Keystone is a waste...

Why Keystone Is a Canard

America’s already an energy superpower without it.

By ZACHARY KARABELL

Sideshows can be immensely entertaining and highly distracting. Old-time circuses had bearded ladies, freaks and strongmen; today in America we have the Keystone XL pipeline. It is the ultimate sideshow, one masquerading as a solution to real problems when, in fact, it is largely symbolic, and not particularly potent symbolism at that.

It would be nice if the Senate vote last week that fell one “aye” short of authorizing the construction of the Keystone XL pipeline ended this yearslong fight. But, of course, as Mitch McConnell, the incoming Republican majority leader, promised right after the vote, he’s going to make sure the sideshow is still the main show next year—or, as he said, “an early item” on his agenda. Pitted as a battle between environmentalists, who see the construction and completion of the pipeline as yet another proverbial nail in the clichéd coffin of the planet, and proponents of job creation and American energy independence, who portray Keystone as the oil equivalent of Lexington and Concord, the fight over the pipeline has become one of those epic contests that can occupy Washington politics far longer than they merit.

The underlying issues—a lower-carbon future juxtaposed to the demands for more domestic jobs and energy independence—are vital, but Keystone is decidedly not. What is happening outside the debate over Keystone is a tectonic shift in energy supplies and in the geopolitics of energy. The world is seeing a boom in the production of natural gas and a glut of crude petroleum. Global oil demand has plateaued at about 92 million barrels a day and has risen at a much slower rate than population growth globally in the past five years. Oil usage in Asia—primarily China—has soared, but, at the same time, the United States and Europe have undergone a major shift.

As a result, even without the Keystone pipeline, America is already a major energy power.
Partly, that is because of the massive increase in U.S. domestic energy production, largely due to hydraulic fracturing. Some of that production is oil from shale, but much is natural gas. The U.S. now produces more natural gas than Russia, or than the entire Middle East. Natural gas as a share of U.S. energy consumption is rising, while oil and coal are falling. Oil, of course, is not much used for electricity generation. But it is used for transportation, and here consumption in both the United States and Europe has been declining, in light of the substantially greater fuel efficiency of cars and airplanes and trucks. Oil, the literal lifeblood of Keystone, is becoming less important to the domestic American economy every year.

In short, the morphing global energy industry is fast making the pipeline project nearly irrelevant. Not only have usage patterns shifted but so, too, has supply. The price of oil has been plummeting globally in the face of substantial overproduction globally and decreasing consumption. The price of so-called West Texas oil, the worldwide benchmark, is hovering at $80 a barrel, and by most calculations, the tar-heavy oil sands that Keystone XL would support require the price of crude to be at about $75 a barrel to make the extraction and transportation cost-effective. As Republican oil billionaire Harold Hamm noted recently, a global oil glut makes Keystone less attractive and that much less relevant. With new reserves coming on line and the oil cartel OPEC no longer able to govern its members effectively, we might be in for a protracted period of lower prices; that doesn’t augur well for the economics of Keystone.

As for the argument about the pipeline extension as a cornerstone of U.S. energy independence, as President Barack Obama noted in comments earlier this month, Keystone XL would essentially transport Canadian oil through the United States in order to be exported elsewhere in the world. In that sense, the pipeline isn’t about U.S. energy independence; it is about the United States as a trading passage between Canada and the world. Not a bad thing per se (separate from the question of whether the world needs more oil), but hardly crucial to the American economy. Yes, some of that Canadian crude would be refined in American refineries on the Gulf and then consumed domestically in the United States, but the impact on U.S. energy prices would likely be de minimus.

So we have a Republican oil billionaire and a Democratic president both arguing that Keystone is not a key factor in U.S. energy independence or lowering the price of crude. We have the larger dynamics of the energy industry, more producers of oil around the world and lower consumption of oil in Europe and the U.S. due to efficiencies of engines. And then we have Congress.

The factual realities of the project have become almost completely subsumed in Congress to what the pipeline represents. In short, the pipeline as a symbol has become far more significant than the pipeline as a pipeline. On one side, largely Democratic, we have the intense, passionate opposition of those who believe that climate change is a looming threat; on the other side, largely Republican but with some Democrats such as from Senators Mary Landrieu of Louisiana and Joe Manchin of West Virginia, we have the intense, passionate support of the energy industry and those who believe that America must do all that it can to become energy independent.