An Inevitable Keystone Pipeline
If the Prohibition Era taught us anything about business, it's that demand has a way of finding supply. That was true of whiskey. It will likely also be true of Canada's oil sands and the controversial Keystone XL pipeline.
Keystone XL, or a similar pipeline and set of worries, isn't just inevitable. It's something we should accept to prevent worse alternatives from coming to pass.
Big corporate names have stakes in the Canadian oil sands: ConocoPhillips, Exxon, Shell, Chevron, Marathon, Statoil, Total, Sinopec and BP among many others.The 1,700-mile pipeline, proposed byTransCanada Corp. and blocked for the moment by the White House, is back in the news. Lawmakers in the U.S. Congress are seeking to override the administration and start construction of the pipeline, which would carry oil from the oil sands of Alberta to refineries in Houston. President Barack Obama and Canadian Prime Minister Stephen Harper discussed the matter on Wednesday.
Environmentalists say the pipeline is a bad idea: "It locks the U.S. into a high carbon form of energy," says Nathan Lemphers at the Pembina Institute in Calgary. "Until there's a national energy policy, these sorts of pipelines will become the surrogate battleground for the environmental movement."
Susan Casey-Lefkowitz of the National Resources Defense Council says the pipeline would promote a dirty and energy-intensive form of oil extraction, pipe that oil through environmentally sensitive areas and aquifers in the U.S., and ultimately keep the U.S. addicted to the wrong sort of fuel, speeding climate change.
Theirs is a compelling argument for abstinence: Until Washington stops dithering and charts a clear road to cleaner energy, remove the temptation to burn more oil by preventing access to supply.
Last month, the White House delayed a yes-or-no decision on the pipeline—conveniently until after the 2012 presidential election.
Markets, however, won't delay. Global demand for energy, driven by growth in developing countries, is expected to rocket 33% over the next 25 years, says the International Energy Agency. By 2035, China is likely to consume almost 70% more energy than the U.S.
Fossil fuels such as oil will still account for 75% of energy consumed in 2035, says the IEA. And these numbers assume positive steps toward conservation and the adoption of renewable and other fuels.
Where will the new energy come from? Globally, reliance will grow on a relatively small number of producers, mainly in the Middle East and North Africa, and the oil will be shipped along vulnerable supply routes, says the IEA. By 2035, the agency says, OPEC's share of global production will rise to above 50%.
If you wonder why China is currently running sea trials for its first aircraft carrier, these vulnerable supply routes and China's own energy insecurity provide an answer.
Frustrated with the U.S., Canada is talking with China about piping its oil west instead of south. Enbridge Inc. has proposed a pipeline to a port at Kitimat, British Columbia, where the oil would be loaded on ships bound for Asia. Native communities in the region are resisting the project.
Somehow, though, demand will eventually pull the oil to market. "That oil is going to get produced, it's going to get refined somewhere, and it's going to get consumed," says Larry Nichols, executive chairman of Devon Energy. Devon produces about 30,000 barrels a day in the oil sands now and plans to more than quintuple production by 2020.
Until cleaner energy sources are cheap, effective and available enough to supplant oil—until pipelines like Keystone are no longer needed—the options for the U.S. are difficult but clear:
The U.S. can continue to rely on dicey regimes in countries such as Saudi Arabia and Venezuela. Or it can buy more oil from its ally Canada and companies it knows, with the added short-term benefit of generating jobs to build new pipelines to U.S. refineries.
On the environment:
The U.S. can let oil-sands oil go to Asia with all the carbon emissions that entails: pollution from shipping, possible substandard refining, and use of the product in Chinese industries with weak emissions rules. Scientists have already found that mercury and other effluents from China's power plants and factories drift across the Pacific and contaminate North American waterways. Expect more.
Or the U.S. can pipe the oil to Houston where regulators scrutinize refiners over emissions, where ever-greater economies of scale help companies create best practices in refining, and where the U.S. can earn money exporting refined products to the rest of the world.
The choices seem inevitable. Why wait?
Write to John Bussey at email@example.com
*Note- BioLargo was recently selected to join a number of top Oil Sands producers to solve the contaminated water issues associated with the tailings ponds. Often considered to be one of the most important environmental issues in the western hemisphere.