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Keystone XL Pipeline: Economics, Idealism and Politics
By EconMatters
The latest last-ditch temporary fixes to avert another embarrassing political stalemate came on Saturday, 17 Dec. when the U.S. Senate passed a plan to extend the payroll tax cut for two months. However, thanks to the 'creative packaging' of Washington politicians, the senate package somehow includes a measure that would require President Obama to make a decision within 60 days on the Keystone Pipeline project, which would transport Canadian oil sands crude from Alberta to refineries on the Gulf coast around 2013 (See Map Below).
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Map Source: TucsonCitizen.com, 13 Oct. 2011 |
The Obama administration, under intense political and environmentalist's pressure announced in November that it would delay any decision about the Keystone XL pipeline until after the 2012 election. Politics aside, Keystone XL Pipeline controversy seems to have morphed into one that's mostly centered on approving Keystone XL pipeline is in essence endorsing tar sands' potential negative environmental impact, which is entirely off-topic, in our view.
Oil Sands - A Canadian Resource Decision
Oil sands, as "the bomb of carbon and greenhouse gas" as some called it, is nevertheless a natural resource property of another sovereign nation--Canada--that has decided to exploit adding to the world's energy source portfolio, after weighing all risks and benefits. This oil resource, therefore, is and will be available, judging by the size of typical capital and resource requirement, for years to come, till revoked by the Canadian government.
Strategic and Practical Sense
The next logical question is--Does the U.S. and the world need this additional crude oil source? The answer could be a NO if renewable and green energy has reached end-user price, supply reliability and distribution parity as the conventional fossil fuel. However, based on various agencies' forecast, while renewable energy will enjoy increasing market share in the foreseeable future, the world will still run largely on traditional fossil sources.
Ideally, it'd be nice if the U.S. could be rid of foreign oil dependency altogether and runs on 100% renewables. Realistically and strategically, the U.S. needs all available energy sources, and fossil fuels will remain critical. So it comes down to a choice between either importing more from Canada or from other volatile and often not-so-friendly regions. (See Table Below)
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Source: U.S. EIA, Dec. 2011 |
As natural resources are getting more scarce each day, the decision on the part of the United States is how to secure and utilize this close-to-home new energy source in the most economic and efficient way possible, rather than whether to not tar sand oil should be produced, or transported. And pipeline remains the most economical and efficient among all transportation modes for crude oil.
More Infrastructure Capacity and Flexibility
Regarding the project itself, the economic bottom line is that any time there's a construction project to build up and invest in a nation's infrastructure is good thing. Keystone XL is just another crude pipeline, which, if approve, will become part of the existing 50,000+ miles domestic crude lines (as of 2009) that will enhance America's transportation infrastructure.
Since most of the domestic crude pipelines are structured to flow inland, the Keystone XL pipeline, flowing from inland to the coast, will add the takeaway capacity to some of the stranded new domestic shale oil producing basins, as well as the infamous Cushing, OK, and flexibility to the nation's existing infrastructure.
Any New Job Creation Is Good, Even Temporary
Despite some dispute regarding the number of jobs Keystone might actually create, the 5,000-6,000 temporary annual new jobs seems to be a realistic number most people can live with so far. Some have criticized the job creation aspect of the Keystone project as a 'temporary' fairy tale. Nevertheless, others, such as the construction sector that's facing 13.1% unemployment rate in Dec. and shrinking employment, would most likely appreciate any new jobs out there, however temporary they might be.
U.S. Gasoline Prices Move With Brent, Keystone XL To Have Little Influence
Another argument widely cited is that by importing the more costly tar sand oil, and normalizing WTI oil marker at Cushing, which has traded at a steep discount to the North Sea Brent, American consumers would end up paying a higher price for refined petroleum products such as gasoline and diesel.
Well, here is a new flash. The oil market, as broken as its current paper pricing model, is working quite efficiently in that the U.S. gasoline prices have been moving with Brent which is regarded as the better benchmark, ever since WTI price got artificially pushed down by stranded storage glut at Cushing about two years ago (See Chart Below from Nomura). Brent oil, on the other hand, has been moving tick by tick with geopolitics in the MENA (Middle East and North Africa) more than anything else.
