Keystone XL: America Passes The Oil To China?
November 16, 2011 by David Dittman
Keystone XL is a divisive issue among President Barack Obama's voting base
Like former University of North Carolina Head Basketball Coach Dean Smith,
another famous on-the-sly smoker, President Barack Obama ran out the clock
on an important game.
Coach Smith devised the “four corners” offense as a way to maintain
possession of the ball late in a game his team led. By stationing players at
each of the four corners that define the offensive side of the court and
quickly passing the ball around the perimeter, Smith hoped to draw out a
desperate defense, exposing gaps that could be penetrated for easy layups or
forcing the opposition to commit fouls, sending Tar Heels to the free throw
line to add to their lead.
Obama’s current situation can hardly be described as a “lead,” though
“incumbency” is probably worth much more than any snapshot poll this far out
in the 2012 game. But his “players” — left-leaning interest groups critical
to get-out-the-vote efforts — aren’t of the same mind on Keystone XL, and he
could not afford to offend environmentalists opposed to anything that
encourages the use of fossil fuels.
So this $7 billion, 1,700-mile pipeline project won’t be settled on matters
of policy. It will be settled according to politics, and Obama has decided
that Keystone XL must go away until after his re-election campaign climaxes.
Because the pipeline crosses the U.S.-Canada border, standard procedure was
designed to culminate with a final decision by the U.S. State Department.
But in Foggy Bottom, too, are new impediments lurking that serve the
President’s electoral interest.
Spurious allegations of conflict of interest by the consulting firm that
prepared an environmental impact study for the State Department prompted a
group of U.S. Senators to write a letter.
TransCanada, acting as instructed by the State Department and in accordance
with Federal Energy Regulatory Commission (FERC) third-party contractor
practice, upon which the Department of State practice is modeled, issued a
request for proposal in late 2008 for the Department of State that led to
the hiring of Cardno ENTRIX, a unit of Australia-based Cardno Ltd (ASX: CDD,
OTC: COLDF). This is the same third-party selection process that has been
used on a regular basis for many years by FERC, which processes certificate
applications for interstate natural gas pipelines.
TransCanada screened the contractors who responded to the request for
proposal for technical ability, experience and appropriate personnel, and
recommended a number of qualified candidates to the State Department —
standard practice for selecting a third-party contractor to carry out a
review under the U.S. National Environmental Policy Act (NEPA).
There are a limited number of firms that specialize in this type of work,
Cardno ENTRIX among them. As the permit applicant, TransCanada is handed the
bill for the work that the State Department directs Cardno ENTRIX to carry
out for this part of its review. The work is done at the sole direction of
the State Department; TransCanada had no say in directing that work.
It is not in Cardno’s interest to submit compromised work. To believe Cardno
Entrix is in the tank for TransCanada is to believe it, its managers and its
shareholders don’t care about its business. “Conflict of interest” is a red
As for the fact that a former lesser light in Hillary Clinton’s 2008
Presidential campaign now lobbies for TransCanada, undoing a massive
infrastructure project that will employ many people on the U.S. side of the
border because of the well-known revolving door between public and private
in Washington, D.C., is the equivalent of selective prosecution.
At any rate, Paul Elliott did not have the kind of role in the Clinton
campaign that would even afford him access — forget influence — on any kind
of decision made at the State Department. The emails he exchanged with an
equally diligent but unknown official at the U.S. embassy in Ottawa, Canada,
are irrelevant, too.
Let’s concede that TransCanada’s forecast of the number of jobs that will be
created by construction and operation of Keystone XL is rosy. Nevertheless,
if not 20,000 direct jobs, then certainly more than one will be created. For
a President leading a party that a little more than two years ago spoke of
the importance of “shovel-ready” infrastructure projects to jump-starting
the economy, shutting down a privately funded $7 billion project should be
political suicide. It’s this reality, as well as the pain of close to 10
percent unemployment, that had American unions lined up in favor of the
Opposition at the local level is overstated. This is not a monolithic
coalition out to stop all manner of oil exploration and development.
Nebraskans, Democrats and Republicans are interested only in protecting the
Ogallala Aquifer. Had the original footprint of XL followed the existing
path of the Keystone Pipeline System, I wouldn’t have written this.
And then there are those who fear and oppose any exploitation of fossil
fuels. They are right to point out risks of environmental damage from a
potential leak in the pipeline and warn of resulting cleanup costs. As much
as Greens want the era of fossil fuels to end, we seem still to be short of
alternatives capable of providing, for example, reliable baseload
electricity or constant access to transportation fuel.
Any attempt to speed up the arrival of the day when we finally transition
from petroleum-based fuels will bring extra costs that will have
disproportionately large impacts as you move down the socioeconomic scale.
Keystone XL would help reconcile the price disparity between U.S.-focused,
cheaper West Texas Intermediate crude oil and global-oriented, more
expensive lately Brent crude and, theoretically, result in incrementally
higher gas prices. This is a short-term concern. Over the long-term,
facilitating the development of a local resource under friendly political
control is in the best interests of consumers and the United States.
The long-term, big-picture concern also includes the fact that the oil sands
will be processed, regardless of what happens with Keystone XL. And crude
from the play will undoubtedly end up traversing the U.S.-Canada border and
making its way to Midwest and Gulf Coast refineries.
Keystone XL’s 700,000 barrel-per-day capacity would relieve the buildup of
crude in the Midwest, which doesn’t have enough pipelines to ship Canadian
output to Gulf Coast refineries. And Canada’s oil sands output would also
help relieve a crunch U.S. Gulf Coast refineries will face when Venezuelan
crude supply contracts expire in 2014.
Whether Keystone XL is built, interest will continue to grow in exporting
Canadian energy to Asia. The company pushing this forward is Enbridge Inc.
(TSX: ENB, NYSE: ENB) — with the backing of Chinese investors. Its key
project is a proposed $5.5 billion pipeline to bring 525,000 barrels of oil
from the oil sands to the Pacific Coast for shipment to refineries in
California and Asia.
There are still opponents, largely on environmental grounds. And it’s far
from a sure thing Northern Gateway will be built. But the process will be
far less complicated.
Obama may have doomed Keystone XL. But whether the pipeline and the
President survive, demand for crude from Canada’s oil sands will continue.
If America passes on Canadian oil sands altogether, it’s easy to identify
the likely beneficiaries: China and India.
(This article originally appeared in Investing Daily.)