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By Geoffrey Styles on Jul 30, 2013 with 19 responses

Obama Interview Reveals Shallow View on Oil Exports and Keystone Pipeline

Attention Shifts to Pipeline’s Potential Benefits

Over the weekend the New York Times carried an interview with President Obama in which he commented on the merits of the Keystone XL pipeline project. The Washington Post suggested that these remarks “give opponents reason for hope.” While confirming that the White House’s main objective criterion for making this decision was still the pipeline’s greenhouse gas impact, the President also speculated about the project’s job-creation potential and the ultimate destination of the crude oil it would carry. This appeared to endorse arguments raised by opponents of the project. These issues deserve more than the dismissive treatment they received in the interview.

Estimating Keystone’s Employment Impact

With regard to the number of direct construction jobs that the northern leg of the Keystone XL Pipeline (KXL) might create, I don’t know whether the right number is the 2,000 the President cited or the tens of thousands estimated in an earlier State Department study. Either way, his administration lacks credibility on this subject. This is the White House that devised a new metric of “jobs created or saved” for assessing the impact of its 2009 stimulus measures. It has also routinely touted projects with “green jobs” potential, not just in terms of their direct employment gains, but also their indirect job creation estimated via generous multiplier effects.

Either indirect jobs are always relevant, in which case KXL would create far more jobs across the economy than the President seems willing to admit, or they also aren’t relevant to justifying clean energy and other, more favored infrastructure projects. In any case, his reported ”chuckles” at 50-100 new permanent jobs struck me as unseemly for a President still contending with unemployment over 7.5 percent in the fifth year of this recovery.

A Pipeline for Exports?

The more interesting issue Mr. Obama brought up relates to the disposition of the oil-sands crude that the KXL would ultimately carry from Alberta to the Gulf Coast. For starters, this issue isn’t relevant for whatever volume of North Dakota production the pipeline might also carry, since current rules prohibit its export to anywhere except Canada. Of the pipeline’s planned capacity of 830,000 barrels per day, some would be used to ship US crude to US destinations, some would carry Canadian  oil destined for US refineries in the mid-continent, while an unspecified remainder would arrive at the Gulf Coast.  However large the latter figure might be, it’s doubtful that much of it would ever leave these shores. To understand why, you need to consider the quantity of US oil imports of similar quality currently coming into the Gulf.

Overall, Gulf Coast crude oil imports have fallen by around a third since 2007, but they still amount to around 4 million barrels per day – 5x the total capacity of the KXL. Unsurprisingly, much of the crude imported into the Gulf is either sour or heavy, since the refineries in the region have invested billions of dollars in the hardware required to run such crudes, which are typically cheaper than lighter, sweeter grades. A quick glance at the countries of origin of the import mix confirms this, with suppliers such as Mexico, Saudi Arabia, Venezuela, and Iraq dominating recent imports. Imports from Algeria, Angola, and Nigeria have been slashed by surging production of light, sweet crude in Texas and other states.

In the interview, President Obama said, “So what we also know is, is that that oil is going to be piped down to the Gulf to be sold on the world oil markets, so it does not bring down gas prices here in the United States.” For him to be right about that, we must believe that the current importers of around 2.7 million barrels per day of generally similar crude from South America and the Middle East would ignore the arrival in their market of new supplies from Canada and continue to buy from existing suppliers, and that those other suppliers would be able to continue to charge the same prices as before, despite significant new competition. Although I wouldn’t argue that oil sands crude would never be exported from the Gulf, imagining that most of it would simply sail right by the global refining center best equipped to handle this type of crude oil reflects a remarkably superficial view of how oil markets actually work.

Conclusions: The Politics of Keystone Trump the Facts

The Keystone XL decision process encompasses both factual and political considerations.  On the facts alone and the criteria set by the administration, the pipeline would eventually have to be approved, since even in the worst realistic case its impact on global greenhouse gases would be minimal – on the order of 0.4% of global emissions — while it offers clear benefits including reliability of supply. The protracted delays in approving this project provide all the evidence needed to confirm that political considerations outweigh the facts. Deciding now in favor of either side offers limited political benefits but carries huge risks; continuing to leave the issue in suspense has paid dividends at little apparent political cost.

