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Canada, oh Canada, will your tar-sands oil help or hurt US fuel objectives?

Tar Pit #3I just finished a recent Forbes article by Jude Clemente, “Canada is North America’s Great Oil Security Blanket.” Gosh, it’s good to know that Canada can supply 10 million barrels a day for the next 675 years. Just think of the biblical proportions of Canada’s reserves. Methuselah lived only 969 years! I feel safer already.

I am (fairly) comfortable that the French won’t take over Quebec and act out residual imperial desires and that the British won’t try to recapture their former colonies. So, sleep easy and leave a note in the morning to your children, their children and their children’s children, ad nauseam. Future generations of U.S. residents won’t have to worry about the definitions of peak oil or real oil shortages, and we will always have fossil fuel in our future. Our very valued friend to the north can and will produce whatever oil the U.S. requires for centuries.

Aren’t we lucky?! Our decedents will be able to depend on what the author calls “ethical Canadian oil.” Why? He argues that “Canada is a democracy and a free market sought by investors that desire less risk.” Wow…freedom to choose and capitalism; John Rawls and Adam Smith. I am crying with joy. But my emotional high lasts for only a few minutes.

Do we need to substitute Middle East imports for Canadian imports, even though Canada is a trusted ally? Are Canadian oil reserves a real, long-term, strategic benefit to the U.S. and are they ethical (a funny term used in the context of big oil’s historical behavior, speculation with respect to investment in oil and the perils of surface mining)? According to many analysts, oil from tar sands is among the most polluting and GHG emission causing oil in the ground. Aren’t you happy? In light of reserves, we can tether ourselves to fossil fuels for hundreds of years and a range of environmental problems, including, but not limited to, air pollution, landscape destruction, toxic water resulting from tailing ponds and excessive water use. Many scientists warn of increased rates of cancer and other diseases. While the tar sand industry, to its credit, has tried to limit the problems, according to the Scientific American article by David Biello, “tar sands may be among the least climate- [and health-] friendly oil produced at present.” By the way, conversion to gasoline will likely result in higher prices for the least advantaged among us, not exactly Rawlsian ethics.

We are in a difficult position, policy wise. Sure, we can establish long-term institutional relationships with Canada and its provinces that will assure U.S. on-demand access for Canadian oil sands. To do this would be comforting to vested interests and some leaders who still believe that oil is the key to America’s economic future. But business, academic, nonprofit, community as well as government leaders are increasingly searching for alternatives that will be better for the economy, the environment and national security. Weaning the U.S. off of oil, as the president has sought, will require, at least for the transportation sector, substituting a “drill, baby, drill” mentality for a strategy that includes increased use of alternative fuels, open fuel markets and flex-fuel vehicles.

Alternative fuels are not perfect, but for the most part, they are much better than gasoline in light of national energy and fuel objectives. Many replacement fuels, like natural gas and natural gas-based ethanol, cannot compete easily because of government regulations (e.g., RFS, etc.) and oil company efforts, despite large subsidies to limit their purchase by consumers (e.g., lobbying against open competitive markets, franchise agreements, price setting, etc.). Most alternatives appear to have sufficient reserves to provide the consumer with cheaper and better fuel than gasoline for a long time. For example, natural gas seems to have more than a proven 100-year supply, and that’s without further exploration.

The policy framework is easier to define than implement given America’s interest group politics. It would go something like this: As soon as they are ready for prime time and reflect competitive prices, design and miles per tank, increasing numbers of electric and perhaps hydrogen-fueled cars will appeal to a much wider band of U.S. consumers than they do now. The nation should support initiatives to improve marketability of both thorough research and development. Until then, the good or the better should not be frustrated by the perfect or an unreal idealization of the perfect. Please remember that even electric cars spew greenhouse gas emissions when they are powered by utilities that are fired up by coal, and that the most immediately available source of hydrogen-based fuel is natural gas. Currently, there are no defined predictable supply chains for hydrogen fuel. Perhaps, more important, neither electricity nor hydrogen fuel cells can be used in the 300,000,000 existing cars and their internal combustion engines.

