Build, Baby, Build

For those of us old enough to remember the 1973 oil crisis, the current North American oil-and-gas boom has a slightly surreal quality: The familiar problem of high energy demand and low supply is being flipped on its head.

Forty years ago, oil was so scarce that the U.S. government was forced to turn to rationing and price controls. In 1974, the 24 Hours of Daytona race was canceled and newspapers carried public-service announcements with taglines such as “Last Out, Lights Out: Don’t Be Fuelish.” Some futurists predicted that the world oil supply would be exhausted within our lifetimes, and so we had better start building backyard windmills.

Those fears seem antiquated. In North America, new oil and gas discoveries — coupled with the development of technologies for extracting hydrocarbons from rock formations and Canadian oil sands deposits — have created a surge in fossil-fuel extraction. Natural gas is now so plentiful that prices have dropped, and import terminals of liquefied natural gas are being refitted for export. The United States is on track to attain oil self-sufficiency within the next 15 years, even as some coal plants are shut down to make way for cleaner fuels.

The challenge for both Canadian and U.S. policymakers is to create the infrastructure necessary to transport and process the riches dredged up from the great swath of land between northern Alberta and the American deep South. Williston, North Dakota, and Lethbridge, Alberta, have become great places to dig holes and make billions. But they are many hundreds of miles from the continent’s largest cities and export hubs. And the legacy pipeline network that services them was constructed largely for the purpose of pushing imported petroleum inland from coastal refineries — not pumping domestically produced oil in the other direction.

That, in capsule form, is the case for the $5.3 billion Keystone XL project. TransCanada Corporation plans to build a 1,200-mile, 36-inch-diameter pipeline that would bring 830,000 barrels per day of land-locked Canadian synthetic crude and bitumen, the hydrocarbon goop pulled out of oil sands, and U.S. crude oil from the northern states to the existing pipeline hub at Steele City, Nebraska. From there, it would be routed to the massive refinery operations on the Gulf Coast.

From an economic point of view, the Keystone XL pipeline — which is still awaiting final approval from the U.S. State Department — is entirely justified. Not only would it help loosen up the serious north-south energy-transport bottleneck at the heart of the continent, it would also provide needed reliable feedstock for Gulf refineries configured specifically to process the kinds of high-sulfur substances that are unearthed in Canada. Some processors now rely on high-sulfur crudes from Latin America, which are in decline or, as in Venezuela, are unreliable due to geopolitical factors. In addition, the construction process alone would create thousands of jobs and involve billions in capital expenditure.

Opposition to Keystone XL, on the other hand, has generally focused on environmental concerns, including the risk of pipeline rupture and environmental despoliation along the Keystone XL route and the possibility that Keystone-facilitated commercial development of Canada’s oil sands will worsen global warming. But those concerns are exaggerated.

First, the transport of oil and gas products through modern, regulated, computer-controlled pipeline networks is extremely safe, especially in the case of a newly constructed facility such as Keystone XL. Across North America, spills from crude pipelines have decreased by more than a third since the 1980s. In other words, despite the fact that the United States already has half a million miles of oil and gas pipelines, significant spills are extremely rare. And the construction of Keystone XL will increase the national total by only about 0.2 percent.

Moreover, if Keystone XL is not built, much of the throughput will simply end up heading south by rail (though that arguably could change in the longer term, assuming that expanded intra-Canadian pipeline capacity into British Columbia would present Alberta producers with more attractive options). Rail transport is arguably just as risky (and far more expensive) as pipeline transport, although comparing the two options is difficult, since rail spills tend to be far more numerous than pipeline spills but also smaller and more contained.

As for the larger environmental context, high-profile groups such as the Natural Resources Defense Council and the Sierra Club are perfectly correct to assert that the oil sands constitute a growing contributor to global warming. (On a gallon-for-gallon basis, “unconventional” oil-sands-derived fuel is markedly dirtier than its conventionally extracted oil counterpart because the early-stage processing of molasses-like bitumen is itself an energy-intensive operation.) But that fact is meaningful only if one assumes that the Alberta bitumen destined for Steele City will stay in the ground if Keystone XL does not get built — and that is simply not true.

At present, Canada produces about three million barrels of oil per day, a figure that is set to double over the next two decades, whether or not Keystone XL gets built. In fact, TransCanada and other Canadian energy companies are already hedging their bets with contingency plans for pipelines running west through British Columbia, east to Ontario and the Great Lakes region, and even north through the Northwest Territories and Yukon to Alaska. In the long run, one of these pipelines — and probably more than one — will be constructed. The only real question is whether Alberta sends its crude south to the United States, as part of the secure and long-standing Canadian-U.S. trade relationship, or whether the product gets shipped west to China and other Asian nations from Pacific terminals. Antoine Halff, the head of the International Energy Agency’s Oil Industry and Markets Division, recently said as much on National Public Radio: “In our forecast, we basically assume that Canadian oil will get to market regardless of whether Keystone XL is approved. If that pipeline doesn’t happen, other pipelines, other connections will happen.”

For Americans who are following the Keystone XL debate — and for the politicians who will decide its fate — that is the key takeaway. One way or another, the products of Alberta’s oil sands will be extracted, moved, and sold. It would behoove all concerned if the Keystone XL pipeline were part of the process.

Jonathan Kay is Managing Editor for Comment at the National Post and a Fellow at the Foundation for Defense of Democracies, in Washington, D.C. Follow him on Twitter @jonkay.