The Oil Will Flow Somewhere

The world’s modern infrastructure runs on petroleum.  Just to keep the wheels of industry, energy, medicine, and numerous other sectors turning, the world needs roughly 88 million barrels each day.  20 million of those barrels are needed to keep the lights on and the American economy moving.  We as a nation produce domestically less than 9 million of those needed barrels.  The harsh truth of this is that most of the rest of our oil needs are fulfilled through trade with powers hostile to American interests and ideals.

So, with the American economy inarguably stagnant and unemployment still at punishing levels, the President decides that building a pipeline from Canadian oilfields in Alberta to American refineries is not in the national interest.  Hmm?  Keeping the price of a gallon of gasoline from reaching $5 – not in the national interest.  Reducing American dependence on foreign “hate” oil – not in the national interest.  And how about thousands of construction jobs, 13,000 petroleum industry jobs, and over 100,000 “spin-off” jobs to be created – also, not in the national interest.

So here’s the skinny on the Keystone pipeline.  We have already built over half it.  The first 2100 mile section from Alberta to refineries in Illinois was completed in June 2010.  In February 2011 the 291 mile phase II expansion connected oil fields in Oklahoma to the hub in Nebraska feeding more oil to the Illinois refineries.  It currently carries at full capacity 450,000 barrels per day into Obama’s home state.

Here’s where all the screaming starts – the Keystone XL expansion.  The 3rd stage proposed is slated to connect the Oklahoma hub by another 435 mile stretch with refineries and terminals in Texas.  This would enable the glut stockpiled in Oklahoma to reach market more readily.  The 4th and final phase proposed would add an additional 327 miles from the fields in Alberta, to the expanding fields in Montana, and then on to the hub in Nebraska.

The completion of these last 2 phases would more than double the capacity of the existing pipeline to over 1,100,000 barrels a day.  In addition, the oil would be able to reach markets quicker and allow more distant reserves to be exploited economically.  Reduced transportation costs are just the icing on the cake.

So why is this project not in the best interest of the nation?

One of the first excuses to be raised will be over the environment.  The internal combustion engine is filthy and will destroy the world.  This means that anything that helps produce or distribute oil needs to be stopped.  To save the planet from global warming climate change, we must end the use of fossil fuels.  And think of the wildlife.  Look at all those poor musk ox, caribou, and snow show hares that the Trans-Alaska pipeline has killed.  Look at all the irreparable damage to the fragile tundra ecosystems.

The environmental hand wringing is just political cover for the left and their base.  The soundbite gives them a cocktail party talking point to campaign and fundraise on while they line their pockets and those of their big cronies donors.  So, let us follow the money.

Way back in November 2009 a news story caught my eye.  “Buffett buying Burlington Northern railroad”.  Well, maybe billionaires like to play with trains too.  Burlington Northern was the second largest railroad in North America, but their outlook in the sluggish economy would be for slow growth at best.  Their primary business is hauling food products like corn (we always need that), coal for electricity, and heavy machinery.  So how does Buffet expect to make back his $34 billion investment?

• High gas prices mean more goods will ship by rail.
• Government mandates for more Ethanol mean higher corn prices and more corn to haul.
• Higher gas prices mean that power companies will seek to maximise the output of their coal plants versus their oil plants therefor needing more coal.
• Increased oil exploration and production in Montana and Wyoming need more supplies and heavy equipment.
• Burlington Northern has the only system that can get the new oil to market – albeit slower.  Look where their lines are.

Just as a side note, Warren Buffett owns major stakes in power companies that rely on coal.  The campaign donations to President Obama and key Congressmen on the Transportation Committee seem like they will also help ensure this bet pays off.

But here is the crux of our dilemma.  The oil will flow somewhere.  Canada is not about to let their developing oil reserves sit idle for anyone.  With the Keystone XL expansion on hold for now, they have already started taking steps to find other customers and China is first in line.  To get the oil where the Chinese can get to it, Canada is laying out plans to expand one existing pipeline and add another one.

Canada’s prime minister is making sure that the customers will be ready when the oil is available.  Prime Minister Stephen Harper and a delegation of 40 Canadian business leaders left for China just last week to open the way for talks.  His administration has even begun to soften Canada’s hardline stance on human rights as an enticement.  $16 billion in energy investment already made in Canada by Chinese state-owned firms hints at much greater sums on the horizon.  With the Obama administration thumbing its nose at cheaper, closer, and friendlier oil, who can blame them.

Currently the U.S. consumes 97% of Canadian oil exports.  Obama needs to wake up and make sure that expanded Canadian production can find its way into the thirsty American markets.  The American economy and job market demand some relief.  And if he wants some cover from the enviro-wackos in his base, he could point out that China isn’t going to use the oil as cleanly, efficiently,  or safely as we will.  But, that would require some intellectual honesty out of him now wouldn’t it?