Why does Obama oppose Keystone pipeline?

Original Article

With memories of OPEC’s oil embargo and the cartel’s ongoing ability to manipulate markets, it should be cause for celebration that the U.S. is on the cusp of energy independence and lower prices. So it is puzzling that President Barack Obama chooses to holdup Keystone XL pipeline construction, which is one of the three legs of U.S. energy independence. Because energy independence is so laudable with bipartisan support, Americans need to know why their president is blocking Keystone.

First, some background. The primary purpose of the Keystone XL pipeline is to transport thick 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 by-products — like 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. And with 94 percent of America’s electric power coming from legacy sources—largely fossil fuels—and only 4% provided by solar and wind (only made possible by huge tax subsidies), it makes enormous sense to reduce dependence on OPEC.

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 breakthrough 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 Company—a company with 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 is the current Venezuelan regime which benefits from limiting the flow of oil from Canada. Most of the capacity of the refineries in Texas and Louisiana, which would be the destinations for Keystone pipeline output, is currently taken up by heavy oil from Venezuela. Should those refineries shift to processing Canadian oil, the Venezuelan people might finally succeed in meaningful regime change that would likely embrace more free market solutions.

People also need to follow the money and understand who benefits. Opposing the Keystone XL pipeline is a cash cow for the Democratic Party. Environmentalists among the 1% — notably Tom Steyer — have pledged $100 million to fight Keystone and fossil fuels. Oh, and then there is billionaire Democrat Warren Buffet, 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, Obama’s position weakens U.S. relations with Canada—an immediate neighbor, longstanding friend and ally, while it helps China and Venezuela—two repressive regimes that are often hostile to the United States.

Finally, delaying Keystone shows 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 upheavals of oil-rich countries like Libya. Now, at home he’s 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.