Keystone XL: Fresh Evidence That China and Not U.S. Will Benefit

As the promoters of the  Keystone XL pipeline regroup to push their new permit application to funnel high carbon tar sands from Alberta to Texas, there continues to swirl a good deal of controversy over where tar sands will ultimately end up.

More evidence just came to light this week that the Canadian Prime Minister and his Big Oil allies are eying China, not the U.S., as their biggest market.  That’s a critical development, since backers of the pipeline wrongly say tar sands will improve U.S. energy security.

We’ve said before that Keystone XL saddles the U.S. with all of the risk –particularly, the risks of a major oil spill – and almost no benefit. Americans could become little more than middle men, taking the risk of spills and increased pollution, while the oil goes abroad. So why do this? In a nutshell, petro companies have one goal – to sell as much oil as they can for the highest price.

The new Bloomberg story linked above says this of Canada courting the Chinese, and vice versa:

Canadian Prime Minister Stephen Harper and Alberta Premier Alison Redford have visited China this year to promote Canada’s energy industry and build trans-Pacific ties. Harper told Chinese business leaders in February during a dinner in Guangzhou, China, that he wants to take Canada’s economic partnership to “the next level.”

“We want to sell our energy to people who want to buy our energy,” Harper said at the time. “It’s that simple.”

The Chinese are responding, ponying up investment dollars in Canada.

China, seeking to add oil and gas reserves to meet demand in the world’s largest energy-consuming country, sees Canada as a ready supplier as it prepares to expand its pipeline network to the Pacific coast for exports to Asia.

Over the past decade, Chinese companies have spent $53.4 billion on Canadian oil and gas fields and companies, compared to $30.8 billion invested in the sector by U.S. companies, according to Bloomberg data.

What’s the best route for tar sands to move overseas.  There’s actually very few.  The controversial Northern Gateway proposed pipeline to British Columbia is one, but more likely it’s Keystone XL.


Where is the oil from Keystone XL really headed? (Courtesy of NRDC)

Canadian Government, Oil Barons Looking to Asia

On the day after President Barack Obama rejected the Keystone deal, Canadian officials stressed that they were actively working to expand their oil export markets beyond the United States. Canadian Prime Minister Stephen Harper said, “I think it is particularly essential for this country that, over time, we have the capacity to sell our energy products into the growing markets of Asia.

“I am very serious about selling our oil off this continent, selling our energy products off to Asia. I think we have to do that,” Harper stated in a December interview with CTV National News.  These pronouncements are from the PM who wants to make Canada a “superpower” in global energy markets.

After President Obama ditched Keystone, Brenda Kenny, head of the Canadian Energy Pipeline Association, also chimed in, saying that the delay underscores the need for the diversification of markets, particularly Asia.

The industry was given a chance to put the notion to rest on Capitol Hill recently, but pipeline builder Transcanada refused to agree to a congressional proposal to limit the oil from its pipeline to the U.S. Why? As shown in a compelling graph by the U.S. Energy Information Administration, the U.S. Gulf Coast (PADD 3) is rapidly turning into an oil export center due to the large refining capacity, which makes America increasingly the middle man, importing huge volumes of crude and exporting more refined oil products like diesel and gasoline. In short, we take the risk of spills and pollution, but we see little benefit.

Texas Refiners Look East

What is the intent of the oil companies at the receiving end of the pipeline?

The Texas refiners at the terminus are all set to refine and ship abroad.  For example, Valero has contracted to “take at least 100,000 barrels of tar sands crude a day from Keystone XL until 2030,” contends OilChange International’s executive director Stephen Kretzmann.  Valero has laid out an aggressive export strategy to its investors and is beefing up its Port Arthur refinery to process crude into diesel.  Valero has been a Keystone cheerleader from the get-go.

Targeted for Tax-Free Zones

Some Keystone promoters have conceded that tar sands oil would skip Midwest refiners and customers and land in Gulf Coast refineries, refineries that are located in tax-free foreign trade zones.  No taxes?  This would no doubt make international sales attractive and lucrative.  In the international market, the oil would likely get a higher price than selling to the U.S. market.