  1. By Edward Kerr on July 31, 2013 at 8:06 am

    Geoffrey, Geoffrey, Geoffrey,
    You just don’t “get it”, do you? Oil (and other fossil fuels) are the bait/prize in the monkey trap. Humanity simply HAS to let go or we all die. I know that you totally discount climate issues but, my friend, you are mistaken. Sophistry like yours only confuses the issue. Considering that you are confused it’s little in the way of a surprise.
    Wondering if this comment will pass moderation?
    Regards,
    Edward Kerr

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    • By Geoffrey Styles on July 31, 2013 at 9:10 pm

      Edward,
      If after reading my posts and those of other bloggers such as Robert Rapier you’re still of the view that a rapid transition away from fossil fuels is feasible, with or without crashing the global economy in manner to make what happened in 2008 look like a party, then there’s not much I can say that would change your mind. I’ll merely point out that I’d been studying and thinking about this issue for a long time, in consultation with other experts, and that my carefully considered professional opinion is that we’re in for a long transition, like it or not. It’s underway, but it especially for transportation it will take decades–no sophistry involved. The good news is that there’s a lot that can be done to reduce greenhouse gas emissions along the way.

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      • By Edward Kerr on August 1, 2013 at 7:03 am

        Geoffrey,
        I have never thought that the transition, (which, as you note, is already underway) will be a short, inexpensive or “easy” one. My concern is that the effort so far is not nearly as robust as it needs to be in order to prevent dire consequences. Actually, I’m of the opinion that a “Manhattan type project” to develop the alternatives already present would bolster the economy and that our present efforts are more likely to lead to an economic crash. If one thinks about basing an economy on a finite resource (and I only point out that that is the way it is making no moral judgement) that it is destined to crash. When the environmental/climate issues are inserted into the equation the urgency of the situation becomes significant. Thus my call for more vigorous action.

        I’m sorry if you perceive my use of the term “sophistry” was derisive as I mean nothing personal. I enjoy your writing as well as Roberts but it’s frustrating that both of you seem a bit iffy on the climate issue. (Yes, I’m aware that Robert actually works on alternative energy.)

        On the 2008 issue, I don’t see how a banking fraud is in any way related to humanities energy dilemma (for want of a better word). Perhaps you were just drawing an analogy!? If we ever hope to maintain any type of civilized society I proffer that developing alternatives as quickly as possible is imperative.

        Thanks for taking the time to respond and not deleting a contrary comment, as has happened on some other related sites.

        With best personal regards,
        Edward Kerr

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        • By Geoffrey Styles on August 1, 2013 at 10:00 am

          Edward,
          I appreciate your clarification. My comment about triggering a crash stems from the global economy’s requirement for affordable energy, not just in the sense that the delivered cost is low–it isn’t always–but in terms of how much of the economy must be devoted to producing the energy used by the rest. In the US the figure is about 7%, allowing a lot more focus on other activities. A premature, large-scale shift to more expensive energy sources could result in a major contraction in other sectors. My confidence that governments could manage such a major shift without stumbling badly is zero. We get hints of this from Germany, which unwisely invested huge sums in solar–nearly the worst possible place for it–and has only kept electricity rates for businesses competitive by balancing them on the back of consumers and taxpayers.

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          • By Edward Kerr on August 1, 2013 at 9:33 pm

            Geoffrey,
            I know that our energy dilemma is just that, a dilemma. It will certainly take resources (our present BAU fuels) to make the transition. My concern is that if we dally too long the situation will become even more untenable than it already is. I’m fully aware of the problems and the limited choices available, I struggle with it daily.
            I still contend that if we don’t “ratchet up” quickly the economic shock will be worse.
            Regards,
            Ed

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        • By Robert Rapier on August 1, 2013 at 5:22 pm

          “I enjoy your writing as well as Roberts but it’s frustrating that both of you seem a bit iffy on the climate issue.”

          Not sure what that means. My “iffiness” is merely that I don’t think there is a lot that can be done about it given that it is being driven by billions of people who want to use only a fraction of what we use. It’s hard to lead in that situation. Like a fat person lecturing a starving person to go on a diet.

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          • By Edward Kerr on August 1, 2013 at 9:42 pm

            Robert,
            I get your point and understand the problem all too well. That is why I am in despair about the possibly of our (humanities) chances of successfully making the transition.

            I accuse you of “climate iffiness” as it has only been recently that you have paid any ‘lip service’ to the issue.

