April 19, 2011
Keystone Gulf Coast Expansion Project
If President Obama is looking for ideas that would build American infrastructure, create jobs, and reduce the budget deficit, here's an option to consider.
I commented earlier on the current astonishing geographic differential in the price of crude oil. Producers of Williston sweet in North Dakota are only getting $96 a barrel, while refiners on the coast are paying over $120 for similar oil imported from other countries. That disparity in price is a dramatic market signal that we have a desperate need for better transportation infrastructure, ideally a pipeline running all the way from the Williston Basin to the Gulf Coast, to allow refiners to replace expensive imported oil with cheaper domestic.
And a company called TransCanada is seeking permission to build exactly what we need. TransCanada has already spent $5 billion on the Keystone Pipeline connecting production from Canadian oil sands to refiners in Oklahoma and Illinois, and wants to spend an additional $7 billion on a proposed Keystone Gulf Coast Expansion, which would expand the capacity and extend the pipeline all the way to the Gulf of Mexico. The company claims the project would "create more than 15,000 high-wage manufacturing jobs and construction jobs in 2011-2012 across the U.S". Perryman Group estimates the direct construction spending would add $9.6 billion to U.S. GDP and produce substantial new tax revenues for local, state, and federal government. There is the additional huge benefit that, at the current geographic oil price differential, the marginal barrel transported would provide a combined gain in economic surplus to producers and consumers of more than $20. Note we're talking about a project that could deliver an additional 500,000 barrels each day to Gulf Coast refiners, or up to $3.6 billion in annual value added that we're currently missing.
Some of that surplus would be captured by Canadian producers in the form of a higher price received for their product. But better transportation infrastructure would also be a tremendous benefit to U.S. consumers, refiners, and any U.S. producers selling into the flow that currently stops in Cushing, Oklahoma. For example, BakkenLink proposes to build a series of connector pipelines for Williston producers to feed into the Keystone expansion, and Montana producers correctly perceive that the Keystone expansion is critical for their future.
Why isn't this a no-brainer? A letter signed by 50 members of Congress last June urged the U.S. State Department to turn down the proposed Keystone expansion on the grounds that oil produced from Canadian oil sands has a substantially bigger effect on atmospheric CO2 levels than oil produced from conventional sources. While that is true, it is important to recognize that the current alternative is for the U.S. to pay an ever-increasing sum for the privilege of importing oil from places like Venezuela, Saudi Arabia, Nigeria, and Iraq.
My view is that the geopolitical consequences of the latter pose the greater global risk. I urge President Obama to approve the Keystone expansion.
Posted by James Hamilton at April 19, 2011 11:18 AMdigg this | reddit
Excellent JDH. We desperately need more domestic oil production and less biofuel.
Here is an article from the Journal of Physicians and Surgeons, Spring 2011, that explains exactly why letting climate policy trump all other public policy is beyond reprehensible.
the increase in the poverty headcount in 2010 due to biofuel demand translates into 192,000 additional deaths
You can't call the author a crackpot. He's an IPCC man.
The author, Indur M. Goklany, Ph.D.,
has been associated with the Intergovernmental Panel on Climate Change (IPCC) since
its inception in 1988 as an author, expert reviewer, and U.S. delegate to that organization.
Posted by: tj at April 19, 2011 01:55 PM
Goodness, Jim, next you'll be talking about the virtues of coal!
Posted by: Steven Kopits at April 19, 2011 02:04 PM
Let's build some fracking infrastructure!
Posted by: aaron at April 19, 2011 02:11 PM
tj You do realize that the Journal of Physicians and Surgeons is just a publication put out by a reactionary front organization, right? And its members are not really physicians and surgeons. Some of the far right wing crackpots have used so-called JPAS "studies" to bolster a lot of wild-eyed claims. Calling its members "physicians and surgeons" has about as much truth to it as calling Heritage Foundation a scholarly think tank.
Posted by: 2slugbaits at April 19, 2011 03:20 PM
Jim, great article. The reason this decision is a "no-brainer" is because the energy/environmental issues are based upon science like this: The UN “disappears” 50 million climate refugees, then botches the disappearing attempt
It is also based upon understandings like: "...that oil produced from Canadian oil sands has a substantially bigger effect on atmospheric CO2 levels than oil produced from conventional sources." When the reality is: "US Greenhouse gas emissions drop to lowest level in 15 years"
Anybody with any common sense, you included, understands the value of inexpensive energy to economic development.