Crude oil is one commodity that's truly international, highly liquid and moves on its own supply, demand and most importantly, geopolitical dynamics. So Keystone pipeline may be a big multi-billion-dollar project, it carries little weight in setting the oil and gasoline prices. (By the way, Federal Reserve's two rounds of QEs is an even bigger factor than MENA geopolitics in driving up all commodity prices, including crude oil since the 2008 financial crisis.)
Creative Packaging Complicates
Now the latest development is that House Republicans are set to vote down the Senate deal, and Congress is preparing for a final showdown over fiscal policy "with the fate of a payroll tax cut for 160 million U.S. workers on the line."
Initially, by forcing President Obama's hand, so to speak, the GOP probably was hoping to expedite the Keystone XL project. And if Obama rejects, it would be another "jobs denial" token in the 2012 GOP election campaign.
So this otherwise mundane pipeline project is now a hotly debated sticking point between idealism, politics and economics. While it is nice that some of us are obviously on a higher tier of Maslow's hierarchy of needs worrying about the potential number of green jobs might get displaced, Keystone XL project should be evaluated based on economic merits first and foremost, rather than letting idealism and politics take the center stage.
Welcome to Washington politics, and this is one reason the nation is practically broke.
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Its always good to see the both sides of the coin. I don't see any information related with the other side, various environmental consequences in this article..
Here is some from wikipedia:
Some environmental groups, citizens, and politicians have raised a number of concerns about the potential impacts of the Keystone XL extension One concern is that the pipeline could pollute air and water supplies and harm migratory birds and other wildlife. It will cross the Sandhills in Nebraska, the large wetland ecosystem, and the Ogallala Aquifer, one of the largest reserves of fresh water in the world.] The Ogallala Aquifer spans eight states, provides drinking water for two million people, and supports $20 billion in agriculture. Critics are concerned that a major leak could ruin drinking water and devastate the mid-western U.S. economy. Portions of the pipeline will also cross an active seismic zone that had a 4.3 magnitude earthquake as recently as 2002. Opponents claim that TransCanada applied to the U.S. government to use thinner steel and pump at higher pressures than normal.
here is the link :
http://en.wikipedia.org/wiki/Keystone_Pipeline
So let's see, as per your wiki source I presume:
An aquifer that spans eight states that is 400' down with impereable rock above it is threatened by a leak in a 4' wide pipe on the surface with a spill that might at most dump a few thousand gallons of thick slow spreading oil at a single location?
An active seismic zone with a magnitude 4.3 quake in 2002 is a threat to a pipeline designed and built in 2010?
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Idiocracy - see the movie.
Who needs science?
yeah, aquifers and bedrock and soil strtum are so uniform and unchanging, never ever could a liquid from the surface make it down 400', rocks never weather, move, joint, erode? Have you heard of Karst topography, big science guy?
And New Madrid had several 8 earthquakes within the last few centuries, earthquakes in this part of the coutnry transfer their energy (thats a bad thing, science guy) further than they do on west coast, hence the reason earthquake in TN rang bells in Boston. The chance a 7 or 8.0 happens again in the next 50 to 75 years is not neglible, it may not be 1 in 10 chance, but geoglogist don't fully understand the mechanics of New Madrid in the way they do the San Andreas, so it could surprise us by being quiet for the next 10,000 years, or break loose again tomorrow.
We should assess the risks as best as possible and plan and prepare accordingly. Japan got hit by a once in a thousand year tsunami, 800+ years after the last big one. Their geogolists knew a big bad one was coming again soon, in the next 50-200 years. They had a written history of the devastation of the last tsunami. They could have easily decided to not build a nuke plant on that coast, or just wrapped in a ginat sea wall, and better protected its back up power. But they ignored the risks and are paying dearly for it now in lost agricultural land, lost cities, lost power, huge nuke waste problem etc...
But hey, you think 400 feet of rock is impentrable and impermeable, maybe you should have a career of doing risk assessment for nuke companies.
But I think you already have a career as a troll
Dear Mutt,
Yeah, heard of karst topography. I'm a geologist. Where do you find karst topography in Nebraska? Is it anywhere near the pipeline route?
The New Madrid is nowhere near the pipeline route. Nebraska doesn't have much of an earthquake history; it might be ranked in the bottom 10% in terms of siesmic risk I would guess.
Very smart boy to know that quakes in different parts of the world may have different attributes! Let me know when the church bells start ringing in Omaha - and we'll go check on the pipeline together.