So what’s a country to do, particularly one like the U.S., which is assumedly interested in reducing GHG emissions, protecting the environment, growing the economy and decreasing dependence on foreign oil? Paraphrasing, the poet Robert Frost, let’s take the road less traveled. Let’s develop and implement a strategic, alternative-fuels approach that incorporates expanding consumer choices regarding corn and natural gas-based ethanol, a range of bio fuels and more electric and hydrogen fuel cars. Let’s match alternative fuels with initiatives to increase Detroit’s production of new FFVs and the capacity (through software adjustments and conversion kits) for consumers to convert their existing cars to FFVs. To succeed, we should take a collective Alka-Seltzer and build a diverse strong fuels coalition that will encourage the U.S. to develop a comprehensive, alternative fuel strategy. The coalition, once formed, should place its bet on faith in the public interest and good analysis to gain citizen and congressional support. I bet the nation is ready for success — just remember how Linus of the famous Peanuts comic strip ultimately gave up his security blanket.

 

Photo Credit: http://priceofoil.org/

The Saudis and oil prices — the diminishing value of conspiracy theories

saudi_1880139cEveryone likes hidden conspiracies, either fact or fiction. Covert conspiracies are the stuff of great and not-so-great novels. Whether true or false, when believed, they often cause tectonic policy shifts, wars, terrorism and ugly behavior by groups and individuals. They are part of being human and sometimes reflect the inhumanity of men and women toward their fellow human beings.

I have been following the recent media attention on conspiracies concerning oil, gasoline and Saudi Arabia. They are all over the place. If foolish consistency is the “hobgoblin of little minds” (Ralph Waldo Emerson), then the reporters and editorial writers are supportive stringers for inconsistency. Let me briefly summarize the thoughts and counter thoughts of some of the reported conspiracy theorists and practitioners:

  1. The Saudis are refusing to limit production and raise the price of oil because they want to severely weaken the economy of Iran. The tension between the two nations has increased and, to some extent, is now being framed both by real politics (concerning who’s going to carry the big stick in the region) and by sectarianism. Iran’s oil remains under sanction and the Saudis hope (and may even be working with Israel, at least in a back-office way) to keep it that way.
  2. No, you’re wrong. The Saudis are now after market penetration and are lowering the price of oil to impede U.S. development and production of oil from shale. Right now, they are not worrying so much about oil from Iran-given sanctions…but they probably will, if there is a nuclear deal between the West and Iran.
  3. You both are nuts. The Saudis and the U.S. government are working together to blunt Russian oil sales and its economy. The U.S. and Saudis can withstand low oil prices, but the Russians are, and will be, significantly hurt economically. If it hurts Iran so much, the better! But the Cold War is back and the reset is a failure.
  4. Everyone is missing the boat. The Saudis don’t really control prices or production to the extent that they did in the past. Neither does OPEC. Don’t look for conspiracies, except perhaps within the Kingdom itself. The most powerful members of the Saudi royal family understand that if they limit production to raise prices per barrel, it probably wouldn’t work in a major way. The U.S. has become a behemoth concerning oil from shale. If a nuclear deal goes through, Iran will have sanctions lessoned or removed relatively soon. Should the Russian and West reach some sort of cold peace in Ukraine, Russia will become a player again. When you add Canada, Iraq, Libya and the Gulf States to the mix, lower global demand, and increase the value of the dollar, you get an uncertain oil future. The Saudis, led by their new king, are buying time and casing out their oil future.

To me, the Saudi decisions and the subsequent OPEC decisions were muddled through. Yet, they appear reasonably rational. Saudi leaders feared rising prices and less oil production. Their opportunity costing, likely, went something like this: “If we raise prices, and reduce production, we will lose global market share and maybe, in the current market, even dollar or riyal value. Our production costs are relatively low, compared to shale development in the U.S. While costs may go higher in the future, particularly once drilling on flat desert land becomes more difficult in light of geology, we can make a profit at the present time, even at $30-40 a barrel. Conversely, we believe that for the time being, U.S. shale developers cannot make a profit going below $40-50. Maybe we are wrong, but if we are, our cost/profit equation is not wrong by much. By doing what we are doing, we will undercut American production. Sure, other exporting countries, including our allies in the Gulf will be hurt temporarily, but, in the long run, they and we will be better off. Further, restricting production and assumedly securing higher prices is not a compelling approach. It could cause political and social tension in the country. We rely on oil sales, cash flow and profit as well as reserves to, in effect, buy at least short-term civic peace from our citizens. Oil revenue helps support social services and basic infrastructure. We’ve got to keep it coming.”

