By Shaun Polczer
CALGARY, AB/ Troy Media/ – Call it the Good Friday massacre. U.S. President Barack Obama’s decision to delay the oft-delayed Keystone XL pipeline provided yet another nail in the coffin of the troubled project, but certainly not the final one.
That isn’t to say the million barrel per day conduit from Alberta’s oil sands to the U.S. Gulf Coast won’t be built. However, it’s increasingly unlikely to come into service before Obama leaves office in 2016.
Albertans, already caught in six years of limbo, were predictably disappointed with the news. But it came as no surprise. In fact, it was as predictable as snow in April.
There are plenty of good reasons to build the pipeline, on both sides of the 49th parallel. It would represent about a fifth of Canada’s oil output, and a quarter of its exports, pumping nearly a trillion dollars into the provincial and national economies over 20 years, the lion’s share in Alberta. Given that the U.S. buys about 98 per cent of Canada’s oil exports, it is of vital economic importance to the economic well-being of the country.
There are also benefits for the U.S. Despite falling consumption and rising Lower 48 production, the U.S. still imports roughly 40 per cent of its daily oil requirements and will remain the world’s largest consumer for decades to come.
It’s also worth noting that U.S.-based companies like Exxon produce roughly half of Canada’s daily oil output, so it’s wrong not to think of North America as an integrated energy economy. Basically, Canadian oil is American oil by virtue of economics and geography.
Though the oil flowing from shale fields in North Dakota and Texas is of higher quality than the expensive Canadian heavy crudes, it is not a suitable match for the Gulf Coast refineries. In other words, those refineries will continue to import heavy oil regardless of how much U.S. production grows. If it doesn’t come from Canada, it will come from Venezuela – hardly a leader on the social and environmental front. It’s a stretch to suggest Orinoco crudes are any less carbon intensive than a barrel of Alberta Black Gold, if that’s the yardstick the pipeline will be measured by.
And it’s an ever bigger stretch to suggest shipping oil by rail is any safer or environmentally friendly than the pipeline, which is already the most studied pipeline in history.
Given that the U.S. and Canada share the largest bilateral trading partnership in the history of the world, it’s understandable that Canadians, and Albertans in particular, should be rightly upset. After all, this is precisely what the 1988 Free Trade Agreement was meant to ensure – free and open access to U.S. markets.
While it’s quite likely Keystone or some substitute will eventually be built – possibly after the midterm elections in November, or when Obama leaves office –it’s also quite clear that there are other motives at play.
Is it politics? Absolutely. But that’s how the game is played, on both sides of the border.
And Canada has been just as guilty of playing political football as the U.S. Instead of addressing Obama’s environmental concerns, the government of Prime Minister Stephen Harper walked out on the Kyoto Accord and sealed Canada’s reputation as an environmental laggard.
Instead of making serious efforts to reduce emissions, key members of the government continue to downplay concerns over climate change and belittle U.S. leaders like Obama and Secretary of State John Kerry for siding with environmentalists. It’s fair to say both men have taken insult with Canadian lobbying tactics.
Instead of cooperating with U.S. officials, Canadian politicians and industry representatives sided with extreme right wingers andTea Party Republicans, who aren’t the most likeable bunch to begin with.
It all led to an air of conflict in the 2012 elections, adding to what has become an almost completely unnecessary trade irritant between the two close neighbours — aggravated by equal measures of American reticence and Canadian belligerence.
Yes, Alberta can threaten to sell oil to China. And there’s definitely an argument that it is indeed a more lucrative long-term market for growth. But it’s at least 20 years away, assuming a pipeline to the West Coast is ever built. Think Keystone is facing opposition? Northern Gateway has two decades of litigation written all over it.
The same for shipping oil to the East Coast; the Atlantic basin is already flooded with low cost African oil and offers the lowest margins in the world. The value proposition for sending high-cost Alberta oil half way around the world to India, where it would compete with the Saudis, is almost nil.
So, it’s back to square one. Does the latest setback mean Alberta’s oil sands will be permanently ensconced in the ground? Hardly.
But it just got a little bit tougher to put the shovel into the ground.