American Term Oil

February 1st, 2012 - R. Rados 

Be assured, Canadians and environmentalists, Obama's recent rejection of the Keystone XL pipeline will not reduce or stop the expansion or continued exploitation of Alberta's oil sands. Beyond the Obama administration's openness to a new route that would not infringe on Nebraska's sensitive Sandhill's region, Canada will likely strike deals with China and other parts of Asia that are in crucial need of oil.

Within the shadow of the Keystone XL pipeline controversy lies a less reported but equally controversial pipeline saga. It's called the Northern Gateway pipeline and you may have heard about it. If you haven't yet, you will. Last month, the University Of Alberta's China Institute released a report entitled, “Building A Long Term Energy Relationship Between Alberta And China”. The report outlines Alberta's new and growing future of energy trade. According to the report, the Northern Gateway only marks the first stages of what will become a much larger and more complex partnership.

The pipeline, still in the discussion phase, will transport bitumen from the oil sands to Kitimat, B.C. where it will then be loaded onto tankers and shipped to Asia to be refined. This has triggered opposition from surrounding First Nations communities and environmentalists who worry that a leak could damage land, pollute water, and hurt wildlife. Like the Keystone XL pipeline, the Northern Gateway has also garnered the attention of loud protesters at recent hearings in B.C. and Edmonton.

For those who may not know, bitumen is the thick, sticky, black semi-solid gunk, or liquid, that is extracted from the Alberta oil sands. Basically, bitumen is tar. Apart from being extremely difficult to extract, it is also very difficult to clean up. Combined with its toxicity, the nature of this bitumen has environmentalists across B.C. and Alberta fuming. That and the negative affects the oil sands have on the environment in general. The worries of Greenpeace go beyond Canada and focus on China and Asia being significant contributors to climate change.

It is unlikely that such concerns and protests will actually halt the construction of the Northern Gateway pipeline and others like it in the future. Once the hearings are complete sometime this year, a panel will make a recommendation to the Government Of Canada as to whether the pipeline should be built. If the pipeline is not built, it is more than certain that both the Canadian and Alberta governments will continue their campaigns to ensure that Alberta's oil production continues long into the future. Trade deals with China and other parts of Asia will only increase the likelihood that Canada will need some sort of pipeline in order to fulfill its trade obligations.

The Obama Administration's recent fumble on the Keystone pipeline is only one of two foolish missteps by the U.S. President. Following the recent South Carolina and Florida Republican primaries, presidential candidate, Newt Gingrich, made light of Obama's first mistake while explaining to his audience that Stephen Harper, a conservative, is looking to sell Canadian oil to China. During Obama's recent visits to South America, the U.S. President stopped in Brazil to place a bid on Brazilian oil exports. Just two weeks ago, Brazil signed an oil exporting contract with China instead – due to too many stipulations within Obama's offer. That puts two strikes against Obama's record on making the U.S. less dependent on Middle Eastern oil. Especially at a time when tensions are at a breaking point with Iran.

Contrary to what many Canadians believe, Obama's rejection of the Keystone XL pipeline does more harm to the U.S. than it does to Canada or to Alberta's economy. To be fair, there is a very high likelihood that TransCanada will eventually get what it wants. Even with oil exports to Asia, Alberta would still be capable of increasing extraction and exporting even more bitumen to the U.S. in the future. The rejection of the Keystone XL pipeline may be nothing more than a delay. Also, the Northern Gateway pipeline was conceived to transport oil to Asia while the Keystone pipeline was still being considered. Both pipelines would have likely co-existed, along with oil exports to both the U.S. and Asia.

To act as evidence that TransCanada and U.S. Republicans are unwilling to scrap the Keystone XL pipeline, according to Politico, on January 23rd, GOP staff members held a conference call with TransCanada lawyers to plot a battle plan to push the Obama Administration on the issue. Furthermore, following Obama's state of the union address, Indiana Governor, Mitch Daniels, addressed the importance of approving the Keystone deal. If Republicans continue to use Keystone as ammunition in their 2012 election campaign and manage to successfully convince Americans that rejecting Keystone was a bad idea, there is no doubt that it could prove disastrous for Obama.

Texas alone, a state with a population of over 25 million people, lost more than 20,000 potential construction jobs as a result of the Keystone rejection. This, at a time when Obama is taking heat for his country's high unemployment rate and faltering economy, comes as a shock to many Texans. Obama's decision has struck the wrong cord with many Americans, not just on economic issues but on issues of foreign policy. In a column for the Texas Tribune, Public Utilities Commissioner, Barry Smitherman, said, “Obama's decision to deny Keystone XL has Chavez laughing all the way to the bank”. This was in reference to the 100 million the U.S. spends per year on Venezuelan oil imports. He also went on to further criticize some environmentalists by highlighting China's lack of environmental regulations on oil refinement compared to that of Canada and the U.S..

Here in Canada, where winter temperatures can drop below liveable, our reliance on oil and natural gas is unquestionable. Aside from the rhetoric of environmentalists who seem to believe that electricity comes from space and is transferred to their homes by aliens using magical electro beams, other complaints about the Keystone pipeline have also gained attention, especially from internet users. One of these complaints cites the purpose of the Keystone pipeline and how it would transport unrefined tar to the Gulf Of Mexico to be refined by Americans – not Canadians. The costs of such refineries, which already exist across Canada (most of them at full capacity), is seldom considered by brilliant internet economists. A refinery with a capacity to refine 20,000 barrels per day would cost upwards of 20 million dollars just to construct. Some refineries that are capable of refining more than 100,000 barrels per day can cost nearly 1 billion dollars to construct. Oil refineries with higher capacities are located in Texas and many of them are refining far less than what their capacities would allow. These are facts that most honorary internet scholars neglect to include in their ingenious conclusions. Above all else, however, remains the fact that our neighbors to the South are requesting raw oil and not refined oil. In a free market, this is how trades are made. As an American it does not take an economist with a PHD to see the benefits of importing Canadian bitumen to utilize refineries and employ citizens. As a Canadian, the economic benefits are equal. The Alberta oil sands currently employ over 25,000 people (office and labour) and account for one quarter of Alberta's GDP. According to Wikipedia, Alberta accounts for more than 16% of Canada's GDP. Thus, increasing Alberta's GDP increases Canada's GDP.

Canada's energy needs are currently being met by our own energy production as well as by imports. Our need to refine oil is small and by exporting bitumen to the United States and Asia our oil extraction would expand to meet the needs of our trade partners. This expansion would increase employment and revenue within the energy sector. Canada's economic prosperity as a whole would increase from energy trades with other nations and such trades would not take away from what we are currently refining ourselves. The issue of refining Canadian bitumen in Southern U.S. states is moot. Both the U.S. and Canada would benefit from the Keystone pipeline, regardless of who gets to refine the oil. The U.S., instead of putting its dollars into Saudi Arabian and other oppressive Middle Eastern wallets, could put more of its dollars into Canadian wallets.

Canada's energy sector is here to stay and – regardless of whether the Keystone pipeline ever sees the light of day – will continue to expand. To the dismay of environmentalists, we must continue our consumption of oil while we seek more viable and sustainable alternatives. Until we find that viable alternative, there will always be someone, somewhere, who will be willing to buy our oil.