Obama Blocks Keystone To Start Energy Takeover

Original Article

After successfully bringing more than 30% of the U.S. economy — the health care and financial services industries — under political control during his first term, President Obama made it clear last week that a priority of his second term is to go after the energy sector — another 10.5%.

The purpose of the White House’s orchestrated release of the National Climate Assessment on May 7 was to set the stage to drive energy markets and fossil fuels under the heel of more government regulation.

Most Americans would celebrate knowing that the U.S. is on the cusp of oil and gas energy independence and the lower prices that will follow — especially with memories of OPEC’s oil embargo and the cartel’s ongoing ability to manipulate markets.

So with Obama promoting more energy regulation and choosing to hold up construction of the Keystone XL pipeline — one of the three legs of U.S. energy independence — many Americans wonder what’s going on.

First, some background. The primary purpose of Keystone XL is to transport crude oil from the oil tar sands of Alberta, Canada’s Athabasca region to refineries on the Gulf Coast in Texas and Louisiana that are specifically designed to process and refine heavy crude into byproducts such as gasoline, diesel and jet fuel.

Radical environmentalists may have heightened opposition to so-called dirty oil from tar sands, but the end products are essentially the same as those refined from light sweet crude.

Travel by air, rail and ship require petroleum-based fuels, and with 94% of America’s electric power coming from legacy sources — largely fossil fuels — and only 4% provided by solar and wind (made possible only by huge tax subsidies), it makes enormous sense to bring on more supply, lower prices and reduce OPEC’s influence.

Regardless of environmentalists’ opposition, Canada made the decision years ago to develop this remarkable oil sands resource. Like accessing oil from shale rock formations, the harvesting of oil sands was only made economically possible by technological breakthroughs from the human capital of the scientific-engineering mind. What had no value for thousands of years now has enormous value.

If the U.S. does not take full advantage of the Canadian oil sands resource, China certainly will to a greater and greater extent. In February 2013, the Chinese National Oil company, CNOOC, closed the $15 billion acquisition of Canada’s Nexen Oil Co. — which has a significant stake in the Alberta oil sands.

Most environmentalists think globally and must realize that delaying Keystone only gives China more clout in securing a larger portion of the oil sands. And then who wins? Certainly not Mother Earth, given China’s horrid environmental record.

Then there’s the current Venezuelan regime, which benefits from limiting the flow of oil from Canada. Most of the capacity of the Texas and Louisiana refineries, which would be the destinations for Keystone pipeline output, is taken up by heavy oil from Venezuela. Should those refineries shift to processing Canadian oil, the Venezuelan people might finally succeed in obtaining regime change and free-market reforms.

People also need to follow the money and understand the Keystone holdup by analyzing who benefits. Opposing the Keystone XL pipeline is a lightning rod and cash cow for the Democratic Party.

Environmentalists who are among the 1% — notably Tom Steyer — have pledged $100 million to fight Keystone and fossil fuels. Oh, and then there is billionaire Democrat Warren Buffett, whose Burlington Northern Santa Fe railroad capitalizes on transporting the oil that would otherwise flow more safely and economically through the Keystone pipeline.

It’s also important to follow the power and ask who benefits. Neither American workers nor consumers benefit from Obama’s opposition to the Keystone pipeline.

Internationally, the Keystone holdup helps sustain OPEC, while it weakens U.S. relations with Canada — an immediate neighbor and longstanding ally. At the same time, blocking Keystone helps China and Venezuela — two repressive regimes that are often hostile to the U.S.

Finally, delaying Keystone reinforces the perception of American weakness and indecision at a time when Russia’s Putin is flexing his muscles, threatening Ukraine and other neighbors with energy blackmail.

Obama declared that the U.S. would “lead from behind” in the political upheavals of oil-rich countries such as Libya. Now, at home he’s on another power grab while leading from behind on energy independence and security.

Scott S. Powell

Senior Fellow, Center on Wealth and Poverty
Scott Powell has enjoyed a career split between theory and practice with over 25 years of experience as an entrepreneur and rainmaker in several industries. He joins the Discovery Institute after having been a fellow at Stanford’s Hoover Institution for six years and serving as a managing partner at a consulting firm, RemingtonRand. His research and writing has resulted in over 250 published articles on economics, business and regulation. Scott Powell graduated from the University of Chicago with honors (B.A. and M.A.) and received his Ph.D. in political and economic theory from Boston University in 1987, writing his dissertation on the determinants of entrepreneurial activity and economic growth.