(If the New Madrid fires again, might be better to worry about the 20 nukes plants it would take off-line - the hundreds of pipelnes affected would be a survivable environmental disaster.)
Geologists don't decide where to build nuke plants, especially in Japan. I have worked there in the construction industry. Few companies are run by geologists, none involved in the nuke industry that I am aware of and definitely not in Japan when Fukushima was constructed.
You seem angry at geologists. Did one spank you when you were a child or something?
Whether 400' of rock is impermable to heavy oil depends on the type of rock. All rocks on earth can be penetrated.
The historical record in Japan shows the history of tsunamis very well, not so much the magnitude of quakes. A 9.x was not expected by the conventional geoscience community.
Are you making some kind of comparision between Fukushima and this pipeline? If so, you don't have a handle on what has happened at Fukushima.
"The answer could be a NO if renewable and green energy has reached end-user price, supply reliability and distribution parity as the conventional fossil fuel."
cart and horse games. Because it's the most energy dense substance, our country has subsidized the stuff in every conceivable way for a long time now. Include the cost of war, all the medical, and the lost opportunity of developing alternatives that everyone knows we will be forced to turn to incredibly soon. One problem is of course, those industries, oil and war, are so powerful as it is, they have many reasons and ways to make sure the current approach continues. But does it work? So, the argument goes, turn to peaceful Canada but it turns out the stuff takes a tremendous amount of energy to process and more important a termendous amount of water, and dollars aside, one of the few liquids more "valuable" than oil. This is not about environmental issues (although those may be severe), this is about long term energy and other linked natural resource strategies along with intelligent, non-corrupt planning.
US citizens love their propaganda.
No. US citizens have triggered a consumption game.
There is no amount of energy to sustain a certain level of life.
There are only energies to be consumed in the world order.
The very idea of the US being somehow self sufficient while there are energies to be consumed out of the US of A is totally contrary to US citizenism.
Every new amount of energy will be consumed. There is no conservation in the US world order, only consumption.
Opposing renewable energies to non renewable energies, like one could substitute to another, is blatant ignoring of the eternal nature of US citizens.
Any joule extracted from tar sand will be consumed additionally to the current pool of joule.
There is no ceiling, no other ceiling than physical depletion of resources.
US citizens can not limit themselves.
"intelligent, non-corrupt planning"
Laugh.
I know, about as likely as a perpetual motion machine
Thank you.
you are more eloquent than me. well said.
To save the earth, we must not allow those barrels to be loaded on an inefficient China bound Tanker.
It is gonna get used one way or another.
Keystone XL project should be evaluated based on economic merits first and foremost,
According to you.
I personally am equivocal on this project. Economically it may make sense. However, it could be an enviornmental disaster.
Economic analysis is difficult when risk/benefit ratios are difficult to quantify. That's part of how we got the Gulf Oil Spill.
For instance:
"Economically" it is cheaper to use oil than to use wind. However, most cost/benefit ratios of oil vs renewable do NOT take into account the costs that society must bear to wage war in the Middle East, which is 99.999999% about oil. How cheap is 1 gallon of gas after you add in the cost of Iraq, Afghanistan, and Kuwait? How about the cost of 911, which of course is also directly related to our energy policy? What was the economic price of the 4484 soldiers killed in Iraq, or the 33,000 wounded?
My point; perhaps oil isn't as "cheap" as academics make it out to be.
Likewise, I'm sure any economic analysis of the Keystone pipeline will neglect to add in the economic value of NOT having a pipeline. No pipeline = no pipeline spill. A pipeline = a very very small but not zero chance of a pipeline spill.
How does one quantify the economic value of a 0% chance of pipeline spill??? I have no idea.
All that said: a Pipeline from Canada may reduce the need for the US to import oil, which might reduce its "need" to attack sovereign nations to "defend" that oil. Thus, one must weigh the "economic" cost of a possible pipeline spill vs the "benefit" of not having to send troops to Petroleum-istan.
But this is why some of us reject a claim of "it's a pure economic problem"
besides, what's the hurry? are we running out of oil so fast that 12 months to review our options is going to kill us all? What the fuck is a Pipeline bill doing being attached to this bill anyway? oh yes... take the Middle class hostage to a Pipeline that hte elite want. I get it.
How about this... attach the Pipeline bill to a Millionaires tax and see how they like that.
Fuck them.
