Image by Arthur Chapman via Flickr
Facing a contentious decision that would split his political base, President Obama deftly drew upon his U.S. Senate experience. Essentially, he voted “present”, delaying and perhaps killing the planned $7 billion Keystone XL pipeline project until after the next election. As a result, an estimated 20,000 union job opportunities are likely to go elsewhere.
The president’s decision caught the many project developers and supporters off guard. Keystone XL had already invested $1.7 billion in steel pipe along with millions more to obtain right-of-way easements. Based upon three years of study and multivolume environmental impact statements, the State Department, which has jurisdiction over the project since it crosses U.S. borders, had previously determined that it would have “no significant impacts”. State had been expected to offer its approval by the end of this year. That self-imposed timetable provoked activists to ratchet up pressures for the administration to reject it.
This circumstance is reminiscent of U.S. Interior Secretary Ken Salazar’s unexpected six-month moratorium on deepwater drilling following the Deepwater Horizon oil spill, which erased access to 7.5 billion barrels of oil and nearly 60 trillion cubic feet of natural gas along with tens of thousands of job opportunities they would have created. Many of those drilling rigs and jobs went overseas. By the time Federal U.S. District Judge Martin L.C. Feldman finally overturned the ban the damage had already been done.
Ironically, after we had invested more than $2 billion with Brazil’s state-owned oil company Petrobras to finance offshore exploration in their Tupi oil field in the Santos Basin near Rio de Janeiro, President Obama pledged that America would become one of their best customers. Speaking at a March 19 White House press conference earlier this year he explained: “At a time when we’ve been reminded how easily instability in other parts of the world can affect the price of oil, the United States could not be happier with the potential for a new, stable source of energy.”
Obama’s delay may lead developers to kill the pipeline project altogether. Customers who have already signed up to take delivery of oil will lose money, and there will be added expenses to get new permits.
According to TransCanada CEO Russ Girling, if crude delivery can’t begin as scheduled, “Those shippers will only wait so long, and then they will start looking for other markets. Similarly, the refiners can only wait so long for Canadian crude oil to come into their marketplace.” A key prospective market is Asia.
Canada accounts for more than 90 percent of all proven reserves outside of the Organization of Petroleum Exporting Countries, and U.S. interests currently purchases about 99% of all Canadian crude exports. Prime Minister Stephen Harper would like to see that export market expanded in a bid to make Canada a world energy leader. Yet as Calgary’s Portland Investment Counsel fund manager James Cole observes, “The energy superpower vision of the prime minister can’t be realized if we can’t get the product to market.”
Enbridge, which operates the Northern Gateway pipeline, Canada’s largest oil pipeline system along with Kinder Morgan, are proposing expansions from Alberta to Kitimat, British Columbia for accessibility to Asian countries. However this would require lifting a ban on coastal oil tankers that was established to protect sensitive rain forests from a possible spill such as Alaska’s 1989 Exxon Valdez event.
Other options are to reverse an Enbridge pipeline to ship crude east, or moving it by rail to terminals such as the Arctic port of Churchill, Manitoba. First Asset Management Senior Vice President and portfolio manager John Stephenson in Toronto believes “The short-term solution if there’s someone who really needs to move crude would be by rail”.
Whereas State Department officials have claimed they weren’t under pressure from the president, Obama clearly stated his delay approval. “Because this permit decision could affect the health and safety of the American people as well as the environment and because a number of concerns have been raised through a public process, we should take the time to ensure that all questions are properly addressed and the potential impacts are understood.” Many of those “concerns” were raised by prominent donors to his electoral war chest--- activist environmental groups who threatened to withhold future support if the project went ahead.
Threats to Obama’s reelection coffers and turnout were anything but subtle. As expressed by Tiernan Sittenfield, senior vice president of the League of Conservation Voters: “This is not just about LCV which spent nearly $1 million to help elect Obama in 2008, or any other group that engages in electoral politics in the upcoming election. It’s about people out there who care deeply about the environment, how much they volunteer, how many doors they knock on, how much they contribute directly. We have LCV voters who maxed out in the Obama campaign in 2008 who have told us they are not going to give this time around if the president approves this pipeline.”
Environmentalists argue that the pipeline will endanger the Ogallala aquifer in Nebraska and other states along the proposed route. Yet they ignore the fact that 50,000 miles of pipeline already crisscrosses the U.S., about half of which is in the Ogallala region, using technology that has proven to be safe. And although TransCanada has reported a tentative agreement with Nebraska officials to relocate the pipeline through a less environmentally sensitive area in order to speed an approval, the State Department responded that the assessment of that route will still require another 12 to 18 months.
On the other side of Obama’s Democratic base, any direct pipeline veto would have brought wrath from unions who have been backing the project. Included are the International Brotherhood of Electrical Workers, the International Union of Operating Engineers, the Teamsters, the Labors’ International Union, the Building & Construction Trades Department of the AFL-CIO, and the United Association of Plumbers & Pipe Fitters for the U.S. and Canada. They want jobs, and so do other Americans who depend upon oil-fueled industries.
So how did the president respond to this urgent priority? “The final decision” he said, “should be guided by an open, transparent process that is informed by the best available sciences and the voices of the American people. At the same time, my administration will build on the unprecedented progress we’ve made towards strengthening our nation’s energy security, from responsibly expanding domestic oil and gas production to nearly doubling the fuel efficiency of our cars and trucks, to continued progress in development of a clean energy economy.”
In other words, we really don’t need that Canadian oil anyway. His recent Keystone copout argues once again that we can energize our roadway to the future by throwing more borrowed money at endless studies and green pipedreams.
