Tuesday, August 30, 2011

Why does Keystone XL matter?

A random earthquake, a hurricane and sit-in protests against an expansion of a major Keystone oil pipeline from Canada to US made a normally quiet August in Washington DC extremely eventful.  The earthquake and hurricane came and went.  The same cannot be said about the controversy surrounding the oil pipeline.  It is such a divisive issue that it may end up determining President Barack Obama’s re-election in 2012.
The existing Keystone pipeline, which originates from Hardisty, Alberta, and terminates in Oklahoma and Illinois, has been bringing 591,000 barrels of tar sands oil from Canada to the US every day since June 2010.  The proposed added extension would reach a total of 1,661 miles and link Alberta to Saskatchewan, Montana, South Dakota, Nebraska and Oklahoma, with delivery terminals at Port Arthur, Texas. 
With pending approval from the US Department of State to extend TransCanada’s pipeline, the Obama administration has come under fire from environmental groups, who staged a large sit-in protest near the White House.  Since August 20, 2011, 500 protesters have been arrested, many of whom were later released. In a letter to Obama, the largest green groups in the country claimed that  that Keystone XL would be “perhaps the biggest climate test you face between now and the election.”  Opponents of the project insisted that the pipeline would induce several environmentally adverse effects, such as the inevitability of oil spills into rivers and forests it traverses, that it would lower the incentive to transition to clean fuels, that it would cause a rise in greenhouse gas emissions, and that it would harm wildlife.  Even the New York Times came out with a strong stand against the pipeline.
Supporters of the pipeline say that the pipeline is safe and will create over 200,000 jobs. Additionally, the pipeline will be key to the long-term US energy security, which already heavily relies on oil imports from Canada.  Not denying the environmental impact of oil sands production, David L. Goldwyn, a former international energy security coordinator at the US State Department, said that Canada was addressing these issues at the national, provincial and commercial level.  The bill’s future remains unclear as it must be approved by the US Senate and signed into law by Obama.
Given the bitter divisions on the future of the pipeline, three questions are important.  One is whether the Keystone XL would make a difference to US energy security.  As American refiners are already experiencing a crunch due to production declines in Mexico and Venezuela, and the US demand for western Canada’s oil is expected to reach 2.7 million barrels a day (mbd) in 2015, Keystone XL’s projected imports of 1.3 mbd of oil from a reliable source to the US will be vital to its energy supply security.  According to the EIA data, Canada remained the number one oil supplier of crude oil to the US in 2010, followed by Mexico, Saudi Arabia, Nigeria, Venezuela, Russia, Algeria, Iraq, Angola, and Colombia.  As conventional oil production declines in Canada, it sits on one of the largest tar sand reserves in the western hemisphere, comparable only to that of Venezuela. The only constraint to bring it to the US market is insufficient infrastructure.  Canadian oil companies indicated they would seek other markets hungry for energy, if the US does not come to an agreement on Keystone’s extension.      
Given the strong opposition against the Keystone pipeline, another question is whether the oil demand will fall in America.  The fact is a decline in US oil consumption in the near future is as likely as Silvio Berlusconi becoming a monk.  The US still consumes 50 percent more oil than other countries in the Organization for Economic Cooperation and Development (OECD).  Despite occasional outbursts of support for mass transit, 2/3 of all oil use in the US is for transportation due to the layout of outspread suburbs and rural areas.  All the while, Americans are still attached to their gas guzzling SUVs and pickup trucks. 
And the final and most important question – is there not a contradiction between choosing (or being forced) to drive and demonizing oil companies that seek to bring supply close to demand?  If there is a silver bullet to solve the energy addiction in the US, there does not seem to be one yet, to everyone’s chagrin.  As long as Americans continue to drive and until there is an alternative fuel that is widely available, oil remains a comparatively least expensive fuel to run their cars for decades to come.  Somebody has to pay for more expensive alternatives and it is unlikely that consumers would be eager to bear the costs just yet.  The fact that car sales went up in July 2011 is a sign that the US economy is not in an anticipated big slump.  But more cars on the road will not reduce the oil addiction that everyone seems to despise, but drive in any case.  So, perhaps a more sensible move would be to demand stricter accountability and liability for environmental damage from oil companies.

No comments:

Post a Comment