Keystone XL Pipeline Opportunities

I got it from both sides last week following the announcement that the United States would delay approval of TransCanada’s Keystone XL pipeline.

My environmentalist pro-clean-energy friends gloated in emails that they had won the battle against Big Oil.

My more conservative pro-oil friends complained that China would now take our oil, leaving the U.S. left with no choice but to continue our reliance on Middle East oil.

Both are completely wrong.

43 Years Later…

Mark my words: The Keystone XL pipeline is going to happen.

Albeit, not as fast as some would have hoped.

And the fear that Canada will take its ball, go home, and start playing with China is nothing more than an illusion.

Here’s why…

If oil producers in Alberta were to decide to trade their U.S. pipeline for one that would travel across the mountains to British Columbia and on to the Pacific Coast, they’re not only going to have to go up against a group of environmentalists that make U.S. environmentalists look like girl scouts, but they’ll also have to get approval from aboriginal groups who have been very clear about their unwillingness to allow that oil to flow through their property.

And don’t think for a second that this is just some random problem that can be solved with a little gentle (or not-so-gentle) persuasion…

Back in the early 1970s, a new natural gas pipeline project called the Mackenzie Valley Pipeline ran into major delays after the government found itself in a situation where it had to settle aboriginal land claims in Canada’s Northwest Territories.

Not until 1995 were most of those claims settled. Only after an agreement was signed in 2003 to give 30 percent ownership of the pipeline to aboriginal groups did the project move forward.

Earlier this year, the Mackenzie Valley pipeline was finally granted federal cabinet approval.

Construction is now expected to begin in 2014, with the project being operational by the end of 2018. Essentially, we’re talking about roughly 43 years to get this thing built.

Point is, don’t take aboriginal land claims lightly.

I’m not saying that aboriginal groups wouldn’t work to get a pipeline built. But it would take a lot longer to do that than to jump through a few more regulatory hurdles in the U.S.

And here’s something else to chew on…

Enbridge (NYSE: ENB), a major tar sands pipeline company, currently has a proposal for a pipeline to the Pacific Coast that could move 500,000 barrels a day. That’s less than 20 percent of the projected output.

Kicking OPEC to the Curb

We’ll likely hear a lot of rhetoric now about how this delay leaves us vulnerable to the will of Middle East oil producers.

Make no mistake; we’re vulnerable to the will of Middle East oil producers because not until 9/11 did anyone take this vulnerability seriously.

And our continued vulnerability exists not because of a pipeline delay — but because of our unwillingness to move away from the outdated internal combustion engine as well as our unwillingness to integrate better mass transit systems and high speed rail in our nation’s most densely-populated areas.

That being said, a rational approach to transitioning our transportation systems to operate competitively in a post-Peak world does not exist. Therefore, we remain heavily reliant on Middle East oil.

I’m not saying it’s right or wrong. I’m just saying this is the reality we face today.

And this is why that pipeline is going to get built.

Look, we currently import about 4.8 million barrels per day from OPEC.

The Keystone XL pipeline — at full capacity — is expected to bring in about 700,000 barrels per day.

Throw on top of that all the new buses and trucks that’ll eventually be running on natural gas. Transitioning our domestic fleet of trucks and buses to natural gas could displace about 2.5 million barrels per day…

Then you have the new 54.4 mpg average fuel economy standard that will allow us to reduce our oil consumption by 2.2 million barrels per day.

Between the new pipeline, the integration of natural gas-powered trucks and buses, and new fuel economy standards, we can bring in or displace enough oil to more than cover what we get from OPEC.

Hell, at 5.4 million barrels, that actually gives us oil to spare!

Of course, the delay on the pipeline will slow things down a bit, but this actually presents us with an interesting opportunity…

Although we know that the pipeline is going to happen, the delay looks like it’s now causing a rush on a few producers in the Bakken and Fort McMurray regions.

To a new way of life and a new generation of wealth…

Jeff Siegel
Editor, Energy and Capital