Keystone Pipeline: 'Just Say No' Could Mean $7 a Gallon at the Pump

U.S. Imports of crude oil by country

Route of the proposed Keystone XL pipeline

Consumer studies by researchers at Harvard’s Belfer Center for Science and International Affairs suggested a year ago that in order for the Obama administration to meet their target to cut greenhouse gas emissions, Americans will soon be spending $7 per gallon. That day may now come sooner than most Americans think.

The Opinion page of the Sunday April 3, 2011 edition of the New York Times (NYT) carried an editorial against approving the TransCanada Keystone XL pipeline, which was scheduled to transport crude oil from the Athabasca Oil Sands in northeastern Alberta, Canada to refineries in Illinois, Oklahoma, and to the lucrative U.S. Gulf Coast by the end of 2012.

The NYT editorial is in line with the Obama Administration agenda, but will ultimately be bad for fuel consumers by hitting them where it hurts; right in their wallets, while benefiting alternative energy producers with better economics.

The following chart above this article was obtained from the EIA website shows the top 15 countries of petroleum imports of the U.S. where Canada ranks number one with increasing volume from 2010 into 2011.

This increase in imports shows the importance and U.S. reliance on Canada--the friendly neighbor to the north--to replace the more volatile crude oil supplies from countries in the MENA (Middle East and North Africa) region. Imports of petroleum products from Canada for the period from August 2010 to January 2011:

Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11

76,988 74,251 72,698 75,313 84,092 87,619

The Keystone XL pipeline, an expansion project that would raise the line's capacity by 500,000 barrels of crude per day, has already been approved by various state agencies in the U.S. through which it runs.

Two major obstacles to receive the necessary rights of way were eventually overcome with, at times, heavy negotiations. The first obstacle was the local crude oil producers obtaining ramp access into this pipeline for crude oil currently being hauled by rail car and trucks to refineries for processing into gasoline and other fuels. The second one was meeting with constituents in each of the areas being affected with their concerns not only about the interruption of their daily lives, with a massive construction project, but also by ongoing operational problems with the pipeline after it is completed.

The current administration’s Department of Energy now says the pipeline will have a minimal effect on prices since there is already sufficient pipeline capacity to double United States imports from Canada. They are thereby affirming President Obama’s campaign promise of making the U.S. less reliant or needing additional imports of crude oil.

The proposed Keystone XL pipeline will cut across the Bakken and Three Forks oil shale fields from Saskatchewan into Eastern Montana, through South Dakota, Nebraska and Kansas ending up at the major crude oil terminal hub of Cushing, Oklahoma. North Dakota, Montana and other state governors became involved early on in the approval process and addressed local environmental and right of way concerns.

TransCanada executives met with various private and public officials and hammered out agreements to have local oil producers gain access to this much needed pipeline to make the shipping of crude oil more economical for US domestic oil producers. In some cases, due to the lack of takeaway capacity, crude oil is being sold at $10 a barrel discount off the WTI crude oil posting, which is one of the main reasons Wyoming, Montana and North Dakota currently have some of the lowest prices for gasoline and diesel fuel in the US.

The Keystone XL would greatly improve the transportation logistic issues in the Bakken and Three Forks oil shale basins. None of the states involved have put up additional major objections.

Early this year, Secretary of State Hillary Rodham Clinton initially came out, after the State Department report was issued, and said she was “inclined” to support the project. However, after criticism from environmental and alternative energy groups she called for additional environmental impact studies to be reviewed.

President Obama, in his April 2, 2011 Saturday morning radio address, said that even if we used every last drop of all the oil the U.S. has, it wouldn’t be enough to meet the long-term energy needs. So, real energy security can only come from energy efficiency and investing in cleaner fuels and greater efficiency.

The folly involved in President Obama’s approach comes from the fact that only $7 gasoline prices will ultimately justify the cost for those alternative energy projects. Meanwhile, they are supported by the taxpayers in the form of subsidies to the ethanol, solar and wind machinery manufacturers.

The Canadian government has been a staunch supporter of the Keystone XL pipeline project, and perhaps has an even greener approach to their environment and clean air issues than does the US.

The U.S. is now being boxed in from all sides on the energy front. Concerns about the future of nuclear energy, the instability of governments in oil producing countries in MENA, have all contributed to crude oil prices spiking to their highest level since September 28, 2008. What stands in the way of any major decisions to make the US energy secure are politicians not willing to make tough decisions in an orderly and efficient manner.

Meanwhile, the environmental organizations have been trying to block the Keystone XL pipeline at every turn even threatening court actions to stop the start of the construction. The State Department and the White House will have to make the final decision on Keystone XL, since it crosses the Canada-U.S. border.

But it probably will be the end of 2013 at the earliest to having any of the crude being shipped in the proposed pipeline, even if the approval is received from the Department of State by July 1, 2011. By then, there’s a good possibility that gasoline prices would be reaching a record high and the discontent from consumers will be at a fever’s pitch.

Crude oil – A bridge to our renewable energy future

The real story behind the Bakken Oil Formation

Dateline: Terry, Montana
July 13, 2009 1:00 PM MDT
By: Bob van der Valk

President Obama is being invited to spend some of his time in his own back yard to rub shoulders with the oil workers of Montana and North Dakota to check on their progress for increasing domestic crude oil production.

