Posted by: ericgrimsrud | April 28, 2013

Keystone Pipeline will not provide US oil independence

In order to promote the construction of the Keystone XL Pipeline, an argument put forth by those in favor is that it will offer the USA independence from the whims of the dominant oil exporters in the Middle East and Venezuela.  The argument goes that since Canada is a “US-friendly” country, the oil flowing from it to the ports on the US golf coast will always be available to us when we are held hostage to high prices by the OPEC countries and Venezuela.  When one thinks this suggestion through, however, one quickly realizes that it is nonsense.

First, on the global market, there is only one price for a barrel of oil no matter where that oil comes from.  The oil that will come from the tar sands via the proposed Keystone pipeline will be worth no more or less than the oil being sold by the OPEC countries.  If Japan, for example, can buy oil from the Saudis at $80 per barrel and Canadian oil is available from our gulf coast refineries for $100 per barrel, Japan will buy its oil from the Saudis – just as the USA will also do.  In other words, the Canadian oil will then have to be priced at $80 in order to be sold to anyone.  Since the costs for both the production and environmental cleanup of the oil derived from tar sands will be much higher than that produced in the Middle East or Venezuela, the entire tar sands operation and its associated pipeline would then be losing money with every barrel it sells.  To allow a continuation of the tar sands operation, higher global prices will be necessary.  If that does not happen, the Keystone pipeline will then become a 4,000 mile long monument to the stupidity of man.

And next, what if the OPEC countries and Venezuela decide to raise the price of their exported oil to say $120 per barrel or even higher? Because of their great production capacities, this then would become the global price. The Canadians could not then simply offer their oil at a lower price, say $100.  If they did, their supplies would very quickly be depleted by subsequent sales to all corners of our oil-hungry planet and they would soon lose their limited on-demand supply and their leverage on the global price.  Thus, the Canadian price would more likely follow the new global price of $120 or higher and the Canadians would be justifiably pleased to see their many decades of investments in the tar sands finally begin to pay off.  And, of course, the USA would then also be paying the new higher price set by the dominant supplies of the world.

The only way the USA could get a better than global price for its oil needs is to isolate North American supplies from the global market.  That is, by getting a guarantee from Canada that all oil passing through the pipeline would, indeed, be directed only to North American customers.  But do you think for moment that would happen?  Canada, you recall, is not a part of the USA and makes its own decisions concerning its own welfare. Remember also that the Alberta tar sands project has been an exceedingly expensive undertaking for Canada for many decades and they have been well aware of the fact that it could become successful only if the price of oil became very high.  In essence the tar sands along with high oil prices has long been the proverbial “ace in the hole” wager for Canada. So is this suggestion of North American isolation realistic? Absolutely not!  If one needs literal proof of this, have a look at the video provided below showing an American Congressmen quizzing a Canadian representative for the Keystone Pipeline on exactly this point. It can be seen at:

In summary, if the Keystone XL Pipeline is approved and built, the USA will serve only as a middleman in the transfer of Canadian oil to the word markets.  Unless Canada becomes a set of new northern states added to the USA, the claim that the Keystone Pipeline will ensure the USA  oil independence from the dominant suppliers of the word is a bogus one that is being put forward to promote a plan that is a very poor one anyway for other financial and environmental reasons.

If we want to become free from the influence of foreign oil markets, we must become free from oil itself. Allowing the Keystone pipeline to be built will slow that process and will inhibit wiser investments in other non-CO2 emitting forms of energy. Thus, the Keystone XL pipeline would actually makes us more dependent on oil markets and even more vulnerable to volatile price swings, and would thereby make our country more susceptible to the whims of other nations.

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