The Kingdom understands that it can no longer control prices through production — influence, yes, but, with the rise of U.S. oil development, it cannot control production. Conspiracy theories or assumed practices don’t add much to the analysis of Saudi behavior concerning their cherished oil resources. Like a steamy novel, they fill our reading time, and sometimes lead to a rise in personal adrenaline. Often, at different moments, they define the bad guys vs. the good guys, or Taylor Swift vs. Madonna.

No single nation will probably have the power once held by OPEC and the Saudis. While human and institutional frailties and desires for wealth and power suggest there always will be conspiratorial practices aimed at influencing international prices of oil and international power relationships, their relevance and impact will diminish significantly. Their net effect will become apparent, mostly with respect to regional and local environments, like Yemen and ISIS in Syria and Iraq.

Recently, I asked a Special Forces officer, “Why is the U.S. fighting in Iraq?” I expected him to recite the speeches of politicians — you know, the ones about democracy, freedom and a better life for the citizens of Iraq. But he articulated none of these. He said one word, “Oil”! All the rest is B.S. I think he was and remains mostly right. His answer might help us understand part of the reason for the strange alliance between the Saudis and U.S. military efforts in or near Yemen at the present time. Beyond religious hatred and regional power struggles, it might also help us comprehend at least part of the reasons for Iran’s support of the U.S.-led war against ISIS — a war that also involves other “democratic” friends of the U.S. such as the Saudis and the Gulf States.

The alliances involve bitter enemies. On the surface, they seem somewhat mystifying. Sure, complex sectarian and power issues are involved, and the enemies of my enemies can sometimes become, in these two cases, less than transparent friends. But you know, these two conflicts — Yemen and ISIS — I believe, also reflect the combatant’s interest in oil and keeping oil-shipping routes open.

President Obama has argued that we should use alternative energy sources to fuel America’s economy and he has stated that we need to wean the U.S. off of oil and gasoline. Doing both, if successful, would be good for the environment, and limit the need to send our military to protect oil lifelines. Similarly, opening up U.S. fuel markets to alternative fuels and competition would mute the U.S. military intervention gene, while curing us, to a large degree, of mistakenly granting conspiracy advocates much respectability. Oh, I forgot to indicate that the oil companies continue their secret meetings. Their agenda is to frustrate the evolution of open fuel markets and consumer choices concerning fuel at the pump. Back to the conspiracy drawing boards! Nothing is what it seems, is it?

 

Photo credit: http://blogs.telegraph.co.uk/finance/

House approves Keystone XL again, Senate up next

The U.S. House approved, for the ninth time, construction of the Keystone XL pipeline, designed to carry Canadian tar-sands oil to the Gulf of Mexico.

The bill passed Friday by a vote of 252-161, but prospects in the Senate are unclear. The Senate is due to take up the bill Tuesday, but the measure must beat the 60-vote threshold to move forward.

USA Today reports:

If it overcomes a 60-vote threshold it will head to President Obama’s desk where he will either sign it into law or veto it. The president has delayed a decision on the pipeline, deferring to an ongoing review at the State Department, but White House spokesman Josh Earnest suggested Thursday that the president could veto it.

Obama has declared previously that he would only approve the pipeline if it could be demonstrated that the project wouldn’t increase greenhouse-gas emissions.

Democratic Sen. Mary Landrieu of Louisiana has been promoting her own bill in the Senate. The bill approved Friday was sponsored by Rep. Bill Cassidy of Louisiana. He will face Landrieu in a runoff election next month for the Senate. Landrieu has an uphill battle to win a fourth term: Although she beat Cassidy by 1.2 percentage points on Election Day last week, neither candidate won at least 50 percent of the total, forcing the runoff. Observers expect much of the support of the third-party candidate in that race, Rob Maness, a Tea Party favorite who won 14 percent in the election, to swing to Cassidy.

Why is Landrieu so strongly in favor of Keystone XL? A story on Slate.com tried to figure that out, as well as why the leadership in the (for now) Democratic-controlled Senate is so willing to bring her bill to the floor for a vote:

What’s befuddling isn’t that the Democrats are playing politics with Keystone—it’s that they’re playing them so poorly. Thanks to their seven-seat-and-counting gain on Election Day, Republicans will take control of the Senate next year for the first time since George W. Bush’s second term. More importantly for the Keystone crowd, the pipeline is all but certain to have a filibuster-proof 60-plus votes in the next Senate, whether Landrieu is there or not.