Estimated cost for the pentagon to deliver a single gallon of gas to a military vehicle in rural Afghanistan: $400.
hey any cost for fighting terrorism right?
US citizen propagandists enabling each other... How nice.
The false dichotomy between ruining the environment and economically sound decision is what it is: a false dichotomy brought in by a US citizen economist gradutate and reinforced by an ideological partner, seemingly taking the opposite point.
Economics is the art of consuming the environment in this US driven world.
No dichotomy between economics and environment.
But hey, who cares? US citizens wantto keep their propaganda game going solet ti be going.
Dichotomy requires postulation! As your fence gets moved , you may want to check the batteries in your { Smoke Detectors}<>
As your Chinese bank account gets (fatter) per post, you may want to {convert} it to gold before it loses even more value.
How about this... attach the Pipeline bill to a Millionaires tax and see how they like that.
Fuck them.
my point with this: Let the Pipeline stand or fall on its own. It has nothing to do with a payroll tax cut or a Millionaires tax or Gay marriage or Aborting teenagers or molesting squirrels.
Hmm? How about you go pay 5$ for gas @ Christmas, you athesist Piece of SHIT!
Respectfully! FUCK YOU!~
Didn't Mother China teach you not to insult the boards they pay you to post on? I'm sure they'll make room in Sock Puppet 101 for another retraining course.
YTD oil import from Canada 26% of all US imports.
our costs of Canadian oil would likely go up if if Canada could more easily sell it to foreign countries.
Right now refiniries in northern US get Canadian oil on the cheap because they have few other places to sell it.
I'm on your side Ehhh!
Actually you're on Mother China's side, hence you schilling for more oil exports from the Gulf, courtesy of the new pipeline, headed to China.
I'm glad you took the time to post this article. Nice work! The [tree huggers] and [unions], can sort it out EHHH? The Canadians must be laughing their " Terrance & Phillip' ", ass plugs out!
If the US doesn't buy Canadian oil, they will simply sell it to China or another country. And it would be kind of nice to be purchasing oil from a friendly country instead of countries that see the US as "the Great Satan".
Just because someone else will buy it doesn't alone make it a smart purchase. I hear Cramer has customers. This is big picture long term strategy on some of the most complex economic and resource issues taken on by a country who has demonstrated very inept and very corrupt long term energy policies
The pipeline should be a slam dunk, but the enviro whackos seem to have more clout than unions and workers. The number of jobs created will far exceed the numbers given in this article (I worked a long time in the oil and gas industry) but in any event, it will also give the US control of a large supply of energy, at absolutely no cost.
As a bonus the NAFTA Superhighway could follow this route as well.
CNBC / Onion Headline: Brent rises to 107 on economic hope of recovery
If you cut off the titmilk, the baby will die?
Not in this case. The ones that cut off the titmilk die. Baby is one mean mofo.
Not in this case. The ones that cut off the titmilk die. Baby is one mean mofo.
So you should just ignore them or am I missing something? It's white noise.
but we know the MSM will paint obama and dems as heros fighting for the middle class (even if the extension is only 2 mos) and the republicans as villians because they want job producing pipeline and 1 year ext
I don't think there is any dispute between the parties regarding a one year extension. The dispute is between paying for it. The Republican position as I understand it is - any tax cut for working Joe must be paid for by offsetting expense reductions but any tax tax for the wealthy that doesn't have to paid for because it generates more tax revenues than it costs.
The Republican position as I understand it is - any tax cut for working Joe must be paid for by offsetting expense reductions
That's more just something the TEA Party Republicans are holding out for.
If you look at the stalemate, no one is being honest. They'd support a 1-year extension if they can add drug-testing for unemployment benefits?
And this is supposed to be about monitoring SPENDING? Obvious bullshit.
dems want to kill the pipeline
It isn't the dems. Dems are just tools like the repubs -- just part of the cost of doing business which is recouped at the gas pumps. The real question is: what does Big Oil, especially BP and the Saudi royal family, want? Does it want Canadian oil competing with their captured supplies? They've spent quite a bit of political capital aquiring the Iraqi oil fields and they don't need any Canadian (or Iranian) upstarts fucking with their bonuses.
This is the reason Gull Island isn't being developed now and the reason BP needs to have ANWR as part of its (undrilled) resource portfolio. Lack of competition = high oil prices.