Posted by: CoRev at April 19, 2011 04:22 PM
CoRev It is also based upon understandings like: "...that oil produced from Canadian oil sands has a substantially bigger effect on atmospheric CO2 levels than oil produced from conventional sources."
Suggest you reread what JDH wrote. Particularly this part immediately following your quote: "While that is true..." Whether or not the advantages of an additional pipeline outweigh the environmental costs of higher CO2 is an arguable point over which reasonable people can disagree. I don't have any particular opinion on the matter one way or the other and I'm not aware of any studies that address the issue, although I'm sure there are some studies somewhere. But saying that the advantages of a pipeline bringing down oil from Canadian sands might outweigh the environmental costs is not exactly the same thing as saying there are no environmental costs. JDH said the former, not the latter.
Posted by: 2slugbaits at April 19, 2011 06:08 PM
Jim: Great piece! I wholeheartedly join you in urging President Obama to approve this project.
Posted by: Phil Rothman at April 19, 2011 08:45 PM
2slugs, cool your jets. What I said was: " Jim ...
Anybody with any common sense, you included, understands the value of inexpensive energy to economic development." Maybe saying JDH, or Dr J may have made it more clear to whom I was giving credit for "common sense."
Posted by: CoRev at April 20, 2011 04:31 AM
Jim: Agreed. Agreed, agreed, agreed.
Posted by: Joseph Baressi at April 20, 2011 06:28 AM
I'm confused. Would the Williston sweet use this pipeline? How could you mix sweet with less than sweet Canadian sands oil in the same pipeline?
Posted by: lcs at April 20, 2011 06:42 AM
What does your trusted wiki source have to say about the author? Indur M. Goklany
You have painted yourself into a corner of having to support biofuel subsidies over poverty and starvation. Welcome to the ag lobby! Do you also support continued funding for the policy of paying farmers to set aside crop land to avoid creating surplus grain?
Posted by: tj at April 20, 2011 06:43 AM
Agreed, but I have a strong feeling that your appeal will fall upon deaf ears. The only way to get something like this done is to replace the leopard in the White House, not try to change his spots.
Posted by: Mike at April 20, 2011 08:09 AM
Ics: The BakkenLink Open Season to which I linked is precisely an invitation to North Dakota oil producers to commit to delivering their product to receipt points that would feed into the pipeline from a number of locations in North Dakota. The same pipeline can ship different products in sequence.
Posted by: JDH at April 20, 2011 08:23 AM
You do realize that the Journal of Physicians and Surgeons is just a publication put out by a reactionary front organization, right? And its members are not really physicians and surgeons.
I am neither a supporter nor a detractor of th AAPS but I do support the truth. Slug's statement is simply false, intentional or not. Slug may not like "conservative" organizations but that does not give him the right to choose his own facts. If one member is a physician then his bias is exposed. Consider Dr. Ron Paul.
The Association of American Physicians and Surgeons (AAPS) is the oldest active conservative and libertarian group in the world. Founded in 1943, AAPS is a membership-based physician organization that does not accept funding by corporations or government, thereby ensuring AAPS's independence and nonpartisanship. It may be the largest physician organization funded virtually entirely by membership dues. Rival organizations, such as the American Medical Association, are funded primarily by revenue from business ventures and payments by pharmaceutical companies.
For over 60 years AAPS has remained dedicated to the preservation of the ethical practice of private medicine. It adheres to the Oath of Hippocrates. The motto of AAPS is "omnia pro aegroto," which is Latin for "all for the patient." AAPS has about 4,000 members, including members in every state and virtually every specialty of medicine.
Any group that does not take government money has to have more integrity than those that slop at the public trough.
Posted by: Ricardo at April 20, 2011 08:40 AM
Why that pipeline is not there already? Why are crops used to produce expensive fuel while food prices skyrocket? I do not get it how the USA government is thinking. Maximum distance from the reality on the ground.
That said, Obama will never approve anything so simple and common sense. No intellectual challenge enough, too straightforward and effective.
Posted by: Ivars at April 20, 2011 09:24 AM
Bakkenlink says, "According to the North Dakota Geological Survey and Department of Mineral Resources, the Bakken pool contains 169 billion barrels of oil in place of which about 4 billion barrels will likely be produced."