In a stunning display of special interest greed, global oil companies have created an “offshore tax haven” right on U.S. soil. Oil Change International’s report, Exporting Energy Security: Keystone XL Exposed, details this strategy as laid out by the oil companies. They get a free ride as Americans get used.

China Is Hungry for Energy

(Photo by Philip Jägenstedt/Flickr)
Then there’s China.  The tiger awaits.  China’s economy is booming.

Since the late 1970s, China has engineered a vigorous economic expansion by investing in industrial production, welcoming foreign investment and encouraging more private businesses.  Some analysts have predicted that China’s economy could surpass the United States’ some day.  It doesn’t take a Ph.D. analysis to see it day to day. Americans need only look at product labels to see the flood of imports bearing the “Made in China” label, from holiday ornaments to skateboards, from trinkets to turbines.

China is a ravenous energy consumer. A fast-growing economy with a strong manufacturing sector needs energy.  The country’s coal imports jumped 11 percent in 2011, reported Bloomberg News on January 17.  China’s oil imports went up five percent last year, according to the January 23 Wall Street Journal.

China’s energy needs will balloon 150 percent by 2020, predicts the Institute for the Analysis of Global Security.  “Its oil consumption grows by 7.5% per year, seven times faster than the U.S.,” they say.

“China is aggressively looking worldwide for oil,” wrote David L.O. Hayward in the Journal of Energy Security as early as 2009. The International Energy Agency expects China’s oil imports to grow from 3.5 million barrels a day in 2006 to 13 million barrels a day by 2030.

So China’s economy is virtually an “open invitation” to fuels like coal and oil.  An energy-hungry country with weak environmental standards is a near-perfect market for Big Oil and a Canadian government intent on exploiting its tar sands supplies with few questions asked.

That led respected oil economist Dr. Philip Verleger, who has a long and successful track record of accurately predicting oil market developments to conclude in his analysis of Keystone XL (The Tar Sands Road to China) that the pipeline “will facilitate Canadian crude exports to China rather than the United States.” Because oil companies keep most of their plans secret, we don’t know for sure how much oil would go to China. I say, where there’s smoke, there’s fire.

Building a More Direct Path

Another telling piece of evidence:  the Canadian government and the Canadian oil industry also want to steamroll west and build Enbridge, Inc.’s Northern Gateway pipeline from Alberta through the Rocky Mountains to carry 500,000 barrels a day of tar sands crude through some of British Columbia’s most pristine habitat, to the British Columbia coast where 200 supertankers would await. This pipeline seems aimed directly at China.  After all, shipping to Asia from Canada’s west coast would not bring on the headaches of getting those prickly international permits and environmental assurances from the U.S. government.

Not in the National Interest

The Keystone XL tar sands scheme is disturbing on many fronts, but troubling conclusions are unavoidable:

  • Keystone is an industry-government scheme – maybe even a front – to boost oil industry profits while failing to provide clean energy to the U.S. and posing serious environmental risks to streams, rivers, water supplies and Midwest habitats.  It’s not an energy pipeline; it’s a pipeline to profits.
  • President Obama is required to determine that giving Keystone a permit is in the national interest.  Keystone is not in the national interest.  It is a dangerous project designed to serve the Canadian oil interests and the Texas refiners interests who will send the oil abroad.

  Canada’s Oil: The Basics

Tailings pond north of Syncrude processing facility and upgrader (Courtesy of the Pembina Institute)
“Canada accounts for more than 90 percent of all proven reserves outside the Organization of Petroleum Exporting Countries, according to data compiled in the BP Statistical Review of World Energy. Most of Canada’s crude is produced from tar sands deposits in the landlocked province of Alberta, where output is expected to double over the next eight years, according to the Canadian Association of Petroleum Producers. Canada accounts for more than 90 percent of all proven reserves outside the Organization of Petroleum Exporting Countries, according to data compiled in the BP Statistical Review of World Energy. Most of Canada’s crude is produced from tar sands deposits in the landlocked province of Alberta, where output is expected to double over the next eight years, according to the Canadian Association of Petroleum Producers.”  — The Daily Sheeple, January 20, 2012