The latest debate in energy policy concerns the “Keystone XL” pipeline. Supporters declare the project essential to U.S. “energy independence”; opponents call it an environmental menace. Neither argument carries much weight.
The proposed pipeline would carry oil from the Alberta tar sands to processing and shipping hubs on the Gulf Coast, from where the oil and refined products would be shipped worldwide. There is nothing in the project limiting the oil to American domestic use.
On the environmental side, the fact is that the U.S. is crisscrossed by tens of thousands of miles of oil pipelines. Accidents and spills are rare and generally minor. While it is prudent to take extra precautions in sensitive areas, pipelines are not “dangerous” – and certainly safer than trucking or rail.
Running tar sands oil through the U.S. is actually a business proposition. The alternative route – west through the Rockies to Kitimat on the Pacific – would be far more expensive and harder to operate. In addition a refining and/or shipping complex would have to be built from scratch. Pumping over the Plains to the Gulf is both cheaper and safer.
Building the XL would is a courtesy to Canada. It would provide a number of – mostly temporary – jobs and business for U.S. oil and chemical companies. Those are real benefits, but we do not “need” them.
Far more useful for the U.S. would be a new pipeline from the Midwest to the East Coast. The Northeast is literally running out of fuel, driving up the price of gasoline for the entire country.
The U.S. pipeline system has not been, like the interstate highway network – centrally designed to serve the entire country. Except for some parts built during WW II, it was created piecemeal to serve business interests, moving oil and products from production to market.
The East Coast is a huge fuel market but produces very little oil. In past years it was cheaper to ship oil there from the Middle East or Africa than to pipe it from Oklahoma or Texas – which in any case did not produce enough for the needs of the entire country. No significant pipelines exist to ship oil east from the Middle West or South. It arrives from abroad by tanker and goes straight to the refinery.
This worked well when oil was “cheap”. But in the last five years the price of petroleum has roughly doubled. Furthermore, world benchmark prices are approximately 15% higher than domestic ones. Turning imported oil into domestic gasoline is a losing proposition.
Eastern refineries are going out of business and closing. This tightens the supply, driving gasoline prices higher all over the country. The rule of thumb is that once the oil price is between $100 and $120/barrel the economy starts to degrade. Currently the domestic spot price stands at $107/barrel and the world price $126. We are in the danger zone.
The price pressure is likely to remain high. New oil fields are costly to develop, both in money and time. In the meantime global demand keeps rising – particularly in Asia. In most producing countries the oil industry is now owned by the state, which needs the money and will charge whatever the market will bear.
It is time for a real U.S. energy policy.
In 1941 the bulk of oil and fuel was shipped by tanker from the Gulf to the East Coast. When war broke out German submarines savaged the supply line. We needed a pipeline with five times the flow of the existing ones.
The line was laid and flowing in less than 18 months, including design and delivery of equipment never made before.
That is the spirit we need today – not haggling over XL.