            I don’t know your inner thoughts on the subject and please excuse me if I’m out of bounds here. None the less I always look forward to reading your columns and getting your take on the issues that you choose to write about.

            Replace that mower yet?
            Ed

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            • By Robert Rapier on August 1, 2013 at 10:34 pm

              “I accuse you of “climate iffiness” as it has only been recently that you have paid any ‘lip service’ to the issue.”

              I can point you to writings in every one of the past 8 years where I discussed climate change as a real problem.

              I did replace the mower. Tried a reel mower but the grass here grows to thick too fast.

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            • By Edward Kerr on August 2, 2013 at 8:02 am

              I stand corrected them. Apologies. Have fun in Alaska.

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    • By Chuckster on August 1, 2013 at 2:20 pm

      Edward,

      What caused the melt of the glaciers? For that matter, what caused the glaciers? You are a fool if you think the global climate has not always been in flux…..

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      • By Edward Kerr on August 1, 2013 at 9:11 pm

        Milutin Milankovitch, an astronomer, has been able to correlate changes in the earths orbit as the most likely cause of the several recent (in geological time) glacial periods, commonly called “ice ages”. That, however, does not explain the recent and dramatic loss of glacial ice. The relatively minor increase in CO2 and now CH4, do.
        I may, in fact, be a fool but it’s not because I’m unaware that the climate has always been in flux.

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    • By John Gallup on August 1, 2013 at 2:56 pm

      Edward,
      Without all that oil and gas you would have to turn off your pc and write everything on paper, but paper comes from trees so you will have to write on some other biodegradable/non global warming substance. Production cant use petrolium, so that limits your choices. Since you want the immediate sessation of oil and gas, I suppose you are the one that will sail all the food around the world, so the billions (yes billions with an s) dont starve. Remember you are on a 7 day time limit of delivery or people start dying. Please come up with another solution to a fuel that can run a 200 ft. tanker to deliver essential things. Electric (not powerfull enough or effiecent enough), nukes ( you are probably against that also). Guess you need to design a windmill/solar ship or plane. Still waiting for you environuts to come up with one competant idea. Really liked the one that stopped all the forest fire and allowed the au natural under growth to grow in 70′s. Now when a fire breaks out the redwoods catch flame.

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      • By Edward Kerr on August 1, 2013 at 9:23 pm

        Not being sure if I’m a fool, as Chuckster suggests, it’s good to learn that I am an environut.

        I have never suggested the “immediate secession” of gas, oil or coal but I do want an immediate and serious effort to transition away from fossil fuels asap. I believe that we could produce enough carbon neutral liquid fuel with algae (the source of all the fossil light crude oil) None of the efforts needed to transition away from fossil fuels will be easy but to save our species it will be an imperative.
        Just to set the record straight, I have always thought the automatic fire suppression was a mistake for the reason you mention and others as well.
        Thanks for the “behind the barn” lesson.
        Cheers,
        Ed

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  2. By shecky vegas on July 31, 2013 at 1:19 pm

    The president’s “chuckling” at the 50-100 permanent jobs created was not unseemly, it was right on the money. The TransCanada yahoos have been claiming tens-of-thousands, if not hundreds-of-thousands of jobs created with this white elephant (Actually, they claim “man-hours” of labor created, not full time jobs. But that’s a rant for another day.). That claim is a bold-faced lie. They were able to push it as a strangle-hold over this country during the recent depression and, with the help of a few paid-off politcians, were able to push the Fear Factor to its highest limit.
    [Sentence removed for violating ETI's comment policy. Reason: Profanity or obscene language.]
    The numbers don’t crunch and TransCanada was caught in the crosshairs of people who also know how to do math.

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  3. By shecky vegas on July 31, 2013 at 1:26 pm

    Oh, and Geoffy, about the impact of the oil on the US? Your wrong about that as well. Prices will go up in the mid-Western states because that’s the current available market for this sludge. They have to sell at local prices, not world market prices, because there is no other outlet for the crude. THAT’S why the pipeline is being built in the first place. To sell it at a higher, world-market price. It’s not being sold to the US. TransCanada already has orders in place to sell to other countries, but they have to get the crude to the refiners on the coast to do so.
    And 830,000 mpd is NOT going to affect (i.e., bring down) world market prices. That’s not even a spit in the bucket of what the world uses.
    Jeez, Geoff, you’re usually better than this.