The implied ratio is 2.4%. Seems low to me given recent rate of production increases. Either you develop nothing, or I would guess it's in the 12%-18% range. Do the math, and the Bakken could be producing in 1.5-1.8 mbpd range at steady state (mid-late 2020's) assuming 12% recovery. About the same as the Gulf of Mexico, upwards of 10% of US consumption.
Posted by: Steven Kopits at April 20, 2011 09:39 AM
Regarding CO2 impact: If USA doesn't use that Canadian oil, they will just sell it to China and/or India. It will NOT stay in the ground. Btw, how much additional CO2 would be released by the tankers transporting that oil to Asia?
Posted by: supe at April 20, 2011 10:02 AM
Not along the same topic, but has anyone noticed coming crash in silver and why would that happen?
All signs of a log -periodic Sornette-Johansen type bubble in silver going to crash in few weeks:
Posted by: Ivars at April 20, 2011 11:36 AM
tj You have painted yourself into a corner of having to support biofuel subsidies over poverty and starvation.
Where did I say that I supported subsidies for biomass fuels? I don't. What I said was that your reference was to a well-known far rightwing front organization without any serious academic credentials.
Posted by: 2slugbaits at April 20, 2011 01:57 PM
For once your clear headed logic has now bumped up against politics and hidden agendas.
Here is another question to ask?
Who is funding aboriginal groups and environmental NGO's to block oil pipelines and tanker traffic to Canada's West Coast.
American Corporate Wealth Funds - that is who!
You can read about it here.
Another question to ask is why the US government does not give incentives to the transportation industry to re-tool and convert to natural gas as a fuel for long haul trucking?
After all North America has an oversupply of cheap natural gas and is overly dependent on expensive foreign oil?
Instead the US has hefty subsidies for biofuels which is partially helping to cause a global food crisis among the poor.
Posted by: Jeremy at April 20, 2011 02:04 PM
CoRev 2slugs, cool your jets. What I said was
Yes, you did say that. You also said what I originally quoted. So now you're trying to redirect the discussion. You were clearly trying to imply that JDH agreed with you that oil production from Canadian sands did not have a high sulfur content, when all you had to do was finish the quote to see that JDH does believe it has high sulfur.
Posted by: 2slugbaits at April 20, 2011 03:01 PM
You have every right to disagree with conservative types like Indur Goklany, however your Ad homenim attacks are purile.
Care to argue the facts and explain why biofuel does not lead to higher corn prices and why this does not lead to more hardship for the poor?
I would agree with you that it is silly for anyone to try to link additional deaths directly to a particular public policy but the point is that certain economic policies are having disastrous effects on those who can least afford it.
Surely even a die-hard green environmentalist can see that many of the "sustainable" clean energy policies are extremely costly (in every sense of the word).
When one investigates the science, one discovers that this clean energy political ideology is largely stemming from the still unproven precept that increases in atmospheric CO2 are somehow harmful.
It is misguided for society to take such costly actions (although well intended) when the underlying science with respect to atmospheric physics is so dodgy. For example, nobody yet has been able to model clouds...and everyone knows that clouds must have a significant effect on the atmosphere and surface temperatures. What do clouds do in the presence of increases in trace gases like CO2? Who knows...we don't even begin to understand the huge complexities in our climate and what drives changes. All we know, from paleo-climate records, is that climate change is a normal natural state and therefore it is quite unrealistic or irrational to expect climate not to change.
Posted by: Jeremy at April 20, 2011 04:21 PM
2slugs claims I am trying to redirect a comment with his: "You were clearly trying to imply that JDH agreed with you that oil production from Canadian sands did not have a high sulfur content, when all you had to do was finish the quote to see that JDH does believe it has high sulfur."
So, if I would have finished JDH's quote I would have found a reference to sulfur. What do folks think? Jim's entire paragraph below:
"Why isn't this a no-brainer? A letter signed by 50 members of Congress last June urged the U.S. State Department to turn down the proposed Keystone expansion on the grounds that oil produced from Canadian oil sands has a substantially bigger effect on atmospheric CO2 levels than oil produced from conventional sources. While that is true, it is important to recognize that the current alternative is for the U.S. to pay an ever-increasing sum for the privilege of importing oil from places like Venezuela, Saudi Arabia, Nigeria, and Iraq."
Anyone even see the word sulfur???
Even more amazing is this little Wiki tidbit.
Producers of sweet crude oil include:
The Appalachian Basin Eastern North America: Pennsylvania Grade Crude Oil. The Bakken Formation of North Dakota, Montana, Saskatchewan and Manitoba.
