile TransCanada Keystone XL pipeline, slated to carry 800,000 barrels per day from Canada’s Alberta tar sands to refineries in the U.S. Gulf Coast, was a no-brainer. Over the last decade, give or take a few barrels, the U.S. has imported about 60 percent of its 20 million barrels-per-day energy needs, a lot of it from far-away, unstable and even unfriendly regimes, such as Venezuela under Hugo Chávez. What would have better tilted the balance toward our closest friends in Canada, from which the U.S. already imports 2.5 million barrels per day, than to approve Keystone XL? I am squarely in this camp.

Standing in the way are environmentalists and movie stars, in many cases with outrageously silly arguments, who decry the would-be potential risks to drinking water aquifers, which already lie under tens of thousands of oil and gas pipelines crisscrossing the country. When thinly disguised ideological objections are pushed to the background, the superficial public arguments that politicians employ to defend their positions become transparent – and can be off-base to outright silly. This is evident in an October 5, 2011 letter from Senate Majority Leader Harry Reid to Secretary of State Hillary Clinton, objecting to the Keystone pipeline. Clinton’s department was supposed to make the decision.

Senator Reid wrote: “The proponents of the pipeline would be wiser to invest instead in job-creating clean energy projects like renewable power, energy efficiency or advanced vehicles and fuels that could employ thousands of people in the U. S. rather than increasing our dependency on unsustainable supplies of dirty and polluting oil” and “The fastest and best way to break our addiction to oil and free our country and our economy from the dangerous grip of OPEC is to develop and deploy new technologies and clean, affordable alternatives that destroy demand for oil, not exacerbate it.”

Misconceptions About Energy
In just a few sentences the Majority Leader presented at least five huge misconceptions that have fed the ideological divide. Clearly Reid wants a world free of fossil fuels, socially engineered to his liking. But the public justifications for his objections, such as his claim that renewables are an alternative to oil, are about on the same level as the claims (twice) by his then House counterpart, Nancy Pelosi, that natural gas is not a “fossil fuel.” In this era of dire economic forecasts, the Majority Leader appears unrepentant and indeed unbending. Here are the facts:

 

1. Any rudimentary engineering economic calculation, irrespective of whether one believes in man-made, CO2-induced global climate change, peak oil or geopolitical calamities, clearly shows that fossil fuels are significantly superior to any alternatives such as solar and wind. The entire 21st century will continue to be dominated by fossil fuels. Countries that do not recognize this and do not put it center stage in national policy will pay a huge price.

2. “Renewable power” is not an alternative to oil or vice-versa. We do not use any oil to speak of for power generation (we use coal, natural gas, nuclear and hydroelectric) and, essentially, we do not use anything but oil (in the form of gasoline, diesel and jet fuel) for transportation. To think otherwise is a cardinal mistake and deliberately misleading. Senator Reid ought to know that. In any case, no wind or solar power can survive anywhere in the world without massive (and not affordable) government subsidies. In study after study it is clearly shown that green jobs cause much larger losses in other industrial jobs.

3. “Advanced vehicles and fuels.” What is he talking about? Vehicles have improved dramatically over the past 40 years, but gasoline demand has been going up (slowed down only by economic recession). We manage to find new uses for transportation. Fuels? Surely he is not talking about negative-energy-balance, corn-based ethanol or the non-existent cellulosic ethanol? None of these could exist without massive government subsidies, and their impact on food prices is almost criminal.

4. “Addiction to oil,” a slogan used by others from both parties, is a cheap rallying cry but basically ignorant. Yes, the U.S., a rich nation, will use more oil than others. But what is often missing in this debate is that the use of energy generates wealth. In fact, energy and energy abundance separate rich from poor countries. The Chinese and emerging nations understand that. Our politicians, instead of advocating economic hara-kiri, should level with the American people on how important energy is to our lifestyle and well-being. The irrational attitude of environmental radicals should be exposed for what it is. It should not be an integral part of a national party’s platform.

5. The last time I looked, Canada, our closest ally, was not a member of OPEC. Oil from that country should be a U.S. national policy – encouraged, not opposed.

 

Taking the Easy Way Out
Well, the preposterous became reality. On November 10 the Obama Administration announced that it would “consider alternative routes for the Keystone XL oil pipeline to avoid ecologically sensitive areas of America’s heartland.” The decision was interpreted by friends and foes in exactly the same manner: It was a move to delay the final decision until after the 2012 election, a political hot potato for Obama, who has steered toward his radical environmentalist base.

Jack Gerard, President of the American Petroleum Institute, said: “This is clearly about politics and keeping a radical constituency opposed to any and all oil and gas development in the president’s camp in 2012…. It appears there is only one job that is being focused on here.” Russ Girling, CEO of TransCanada, sounded quite a bit sober over the pipeline’s future: “Supplies of heavy crude from Venezuela and Mexico to U.S. refineries will soon end. If Keystone XL is continually delayed, these refiners may have to look for other ways of getting the oil they need. Oil sands producers face the same dilemma — how to get their crude oil to the Gulf Coast.” Valero, a major refiner based in San Antonio, said in a statement: “This decision is due to a small and misguided group of extremists who fail to realize that fossil fuels will continue to be consumed because they are efficient and economically viable.”

What almost no one mentioned was the elephant in the room. China would love to have Canada’s oil and then some, and they do not have Obama, Reid et al. nor do they have Hollywood starlets campaigning against oil.

Environmentalists could barely hide their glee. Larry Schweiger, President of the National Wildlife Federation, said the “do-over is likely a lethal blow. The project won’t be able to stand the scrutiny because Americans now understand that it will increase our addiction to dirty, expensive tar sands oil for decades….You can change the route, but it is still the wrong project at a time when we need investments in clean energy alternatives that don’t spill, don’t pollute and don’t run out.”

The question of how “clean energy alternatives,” such as solar and wind, can replace 800,000 barrels of oils per day has never been posed to environmentalist groups. It is simple: There is no plausible answer.

The Final Nail
This whole affair has been an outrageous spectacle from the beginning. But its dénouement points to the unfortunate polarization of American politics and the forcing of people, reasonable people, to take sides. There are many who are not right-wing fanatics, who could care less about abortion, gay marriages or even Obamacare. But they will remember the cavalier and illogical attitude of this administration in the area of energy, something of profound importance to America’s lifestyle. I am convinced it will become a defining issue in the next election.

For Canada, Prime Minister Stephen Harper took less than 48 hours to utter the obvious: Canada will seek new markets in Asia, such as China.

And on January 18, less than three weeks into the new year, President Obama put the final nail in the coffin of the Keystone XL pipeline, at least for the duration of his tenure, by announcing that the pipeline permit would not be issued. – MarEx

Dr. Michael J. Economides is Managing Partner of Dr. Michael J. Economides Consultants, Inc.