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State Department's Keystone XL Report Provides As Much Grounds For Rejecting Pipeline As Approving It

What The Oil Lobby Doesn’t Want You To Know About The Keystone Report
US President Barack Obama walks across a field after arriving on Marine One at Walter Reed National Military Medical Center in Bethesda, Maryland, March 5, 2013. Obama is visiting with wounded warriors who are being treated at the hospital and their families. AFP PHOTO / Saul LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)
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US President Barack Obama walks across a field after arriving on Marine One at Walter Reed National Military Medical Center in Bethesda, Maryland, March 5, 2013. Obama is visiting with wounded warriors who are being treated at the hospital and their families. AFP PHOTO / Saul LOEB (Photo credit should read SAUL LOEB/AFP/Getty Images)

The U.S. State Department released its report into the Keystone XL pipeline on Friday, and its declaration that the project would have little impact on the environment and on oil sands development was met almost instantly with cheers from the oil industry and Alberta politicians, and jeers from the environmental activist community.

The interpretation of the report by media and politicians was unequivocal: With the environment now a “non-issue” in the Keystone debate (a point that many people do not concede), the main roadblock to approving Keystone XL had been lifted.

John Boehner, the Republican Speaker of the U.S. House of Representatives, was more blunt.

The report “makes clear there is no reason for this critical pipeline to be blocked one more day,” Boehner said Friday. He added he wanted to see an end to “needless delays” on the project, and said it is time for President Barack Obama "to stand up for middle-class jobs and energy security and approve the Keystone pipeline."

There are a few problems with Boehner’s statement. First, the report says there isn’t much in the way of “middle class jobs” coming from the project, nor are there any other jobs. It estimates that Keystone XL will require approximately 35 permanent and 15 temporary jobs after construction is completed.

Second, the issue of “energy security” is becoming irrelevant to this discussion (more on that later).

And third, Obama still has reason to reject the pipeline, and the State Department report can be the basis for that rejection as easily as it could be the basis for its approval.

While the report does state that the environmental impact would be limited, it also states that the U.S. doesn’t actually need the Keystone XL and that maybe even the oil industry itself doesn’t need it.

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“Rail and supporting non-pipeline modes should be capable, as was projected in 2011, of providing the capacity needed to transport all incremental Western Canadian and Bakken crude oil production to markets if there were no additional pipeline projects approved.”

That’s a far cry from all those news reports in the Canadian media, citing mainly industry insiders, saying that rejecting Keystone would be a disaster for Canada’s economy.

John Bennett, the executive director of Sierra Club Canada, believes the industry’s push to build the Keystone XL is “an attempt to get into the market before demand dissipates.”

And demand could certainly dissipate. The boom in U.S. oil and gas production has been so intense over the past few years that the International Energy Agency actually came out with a report last fall saying the U.S. will be a net exporter of natural gas by 2020 and almost entirely energy independent by 2035.

“For reasons of national security, every decision on every fossil fuel project [in the U.S.] was approved, because they were attempting to maintain the supply of oil so they wouldn’t see the huge swings in prices we’ve seen over the decades,” Bennett told The Huffington Post.

Bennett, who believes the State Department report makes it less likely that the Obama administration will approve the project, echoed the report when he noted that circumstances in North America’s energy industry have changed rapidly over the past few years, thanks to the shale oil boom.

“The impact of fracking for oil and gas has changed the energy makeup of North America,” he said. “When I started doing this [job] 15 years ago, we were running out of oil in North America and the oil sands were the only areas likely to increase production, and a great deal of investment was put into the oil sands.”

But the need for that oil sands investment is lessening with every barrel of light crude pumped out of North Dakota's Bakken oil field. And Bennett points out another dimension to the issue, one that will likely be at the heart of any Obama decision: politics.

“Why would the President antagonize the millions of people who voted for him when it’s a pipeline he doesn’t need?” Bennett asked.

Besides the environmentally conscious contingent of Obama’s base, which is pretty much unanimously opposed to the pipeline, there is the consumer angle.

Canada’s oil business wants the Keystone because tight access to U.S. markets has caused the price of Canadian oil to drop relative to global rates. Canadian oil can reach only the U.S. Midwest, where an oversupply is keeping prices low.

So it follows that building Keystone would expand the reach of Canadian oil past the low-price midwest market, allowing producers to get prices closer to the global market rate. The end result? Higher oil prices for everybody, as Keystone’s builder, TransCanada Corp., has pretty much acknowledged.

And then there is the fact that some of Obama’s harshest political opponents stand to be among the biggest beneficiaries of Keystone XL’s construction – namely, the Republican-friendly oil industry.

Chief among those beneficiaries would be the Koch brothers, the billionaire owners of Koch Industries, whose pressure group Americans For Prosperity has opposed just about every initiative the Obama administration has put forward. (The New Yorker described them as “waging a war on Obama.”)

Though the Kochs have insisted that Keystone has "nothing to do with any of our businesses," Koch Industries’ Alberta-based subsidiary, Flint Hills, is responsible for about one-quarter of the oil sands crude shipped to the United States, and would therefore stand to benefit greatly from the higher bitumen prices Keystone XL would bring.

That makes for a tough political calculus for Obama.

If there is no longer a compelling national security reason for increasing reliance on Canadian oil, and if the U.S. is headed for energy independence, and if the entire environmentally conscious portion of Obama’s support base opposes it, why would the President approve a project that helps his political enemies?

Maybe to appease Canada. Writing in The Globe and Mail last week, John Ibbitson predicted that, if Obama rejects the pipeline, “relations between Canada and the United States will enter a deep freeze the likes of which have never been seen.”

Citing “highly placed government sources,” Ibbitson predicted that a rejection would mean “border co-operation initiatives could be put on hold. Canada could flatly reject American proposals to reduce agricultural and intellectual property protections at the Trans Pacific Partnership talks. Most important, the thousand different ways in which Canadian and American officials work closely and co-operatively together daily would be replaced by a Canadian cold shoulder.”

Coming from a long-time political insider like Ibbitson, those words seem like thinly veiled threats from the highest echelons of Canada’s power structure. But they also stress how important the Keystone pipeline is perceived to be among Canadian politicians and pundits. (Of course, if the State Department report is right, it may not be that important after all.)

But “upsetting Canada” is not very high on U.S. presidents’ lists of things to avoid, and if Obama decides to approve the pipeline, it may simply be the result of wanting to make a “business-friendly” decision.

But the idea that the State Department report is a prelude to approval is simply faulty. Those taking orders for Keystone XL pipeline shipments may want to hold off for the moment, because which way Obama is headed on the pipeline remains a nail-biting mystery.

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