Are U.S. Oil Exports Making Tar Sands “Useless”?

Are tar sands pipelines really necessary? Obviously, as a conservationist who’s written more than a few blogs saying “of course not!” I’ve already shown my hand, but the question is being cast in a new light as American oil drilling—and exports—accelerate.

(Photo: Nestor Galina)
A little background first: U.S. oil production hit a record high in 1970, followed by a steady decline until 2008, when it began to pick up again thanks in part to new technologies like horizontal drilling and fracking—a controversial technique that causes serious environmental problems but also enables the industry to tap petroleum deposits that were previously  inaccessible, such as the Bakken formation in the Dakotas and the Eagle Ford formation in South Texas. And we’re talking about a lot of oil—Citigroup, the finance giant, refers to North America as “the new Middle East” and analysts project that the U.S. could soon surpass Saudi Arabia for the title of No. 1 Oil Producer.

What does this mean for Americans? It might seem straightforward that more U.S. production means lower gas prices for us. That would be true if we were the only country that uses oil, but in reality prices are set on the global market. In extremely simplified terms, think of it like a giant barrel of oil that everyone in the world uses. If you drill more in South Dakota, that oil just goes into the barrel and everybody—Americans, Chinese, Argentinians—can buy it. The oil industry has no incentive to set aside U.S.-produced oil for our exclusive use (which could theoretically lower prices if we ever drilled more oil than we consume) and because there’s so much oil produced globally, it’s very hard for one country’s production to affect the overall price. What really drives price jumps is the skyrocketing demand from China and other developing nations, as well as other factors like “futures speculation” (where large buyers make bets on how the market will look a few months or years down the road).

The “Energy Security” Myth

So where does tar sands oil come into play? Canada is another major oil producer thanks mostly to its enormous mining operations in the western boreal forest, and it wants to gain access to foreign markets by building pipelines to the coast. The industry claims that Keystone XL and other pipelines would give us “energy security”—take this example from Marty Durbin of the American Petroleum Institute:

Through the Keystone XL pipeline project, the president has an opportunity to greatly enhance our nation’s economic and energy security. Without it, the United States will be forced to increase the amount of oil it imports at a time of increasing global turmoil.

Fort McMurray, Alberta — the epicenter of tar sands production (photo: Kris Krug)
But this argument falls apart when you consider three things: first, as many people have pointed out, Keystone XL is a pipeline through the U.S., destined for export from the Texas Gulf Coast. Second, due to some peculiar elements of the North American pipeline network, Keystone would actually increase gas prices for folks in the Midwest, by rerouting their supply to Texas instead of Illinois and Indiana. And third, if the United States is in such desperate need of Keystone XL and other pipelines that bring in tar sands oil from Canada, then why have we become a net exporter of refined petroleum products like gas and diesel fuel? The answer lies in the global market. Oil companies want the highest prices they can get, and if that means shipping to China instead of keeping North Dakotan oil at home, they’ll ship to China.

And here’s a bit of irony for you: Lorne Stockman, an analyst for Oil Change International, recently pointed out that the U.S. is actually sending high-quality oil from Texas to Canada because domestic refineries are already being retrofitted to process tar sands oil, and won’t have the capacity to process our own reserves. Talk about an unfair exchange.

More Pipelines on the Horizon?

Philip Verleger, a respected oil economist, has a simple message for proponents of Keystone XL:

The people who are saying we really need this (Keystone XL pipeline) don’t recognize that circumstances have changed…The Keystone XL is going to be just like an Egyptian pyramid. Useless.

Even so, the immediate future for tar sands pipelines is uncertain: If Mitt Romney wins tomorrow’s election, we could see a big and immediate move to reshape national energy policy: he has famously vowed to approve Keystone XL on his first day in office in order (so he says) to bolster “North American energy independence.” President Obama, for his part, has spent plenty of time bragging about his Administration’s approach to oil and gas drilling, and he gave a speech supporting the southern segment of Keystone XL. During the campaign both candidates have thoroughly ignored the biggest security crisis facing our country and the planet—global warming, driven mostly by fossil fuels like oil and tar sands.

The oil boom in the US proves we don’t need to import carbon-intensive, unsafe fuel from Canada, but it also raises serious questions about how domestic production is impacting American landscapes and the environment. What’s more, it shows how quickly we can ramp up American industries—if we directed that type of brainpower and investment toward renewables like solar and offshore wind, think how quickly we could change the energy equation.

Take ActionWhatever the outcome of the election, we need to make sure that the next resident of 1600 Pennsylvania Avenue makes the right choice on Keystone XL. Speak up and tell the President to say “NO” to dangerous tar sands pipelines.

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Published: November 5, 2012