Posted by: bmeverett | January 21, 2012

The Keystone Pipeline Mess


President Obama decided this week to make a formal declaration that the Keystone Pipeline is not in the national interest. There is apparently no limit to the amount of damage our elected officials are willing to do to the nation and the economy for a short-term partisan advantage. Depressing.

The Keystone Pipeline is a proposal by TransCanada Corporation to build a large-diameter oil pipeline to bring increased quantities of oil from northern Alberta to the major oil distribution centers in the Midwest and Oklahoma and ultimately down to Houston Texas. The project has an ultimate cost of about $13 billion all supplied by private investors. The result would be an improvement by one of our closest allies in the efficiency of the US oil logistical system at no cost to the Treasury. So how did we get to a decision to turn this down? The answer lies in both substance and process.

The major objection from environmentalists is that the pipeline would support the development of yucky, high-carbon oil sands in Alberta. Unlike conventional oil, oil sands are mined with trucks and shovels. The oil is then separated from the sand, and processed lightly to produce a heavy crude oil that can be pumped through pipelines to refineries. On balance, the increase in carbon dioxide emissions for oil sands versus conventional oil from the mine to your car is about 20%. The “Climate Community” doesn’t like any hydrocarbons, but they particularly don’t like this type of oil. In fact, however, the Canadians are going to produce this oil no matter what the US does. Canadian oil sands may be as large an oil resource as the Middle East, and its development will be essential to meeting growing world oil demand. Production is highly profitable at $100 per barrel, and the governments of Alberta and Canada will receive considerable tax revenue for these projects. Asking the Canadians to stop developing this resource would be like asking the people of Iowa to stop growing corn. They are just not going to do it.

So what happens if we refuse to receive the oil through the Keystone Pipeline? The Canadians can easily build a pipeline to the west coast and ship the oil by tanker to Asian markets. The US would have to replace the Canadian oil with tanker imports from other sources, particularly in the Middle East. The results would be (1) the same amount of oil would be produced, (2) US consumers would pay more for oil and Canadian producers would receive less for their oil, (3) the amount of carbon dioxide emitted to the atmosphere would increase because the same amount of oil would have to be moved longer distances and (4) the Canadians would be mightily put out. Sound like a good outcome?

If the Climate Community proposes to deprive American consumers of oil to power their vehicles, they will first need to offer some other technology as a replacement. As I have discussed many times in this space, there are no such technologies available at the present time.

In fairness, environmentalists have several other arguments, so let’s look at them one by one.

One objection is that the pipeline would pass through the Ogallala Aquifer, a major source of water for much of the Midwest and Southwest. Preservation of water supply is an important issue, but this objection fails on two points. First, pipelines do rupture, but the damage is generally found rather quickly, since pipelines are carefully monitored and heavily instrumented, and the damage is limited to the immediate area around the pipeline. Furthermore, oil is not soluble in water. It’s really not reasonable to argue that this pipeline could spill enough oil to foul any significant amount of this aquifer. Furthermore, the Ogallala is already criss-crossed by hundreds of miles of oil pipelines. If you’d like to see how many, check out this maps at http://www.usfunds.com/investor-resources/frank-talk/?i=7318. By the way, TransCanada has offered to reroute the pipeline around the Ogallala if that would help.

Another objection is that there is an enormous amount of study work that needs to be done to address the issues around the Endangered Species Act as well as the impact on Native American tribes. Most people accept the need to protect whales, elephants, eagles, tigers, and other majestic creatures from extinction. It’s not clear, however, how many species we really want to worry about. The State Department’s Environmental Impact Study (EIS) of the Keystone Pipeline (which you can find at http://www.keystonepipeline-xl.state.gov/clientsite/keystonexl.nsf?Open. Scroll down to the “Executive Summary of the Final EIS) found that “the proposed Project would likely adversely affect the American burying beetle and a formal consultation was initiated…” How long do we really want to impede economic development to study the impact on local beetles? Maybe there is an issue here and maybe not, but as the number of listed species grows, the process of obtaining project approval will get longer and longer. Even projects that are ultimately approved will suffer years of costly delay. Is this process really consistent with sustained economic growth?

The State Department EIS further states that “DOS [State Department] initially contacted over 95 Indian tribes to find out their level of interest in becoming a consulting party.” It makes obvious sense to consult with people who are potentially impacted by the pipeline, but does it make sense to openly solicit people to file objections? In our legal system, it’s easy for anyone who can obtain status as a “consulting party” to delay the project in anticipation of compensation. We are getting perilously close to a “unit veto” system in which anyone can block any proposed investment for any reason. The result would not be a harmonious society in which everyone felt included and all concerns were addressed. We would instead have a fractious society in which nobody could accomplish anything, and anger and resentment would accelerate as the economy continued to stagnate.

A final environmental argument concerns the potential destruction of the boreal forests in Alberta by the vast despoliation of open pit mining. This argument is also wrong. Alberta is a pretty big place with a total area of about 250,000 square miles. The total land disturbed by oil sands mining is about 250 square miles or 0.1%. Furthermore, the governments in Ottawa and Edmonton impose strict regulations on oil sands operations which will require extensive land reclamation. The small amount of boreal forests cut for the projects will ultimately grow back to their original state.

It’s interesting that the President is a strong supporter of long-distance high-speed rail systems built at enormous public expense with atrocious economic prospects. The President apparently doesn’t see these systems, which are far more intrusive than buried pipelines, as raising large numbers of complex issues that need to be studied interminably. I guess the real criterion for approving projects is not a detailed understanding of their economic and environmental impact, but whether the President thinks they are a “neat idea”.

President Obama came to office promising to restore America’s standing in the world. His decision on the Keystone Pipeline shoves a stick into the eye of our closest ally to support the President’s campaign efforts and further undermines any claim that the US supports free trade principles. The US can probably get by without this pipeline, but our economy may not be able to survive the continuous application of this disastrous review and approval process.

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