XL Pipeline Realities

[dgs49]

From what I have been able to determine, the proposed Keystone XL pipeline is a stupid project, driven mainly by Canadian producers who need to find an outlet – any outlet – for their planned production of low-quality, expensive oil.

Canadian tar sands oil, like oil from Venezuela, contains asphaltenes which must be removed before the product can be sold. The business model for the XL pipeline assumes that this can be done in Houston, adding that cost to the absurd expense of piping the oil four times farther from Hardisty, Alberta, to the Gulf of Mexico than would be necessary to reach the Canadian (or U.S.) West Coast. This is foolishness. The total EXCESS cost of bringing this oil to market will be on the order of $50 per barrel. The Canadians are assuming – one might say hoping - that they will be able to sell all the oil they can produce at this inflated cost, but how, exactly, is that going to work?

I suspect it might work just like the Chevy Volt; U.S. taxpayers will pay a subsidy so that we can purchase the oil at “market” price. No, thank you.

And as for shipping the oil to China, who cares? The worldwide oil market can be likened to a giant swimming pool. The producers pump oil into the pool and the purchasers pump it out. The market doesn’t care where the oil comes from or where it goes. If China consumes oil from Canada, that’s oil that it won’t consume from someplace else. Lord knows, they are going to purchase all the oil they need, and no one is going to stop them. Having this over-priced gunk in Houston would be no bargain for anyone.

The project would generate some temporary construction jobs, some long-term jobs for maintenance workers, and some work for those who will have to clean up the inevitable spills. Big whoop.

But that’s a pipe dream, and the play on words is completely intentional. The pipeline and the oil are headed for the West Coast. To run it to Houston would be insane. The tree-huggers would sorely like to kill this project, but it looks to me like the bean counters will be the actual executioners.

Just like ANWR.

[Rick]

The pipeline is privately owned, the product that moves through it belongs to someone else.

That someone else has to pay the pipeline owner to allow that product to be transported.

Figgered you'd be up for that...

[Econoline]

Thank you Dave for that post.

As a borderline "tree-hugger" who knows a lot of certifiable examples of that species, I've been overexposed to that side of this argument. Yet I've been wondering more about the issues you raise, especially the quality of the oil and the high cost of refining it. I'm glad to know that at least one conservative agrees that there's a strong economic case to be made against this pipeline, in addition to the well-publicized environmental case. (And you and I both know that if the project goes ahead and then turns into an economic boondoggle--or an environmental boondoggle, for that matter--the U.S. taxpayer will somehow wind up being the one on the hook.)

I suspect that what will eventually happen is that, as you predict, the bean counters will kill the project...and then the right wing will forever after blame it on the environmentalists.

[rubato]

The XL pipeline is going through. Everything else is mindless puling and whinging on the right and on the left.

Oil from Canada displaces oil from "politically sensitive" parts of the world. Pipelines are the cheapest and fastest ways of moving oil. (try reading the history of the US oil market?)

yrs,
rubato

[Rick]

Wow I agree with Rubato...

[Lord Jim]

Keld's comment led me to open Rube's post...

I also agree with him.

Ultimately this is going to be built, (it has broad bi-partisan support) and it is clearly in the best interest of the US that it be done.

Anyone who says they view dependence on oil from unsavory sources as a national security issue who doesn't support this project isn't serious when they make that claim.

[Econoline]

Anyone here care to address Dave's main point?

The total EXCESS cost of bringing this oil to market will be on the order of $50 per barrel. The Canadians are assuming – one might say hoping - that they will be able to sell all the oil they can produce at this inflated cost, but how, exactly, is that going to work?

I suspect it might work just like the Chevy Volt; U.S. taxpayers will pay a subsidy so that we can purchase the oil at “market” price.

The strip-mining, extraction, and separation of petroleum from tar sands is expensive (both economically and environmentally), and the resulting bitumen requires additional upgrading and dilution even to make it transportable by pipeline, and then still more work in the refining process to make it marketable as conventional petroleum products. Not to worry, though...I'm sure that--unlike the banking industry or the automotive industry or the ethanol industry--NO ONE in the oil industry would EVER think of asking the U.S. taxpayer to help out a shaky bottom line.

