The Key to Understanding Keystone

By David T. Jones on December 16, 2011

The U.S. decision to defer decision on the Keystone XL pipeline has tossed an eagle into the dovecot.  A “no brainer” decision regarding the merits of providing secure energy (as well as j-o-b-s) has apparently been adroitly manipulated by the brainless.

Consequently, the State Department disclaimer that the delay decision was not “political” is disingenuous at best; it passes neither the sniff nor the giggle test.  After years of review, acres of trees slaughtered in written testimony, and scads of let-it-all-hang-out public hearings, the State Department announced that there were no environmental objections to the pipeline.  Subsequently, President Obama said that he would make the decision—retrospectively a fatal blow to any near term decision.

Obama's action is purely political.  If he had decided in favor of endorsing the pipeline, he would have infuriated environmentalists.  If he had decided against it, he would have enraged unions.  So, in one of those "profiles of courage"--he punted.  If the U.S. had royal commissions, you can be confident that the issue would have been referred to such.  Instead, the path of Keystone XL will be reviewed/reexamined/reargued—but with the political impact deferred.

The course of the Keystone XL has been reviewed and debated to a fare-thee-well.  Other pipelines already cross the aquifer.  The State Dept decided--and announced--that there was no environmental danger.  But if you have enough money to purchase enough lawyers, you can prevent almost anything from happening.  And the environmentalists have decided that Keystone XL is the hill on which they are prepared to fall on their swords.  It is irrelevant whether it will prevent oil sands from being exploited or its product sold.  It is irrelevant whether the U.S. will consume less oil with or without Keystone XL.  It is a battle of symbolism rather than substance.

The political reality is that Obama fears losing the environmentalist activists and their funding more than losing the votes of white blue collar workers (he has calculated that they don't vote Democratic any more).  Nevertheless, losing general union support--and giving the Republicans a free hit at him for refusing to support xyz number of jobs--was one result he didn't want to embrace.  So...(Plan B’s standard action, if you don't want to do something--study it).

Prime Minister Harper has put on a happy face while expressing regret over the postponement following his Hawaii session with Obama.  He may well remember the kertuffle during the 2008 campaign in which information was leaked citing assurances by a senior Obama Democrat that, despite what the Democrats were saying, the NAFTA Treaty was not going to be comprehensively reviewed.  And it never was; the rhetoric was a sop to the unions but never designed to be anything more.  Consequently, Harper may be assuming that following an Obama victory, the president would decide to endorse the pipeline, citing the routing adjustments that TransCanada is already discussing with Nebraska and other stakeholders.

Canada, however, should view the Keystone decision postponement as a “reset” opportunity.  Rather than hanging around like a rejected suitor hoping for reconsideration by a flighty maiden, Ottawa should vigorously explore its Asia option.  The reality remains that even a positive Obama endorsement of the (reconfigured?) pipeline route guarantees nothing.  Remember those millions of dollars and legions of lawyers willing to sue—forever.  The existential point is that the environmentalists want no/no pipeline and betting that their opposition can be overcome may be a winning bet, but is unlikely to give a short term payoff.  

To be sure, various Canadian leaders in the past have played “third option” cards and found that proximity to the U.S. market trumped such cards.  Nevertheless, the Alberta oil sands are a tremendous natural asset with a vast earnings potential for decades.  The prospect of profits—and taxes on those profits—should not be deferred.   Regardless of the difficulties in getting agreement from First Nations to the west of the oil fields and the reality that Canadian environmentalists (further subsidized by U.S. anti-pipeline funding) will resist furiously, the GOC should expeditiously explore that option.  After all, a pipeline to western Canadian ports is totally subject to Canadian law and regulation; Ottawa will not be depending on the wavering beneficence of the United States.  Thus, regardless of the ultimate outcome of the USG decision, having a second option is always useful--and there should be sufficient oil for both markets as well as greater independence for Canada



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