Why does Obama block U.S. energy independence?

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 United States is on the cusp of energy independence and lower prices. So it is puzzling that President Obama and the Senate Democratic leadership have recently taken actions to hold up Keystone XL pipeline construction, which is key to U.S. energy independence. Because energy independence is so laudable with bipartisan support, Americans need to know why their president and his party’s leadership are blocking Keystone.

First, some background. The primary purpose of the Keystone pipeline is to transport crude oil from the oil tar sands of 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 gasoline, diesel and jet fuel. As it stands now, a great deal of oil from Alberta tar sands and the Bakken oil shale is transported by rail, notwithstanding complaints from grain producers and manufacturers that rail lines are clogged with oil transport and prone to accidents and spills. Pipeline transport is a cheaper and safer mode than rail to transport oil and protect the environment.

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 percent of America’s electric power coming from legacy sources – largely fossil fuels – and only 4 percent provided by solar and wind (only made possible 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 as tar sand now has enormous value as a new source of recoverable oil.

If the United States does not take full advantage of the Canadian oil sands resource, China certainly will – and to a greater and greater extent. In February 2013, the China National Offshore Oil Corp. closed the $15 billion acquisition of Canada’s Nexen Oil Co. – 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 oil-rich Venezuelan government, which benefits from limiting the flow of oil from Canada. Most of the capacity of the refineries in Texas and Louisiana is taken up by heavy oil from Venezuela. Should those refineries shift to processing Canadian oil, Venezuela would face more economic hardship, and its people might finally oust the current government and adopt free market reforms.

Americans 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 percent – notably philanthropist and Democratic political activist Tom Steyer – have pledged $100 million to fight Keystone and fossil fuels.

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.

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 – a long-standing friend and ally with whom America shares a border.

However, blocking Keystone helps China and Venezuela – two repressive governments that are often hostile to the United States.

Finally, delaying Keystone reinforces the perception of American weakness and indecision at a time when Russia’s Vladimir Putin is flexing his muscles, threatening Ukraine and other neighbors with energy blackmail. Obama declared that the United States would “lead from behind” in dealing with the political upheavals of oil-rich countries like Libya. He’s leading from behind at home as well on energy independence and security.

The 3 legs of U.S. energy security

— Construction of the Keystone XL pipeline.

— Shale drilling on public lands, which contains more than 50 times the nation’s proven conventional oil reserves.

— Substituting lower carbon-emitting natural gas for coal and oil by retrofitting power plants and internal combustion engines.

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.