Will Keystone Get Railroaded?
“We, the people, still believe that our obligations as Americans are not just to ourselves, but to all posterity. We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires and crippling drought and more powerful storms.
The path towards sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition, we must lead it. We cannot cede to other nations the technology that will power new jobs and new industries, we must claim its promise. That’s how we will maintain our economic vitality and our national treasure — our forests and waterways, our croplands and snow-capped peaks. That is how we will preserve our planet, commanded to our care by God. That’s what will lend meaning to the creed our fathers once declared.”
This was welcome news for climate change activists who have been disillusioned by Obama’s perceived failure to lead on the issue. In his speech to the Democratic Party’s convention in 2008, Obama promised that generations from now we could tell our children that “this was the moment when the rise of the oceans began to slow and our planet began to heal.”
Yet during his time in office he has upset some supporters by embracing the rising oil and gas production in the US. In fact, during the recent campaign the president took credit for the increased drilling, and promised to continue the pursuit of domestic energy sources.
This was after Obama was criticized by former vice president and leading environmental activist Al Gore in a 2011 op-ed piece in Rolling Stone called Climate of Denial:
“President Obama has thus far failed to use the bully pulpit to make the case for bold action on climate change. After successfully passing his green stimulus package, he did nothing to defend it when Congress decimated its funding. After the House passed cap and trade, he did little to make passage in the Senate a priority. Senate advocates — including one Republican — felt abandoned when the president made concessions to oil and coal companies without asking for anything in return. He has also called for a massive expansion of oil drilling in the United States, apparently in an effort to defuse criticism from those who argue speciously that “drill, baby, drill” is the answer to our growing dependence on foreign oil.”
The Keystone XL Pipeline has been viewed as a litmus test for President Obama on the issue of climate change. Environmentalist supporters want to see him take a stand and reject the pipeline. They cheered when he previously delayed the decision on the northern leg of the pipeline, and booed when he enthusiastically endorsed the southern leg from the campaign trail in 2012.
Some of Obama’s supporters view the comments in his recent inaugural address as a sign that he may be leaning against approval. Last week Nebraska’s governor approved a new route for the Keystone XL through his state. The previous route had been criticized by environmentalists because of its path over the Ogallala aquifer. But the Obama Administration is not expected to decide on final approval before April. Perhaps the president is having a crisis of conscience on an issue that may color his legacy.
Supporters of the project expressed some concern following Obama’s inugural address. Canada’s Finance Minister Jim Flaherty told Reuters: “I had reason for optimism before the election that the president would approve it, were he re-elected, but his speech the other day was not encouraging.” But he also indicated that Canada doesn’t intend to slow tar sands development if the project is rejected: “We will go wherever we have to go. We are going to create markets for Canadian commodities.”
Some have noted that further delays in approving the pipeline — as well as the decision to reject it altogether — stand to benefit a prominent supporter of President Obama: Warren Buffett.
You see, the dirty little secret that Keystone’s opponents may have overlooked is that a virtual pipeline is already being built — by rail.
Last year, delivery of petroleum by rail increased by 38 percent, according to the EIA. During the first half of 2011, shipments of oil and petroleum products averaged 673,000 barrels per day (bpd). By June 2012, that number had increased to just under 1 million bpd. At this rate, the capacity of the Keystone XL pipeline will be duplicated via rail in about two years.
Buffett’s Berkshire Hathaway (NYSE: BRK.B) owns the Burlington Northern Santa Fe railroad, which already carries a third of the oil from the Bakken shale formation in north-central US. Last year the company indicated that the railroad was prepared to haul oil from the oil sands of Alberta if the Keystone XL is rejected. BNSF has seen shipments of oil grow from almost nothing five years ago to 500,000 bpd today, and envisions growing this business to 1 million bpd. If the Keystone XL is rejected, the railroad’s prospects — along with those of other rail companies — are brighter.
A group of Canadian businessmen is even pursuing a project to move 5 million bpd from the Alberta oil sands to the port in Valdez, Alaska. This project has attracted a great deal of interest in Canada, because many Canadians have grown tired of being so dependent on the US as the principal destination for their oil.
The irony in this is that protesters have sought to stop the Keystone XL because of concerns about greenhouse gas emissions. They have raised safety concerns related to the pipeline. But rail has both a higher greenhouse gas footprint and, according to the Bureau of Transportation Statistics, a much higher likelihood of accidents.
What the protesters fail to grasp is that there is strong global demand for oil, so it will get to market. Trying to cut off the supply in the face of strong demand will be about as effective as the war against drugs. If the protesters are to be successful, they must work to cut off demand. Otherwise, stopping the Keystone XL pipeline will just force it to get to market in a more inefficient manner, and one likely to make Warren Buffett lots of money.