The Obama Administration last week decided not to approve the Keystone XL pipeline.
This has introduced another political firestorm into an already uncertain market.
If there is one subject that is likely to stimulate more angst over economic recovery prospects, it is the availability of energy.
Energy is central in everything that happens in the U.S. market.
And Keystone is designed to transport up to 700,000 barrels of oil a day from Alberta to refineries on the U.S. Gulf coast. It represents a new North American-centered initiative to lessen reliance on Middle Eastern imports and would create thousands of new jobs.
It also would create new opportunities for investors.
But the pipeline has had its detractors from the beginning.
Environmentalist Concerns Reign
Environmental concerns have been raised over the greenhouse gas emissions and passage of the pipeline through ecologically sensitive areas.
It is also opposed by those who view the current condition of virtually guaranteed crude oil price increases as an opportunity to invest in alternative and renewable energy technologies.
Some of the environmental issues can be resolved by simply moving the pipeline route.
But others are more difficult to counter.
The crude involved is very heavy oil, primarily from the Athabasca oil sands and similar deposits in Alberta and Saskatchewan. That raw material requires upgrading to synthetic oil and that is far more environmentally invasive than processing lightweight crude.
Therefore, proponents of the pipeline can't resolve environmental concerns simply by changing the route.
And then there is the added problem of a current U.S. statute, namely, §526 of the Energy Independence and Security Act (EISA) of 2007. This prohibits federal agencies from procuring (which includes importing) synthetic fuel unless its life-cycle greenhouse gas emissions are less than those for conventional petroleum sources.
The "life-cycle" considers the GHG emissions throughout the extraction and processing of the oil – that is, from the time it is taken out of the ground, through its transport and upgrading, to its delivery to a refinery (and its emissions there).
When originally passed, this section was designed to benefit domestic American producers over the import of heavier and higher sulfur content foreign oil. It was never intended to create a problem with our neighbors to the north.
Unfortunately, we sure have a problem now.
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.