Sheesh, 2slugs. How many ways can you be wrong in one snark?
Posted by: CoRev at April 20, 2011 05:02 PM
CoRev You're right. I had a typo. Should have said CO2 rather than sulfur. Does that materially change things? No. So let's summarize: JDH does not agree with your dismissive treatment of CO2 issues associated with Canadian oil sands.
Jeremy I did not say that I supported ag programs to produce ethanol. In fact, I thought I was pretty clear in saying that I do not support govt ethanol subsidies. That does not mean I should pay any attention to "studies" produced by an astroturf organization with no credibility.
BTW, I don't think JDH gave the strongest case for supporting a pipeline. The economic arguments in the Perryman Group brochure were not terribly convincing and the multipliers that they used were a bit of a stretch, not to mention inappropriate given that they're talking about a long run supply curve and not a shortfall in aggregate demand. And they couldn't even settle on one approach to calculating economic benefits, so they offered up three different ones with very different answers. That said, the one strong argument for a pipeline is ironically enough based on environmental concerns. A pipeline from Canada to New Orleans would take pressure off Gulf drilling and would reduce the ship-to-shore transfer of Brent oil at New Orleans. That transfer is responsible for hundreds of small oil spills that do a lot of cumulative damage but don't get a lot of press. And while I'm skeptical about JDH's geopolitical arguments against Nigerian oil, there's no question that Nigerian oil spills happen all the time on a scale comparable to the BP oil spill in the Gulf...again, they just don't get a lot of attention. So there's actually a pretty good environmental case to be made for the pipeline. Personally I'm an agnostic on the issue of the pipeline. There are pro's and con's for each side. I have no idea which side has overall better argument.
Posted by: 2slugbaits at April 20, 2011 07:23 PM
2slugs, your redirection to CO2 has failed. The article centered upon the value of an oil pipeline not CO2, and asked why is building it a "no-brainer"?
It was your overzealous need to create a CO2 controversy that took this thread down this track.
Posted by: CoRev at April 21, 2011 04:45 AM
CoRev 2slugs, your redirection to CO2 has failed. The article centered upon the value of an oil pipeline not CO2, and asked why is building it a "no-brainer"?
More obfuscation. JDH's point was that opposition to the pipeline was based on environmental concerns over high CO2 levels in the Canadian oil. JDH's recommendation was that the benefits of the pipeline outweighed concerns over CO2. What part of that did you not understand?
And you've got the "no brainer" part turned around. JDH first asked why it wasn't a "no brainer" given the obvious benefits from the pipeline. In the next sentence he answered his own question by pointing to Congressional resistance. He didn't say Congressional resistance was brainless; he recognized those concerns over CO2 as valid concerns but not, in his view, determinative.
Posted by: 2slugbaits at April 21, 2011 01:50 PM
For what it's worth, my position is: (1) if there were no environmental problems with oil sands, building the pipeline would be a no-brainer; (2) I believe there are environmental problems with oil sands, but given the large size of the economic benefits, it is a still good idea to build the pipeline.
Posted by: JDH at April 21, 2011 01:59 PM
Thanks, Jim, that's how I understood your position. That's why I credited you with the common sense to realize the economic value. My references were to emphasize there are alternative views in the environmental/climate sciences.
Posted by: CoRev at April 21, 2011 04:16 PM
Yes the oil will go to China using bunker fuel to get there. Canada will ship every ounce of oil it can produce to some place on earth until there is an economically viable alternative. A country whose economy is almost entirely dependent upon exporting its natural resources is not going to stop doing it now or in the future.
The Japanese would also dearly love to get hold of oil that doesn't come from Iran or the Mideast.
Posted by: colonelmoore at April 21, 2011 11:55 PM
Obama wanted to do power lines to let the plains generate wind power for the populated areas, power lines that would follow routes like the pipeline you draw.
The message was the permits, access rights for the power lines, and that will be true for pipelines, are covered by State and local regulation and law, so any interstate project requires years if not decades of legal process and any legal battle along the way blocks the entire project.
That is why the ARRA had no power line projects, and that meant lots of great stimulus projects couldn't be done - think seed financing for farmer wind generation coops so tens of thousands of farmers borrow to own their own wind turbines. That would make ending crop subsidies for corn, wheat, soy far less risky - wind would income baselines.
Posted by: mulp at April 25, 2011 09:25 PM