[dgs49]

Guys, don't ignore the swimming pool metaphor. It doesn't matter whether the oil goes to Houston or to someplace on the Canadian west coast. When it hits the market (pool) it is a benefit for everyone, as the market price of oil is determined by the level of the oil in the swimming pool.

The fact that this will be financed by private money is cool, and I'm not completely discounting the value of the temporary jobs, but the project is economically (and environmentally) stupid. And dare I say, what's good for Canada is good for the United States. Certainly, some of the pipeline construction workers in Alberta and B.C. will be Americanski's.

[Gob]

I think the US should just use its superior naval fire power, and force Canada to give it to you for free.

[dales]

We don't need any high-sulphur tar oil from Canada.

I say we head south and kick Venezuala's @ss take their oil and throw Hugo in GITMO.

[Rick]

I think the US should just use its superior naval fire power, and force Canada to give it to you for free.

We are, and threatened them to keep their mouth shut or we would nuke them.

That is why they are finally going to strip mine their land instead of ours...

[Scooter]

We have a province whose economy has become dependent on turning itself into a lunar landscape in order to survive. To say nothing of the devastating social effects associated with creating areas that resemble mining towns of the Old West.

But useful idiots like Ezra Levant defend it as "ethical oil".

[Long Run]

While there are good arguments to be made against the project as a whole, the bottom line is that Canada has authorized the extraction of the oil and a private company or companies are going to take the oil out of the ground. So the only question is whether U.S. firms are going to buy it or it is going to be shipped somewhere else.

The argument that all of the oil goes into a giant world vat so it doesn't make a difference who ends up buying the oil is not very persuasive. First, we would rather do business with friendly countries as a matter of principle. Second, we should make doing business with our friends less costly, all things being equal; and more expensive for our enemies. Boycotts of Iran and Venezuela have the impact of reducing the amount that those rogue countries can charge for oil, meaning they have less money to cause mischief with. And making it easier for Canada to make money on this deal would reward them for domestic oil production. Third, is the national security concern already mentioned. Finally, moving the oil down a pipeline to U.S. refineries is far less costly and environmentally damaging than transporting it across an ocean to China or elsewhere.

As to whether the project makes financial sense, since private companies are paying the bills and taking the chances, why do we care? As long as we avoid nonsensical subsidies for the oil, it will be sold at market price.

The only real argument against the pipeline is the potential leakage. If there is pipeline to the West Coast of Canada, that leakage is still possible, albeit only in Canada. Then there is the risk of the cargo ship leaking the oil on its journey. If the possibility of leakage could be reduced to a very small risk by enhancing the pipeline and redirecting its route away from potential environmentally sensitive areas, there isn't much of an opposition argument left. And indeed, the last couple of items are things the Administration should insist upon to approve the deal.

On pro side, you have all of the arguments already made for doing the project. Seems like those far outweigh the limited reasons to oppose the pipeline.

[Rick]

So the only question is whether U.S. firms are going to buy it or it is going to be shipped somewhere else.

That's the beauty of it the US doesn't have to buy it.

It would be nice to get some cheap bitumen though...

[Scooter]

That's the beauty of it the US doesn't have to buy it.

And what are you going to use for fuel, cow manure?

Not that I'm a fan of dirty oil, but the U.S. is not going to achieve complete energy independence any time soon.

[Rick]

We don't use all the oil we buy from the mideast.

If we intended to use it for ourselves it would certainly make more sense to set up a refinery closer to the source.

In that case I agree with Dave.

My understanding of the project was, Canada was going to clean it up enough for transport then it would be sold by Canada to say China as is at that point.

That is why my comment about the cheap bitumen (asphalt).

[Lord Jim]

I associate myself entirely with Mr. Long Run's remarks.

[Rick]

From the people that are paid to make it look good

From the people that aren't

What the optimists think will happen

[rubato]

That's the beauty of it the US doesn't have to buy it.

And what are you going to use for fuel, cow manure?

Not that I'm a fan of dirty oil, but the U.S. is not going to achieve complete energy independence any time soon.

You can be like Venezuela! With all the international respect that comes from a Hugo Chavez lookalike contest.

Or you can calm down and be as obedient as you've always been.

yrs,
rubato

[Scooter]

And who do you imagine is getting excited?