Monday, February 25, 2013

Keystone XL Is Swell

The we want-to-kill-affordable-energy-no-matter-what-it-takes progressives complain that the Keystone XL pipeline will not moderate US petroleum prices and grow US jobs, because oil flows will ultimately be transshipped to foreign markets.  These protesters misunderstand markets and market forces.   They protest far too much.  At least four faulty and fractious arguments are put forward by the anti-energy crowd:

1.      It’s a World Market, Supply Doesn’t Matter.  This categorical lie has come out of Obama’s mouth no less.  I’ve already blogged on how, to the contrary, local gasoline prices, here within a few hundred miles of the North Dakota oil patch, are significantly lower than elsewhere in the country.  That continues.  I paid $3.11 a gallon when I filled up my Jeep last week when national pump prices averaged $3.78 a gallon.   On an individual state basis the highest prices are in progressive utopias California ($4.25 a gallon), New York ($4.01), Hawaii ($4.35) and the District of Columbia ($4.00) where tight supplies, limited competition, burdensome regulatory requirements, high taxes and anti-consumer policies prevail.   The President need not pay much attention to notice that even when “world” market oil prices are quoted they are typically broken down into two – West Texas Intermediate Crude and Brent Crude Oil, currently $93.36 a barrel and $114.26 per barrel, separated by more than 20 percent difference, not the single, unified, holistic price Obama wants you to believe.  The third most frequently quoted international reference price is the “OPEC Price Basket,” which is itself actually a composite of 12 distinct crude oil prices prevailing in the various OPEC countries.  The next time Obama spouts off on "the world oil price," remember, he is belying his own Energy Information Administration, which publishes no less than 29 different first-purchase domestic crude area prices.  When anyone says or implies there is nothing but a world oil price, or asserts prices are unaffected by local supply and local conditions, it's liar, liar pants on fire.

2.      Keystone Pipeline Oil Will Be Exported.   I don’t doubt that some of the oil transported by Keystone XL will be processed for export, almost certainly a very large share during the pipeline’s early years.  But I have been around long enough to remember the same clarion call from the anti-energy, progressive crowd when the Trans-Alaska pipeline was planned.  The progs said don’t build the pipeline and despoil the environment because the crude oil will be loaded onto tankers and transshipped to Japan (the big fear then was being taken down economically by Japan, just as many fear economic Armageddon via China today).  At various times during the Alaska pipeline’s existence petroleum flows were exported.   But by 2004 exports ceased.   Over the 36 year existence of the Tran-Alaska Pipeline, only 2.7 percent of Alaskan crude has been exported.  It’s quite normal for supplies to exceed what is needed locally during the early years of a pipeline project, resulting in exports.   But it is also common for a new source of supply, as it matures, to substitute for other domestic supply sources that wane over time.

Rich Activists Without Real Jobs
Chained to White House Fence
3.      Exported Oil Has No Beneficial Impact on US Petroleum Markets and Prices.  It is axiomatic that market prices depend not only on the current supply stream, but also the cost and availability of close substitutes.  It is difficult to imagine a closer and more cost competitive substitute for domestically produced oil and gas than domestic oil and gas.  Even supplies that are exported will have a dampening impact on US domestic prices.    Furthermore, those exported supplies would be available domestically, providing energy security, in the event of a crisis and will serve future domestic needs.

4.      Exported Oil and Gas Have Little or No Beneficial Impact on the US Economy or Employment.   The pipeline industry directly employs 44.3 thousand workers, who are very well paid ($37.62 per hour) and heavily in demand (43.1 average weekly hours).   Including the impact of contractors, construction and demand multipliers, the pipeline industry supports hundreds of thousands of jobs.   Keystone XL will not exclusively transport Canadian oil.   A portion of the oil transported via Keystone XL will be domestically extracted, helping to secure employment in the extraction sector, which employs close to 200,000 people directly.   Keystone Pipeline Oil will be refined in the US.   Refining is another big value add.  Another 100 thousand plus people are directly employed in high wage refining jobs.

Let’s give a big OK to the XL.
Barack Obama Promoting His None of the Above Strategy

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