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    • By Geoffrey Styles on July 31, 2013 at 9:46 pm

      Although the manner in which you’ve posed it doesn’t merit a response, your underlying question is a good one, not fully addressed in the post. I’ll answer it for the benefit of others who might be wondering the same thing:

      Understanding the potential impact of oilsands crude from KXL in the Gulf requires a short primer on oil trading, which I did for a major oil company. The price of oil is not set by the whole 90 million barrels per day produced and consumed, but by the last few million barrels supplied and demanded, and the impact those volumes have on inventories and spare production capacity. If you doubt that, consider the effect that an extra 2 million barrels a day of US production from the Bakken, Eagle Ford and Permian Basin are having in the market today, forcing OPEC to consider painful production cuts to maintain the current price level. (See for example: http://www.ibtimes.com/opec-needs-cut-production-prevent-falling-oil-prices-national-bank-kuwait-1354849 ) This has even produced the remarkable instance of a member of the Saudi royal family openly questioning the judgment of the Saudi oil minister about the threat from shale: http://online.wsj.com/article/SB10001424127887323854904578635500251760848.html?mod=djem_EnergyJournal

      The current marker for global oil prices is the price of UK Brent Crude, for various reasons. No one can gauge exactly how much an extra 800,000 bbl/day of oil might depress Brent; possibly not very much, because Brent is light and sweet and the oilsands crude is neither. However, another aspect of the market that comes into play is that oil similar to the oilsands crude doesn’t sell for the same price as Brent (or West Texas Intermediate), but at a discount to Brent (or WTI) that fluctuates based on the supply and demand of such crudes, both globally and in regional markets. So while KXL might not have much effect on Brent pricing, it’s a reasonable bet that it would force the sweet/sour and light/heavy differentials in the Gulf of Mexico to widen. You can’t drop that much additional oil into a regional market–even one as big as the Gulf Coast–without affecting the differentials. In other words, the crudes now being imported into the Gulf would be very likely to get cheaper relative to Brent, even if they aren’t displaced directly from the US market by KXL’s deliveries.

      The $64,000 question is how much of that drop in Gulf Coast heavy, sour crude prices would be passed on to consumers in lower gas prices. I’ve scrutinized the EIA’s regional gasoline price data for the Midwest and Gulf Coast for the last couple of years–the period when the Midwest has gotten jammed up with all the new production for both the Bakken and the oilsands–and I don’t see much of a Midwest discount to be threatened by KXL. What I do see, however, is some very robust profits for some regional refiners, who have benefited from a local glut. If there are potential losers from KXL, it’s likelier to be them, rather than consumers.

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  4. By Geoffrey Styles on July 31, 2013 at 2:56 pm
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  5. By Wayne Lankenau on February 8, 2014 at 3:58 am

    http://insideclimatenews.org/news/20130128/dilbit-6B-pipeline-kalamazoo-river-enbridge-oil-spill-michigan-keystone-xl-epa

    Bitumen is not oil but oil soaked sand heated with 200 chemicals and put under high pressure to make it move in a pipeline. Greedy oil companies have used old gas lines to try and put the tar sands to get them south to the coast. Three major ruptures have happened and polluted two rivers and a lake likely forever. Unlike oil, bitumen sinks to the bottom in water and doesn’t breakdown. I don’t see the need for Alberta Canada’s bitumen to be piped over our heartland over 200 waterways to be refined in Houston so it can be sold to China. This is the only route left, even Canadian’s have told their oil companies to pack sand. As far as jobs, it isn’t 20,000 even temp jobs, it isn’t even our pipe, but it is our greedy oil companies that want profits over regulations or fines. How would it be that we are able to shoot oil executive on site when the XL Pipeline ruptures, cause they don’t even want to cleanup the mess if it can be, it reduces the bottomline

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    • By Robert Rapier on February 8, 2014 at 6:33 am

      “Bitumen is not oil but oil soaked sand heated with 200 chemicals and put under high pressure to make it move in a pipeline.”

      You should at least educate yourself on how bitumen is produced before pontificating too deeply on the topic. There are two ways of producing it; neither of which have it mixed with sand as it is transported. You have said this a couple of times now, but it is flat wrong.

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