The President would be able to obtain greater insight on how to solve this country’s energy needs for the immediate future. Brett Smelser, owner of Border Steel and Recycling, who is the mayor of Sidney, Montana as well, would like to have a chance to speak to him directly about the local effort in making our nation energy independent. He is actively involved in his state’s effort about getting the message out on how to best develop the Bakken’s rich mineral deposits

Exploration for crude oil in the Bakken Oil Formation is rapidly being expanded and its output is expected to expand exponentially as long as oil prices remain above $60 a barrel. The U.S. Geological Survey (USGS) figures it could yield up to 3.65 billion barrels of recoverable oil with additional reserves possible using even more sophisticated and as yet not invented methods. It is the largest oil field in the continental U.S. but it does not come close to the roughly 60 billion barrels of existing proven reserves discovered in the North Slope of Alaska.

The President will learn that oil is the “Life-blood of America” and a national energy policy, not based on politics as usual, is urgently required. What would happen if we had another energy crisis occurs and the Organization of the Petroleum Exporting Countries (OPEC) decides to cut us off again? Our generation still remembers the days of gasoline allocation, even and odd days buying of gasoline and pulling up to the gas station behind the “last car in line” during two energy crises of the 1970’s.

The following map shows how much of the area the Bakken Oil Formation covers:

In addition to having been the mayor of Sidney since 2002, Mr. Smelser was appointed to the Montana Board of Oil and Gas Conservation by Governor Brian Schweitzer in 2007 and serves in his current term until 2011. He spoke to me about the need for cooperation between the different state and federal governmental entities involved in oil production since the area in which he lives and works, which straddles all the way from Eastern Montana to Western North Dakota.

The catch with President Obama’s current energy plans, to increase energy conservation as well as fuel efficiency gains, is that he has decided to pair that up with government intervention. This will reduce demand by installing a cap-and-trade, fuel tax or carbon tax, thereby any savings from efficiency gains will be taxed away or otherwise removed from further economic circulation and therein lies the rub. Crude oil will be more expensive to explore for and produce in North America, especially when compared to the Canadian oil sands.

We need to build a bridge to a renewable energy future in the U.S. Further exploration for domestic crude oil will be a crucial step in filling that gap. Some alternative energy projects may be as far as twenty years of away of getting on-line. By then we may be able to rely on wind, solar and hydro-power as a way to energy independence.

Mr. Smelser said that the first step should be to expand the capacity of crude oil shipping pipelines as well build at least one new refinery in the area. The local sweet crude oil is now trading at $10 discount from the West Texas Intermediate crude oil posted price, and more investments will be required to take full advantage of this domestic oil production.

The USGS estimates the Bakken possesses 3.0 to 4.3 billion barrels of yet "undiscovered, technically recoverable" crude oil and 1.85 Trillion Cubic Feet (Tcf) of natural gas. The formation is also estimated to hold 148 million barrels of natural gas liquids.

The current pipeline is overbooked and some oil wells have already been slowed down or shut down pumping completely until the infrastructure catches up to handling the overabundance of crude oil still in the ground.

This is the part of our country where the real work gets done to keep the oil flowing. The slogan “Get ‘R Done” is seen far and wide in what is commonly known as the Bad Lands. But that slogan will become a household word in the country and soon may be called “Persia on the Prairie”. The locals in Williston, North Dakota are more prone to using their own slogan, “Rockin the Bakken”; in showing enthusiasm for their new found buried treasure.

In between very modest homes and farms we are sitting on top of one the largest reserve of crude oil The underground Bakken Oil Formation stretches from Eastern Montana through North Dakota north to Saskatchewan and Manitoba, Canada and it is just now receiving the national attention it so well deserves.

The heart of the Bakken oil field, which contains three layers of shale, was formed when the area was covered with a relatively deep ocean. It is about two miles down with about two-thirds of the acreage located in western North Dakota. In the year 2000, the Elm Coulee oil field was discovered in the Williston Basin of Richland County, Montana and draws its oil from the Bakken Oil Formation.

This massive rock of shale was initially discovered as an oil source in the mid-1950s, but with extremely low porosity and permeability, it was almost impossible to exploit fully with conventional drilling techniques. At that time crude oil was going for less than $10 a barrel. Other methods were cost prohibitive with more sophisticated but more expensive and not yet invented methods being required.

A joint venture, of Exxon, Unocal and Tosco in Colorado first explored and developed crude oil from shale oil deposits in Colorado during the two energy crises in the 1970’s, quickly dissipated when the Reagan era of hands off policy on government controls on energy took hold.

Their site was located in Parachute, Colorado but was eventually shut down when the U.S. government decided to withdraw the subsidies being paid to the oil companies. The major difference between the Parachute and Bakken operation is the first used a “retort” and the latter “in situ" (meaning in its original form, undisturbed) for their oil shale recovery systems. In situ uses slanted drilling and “fractionation” extraction techniques to bring “Black Gold” up to the surface instead using the standard horizontal drilling.

By itself and without government support the development of oil shale into crude oil was uneconomical especially when the price of a barrel crude oil took another dive in the early 1980’s. But we are now in the affordability range once again with West Texas Intermediate crude oil around $60 a barrel.

The cost of exploring and producing crude oil from shale is still relativity higher compared than that of exploring for conventional crude oil, which can be brought up from underground for about $40 a barrel in even the most far away places in the world.

Perhaps in the year 2109 our future generation of kids will be shaking their heads in disbelief at our futile attempts to stay ahead of running out of energy while watching repeats on television of “Black Gold", "Deadliest Catch" and "Ice Road Truckers”. In their American History classes they will have to listen to lectures about how we used to transport our oil from the Middle East instead of exploring for it in our own backyard.

They will be shocked and awed just as we were when reading about our early pioneers, who actually churned their own butter and had milk delivered to their doors each morning.

Bob van der Valk resides in Terry, Montana and is the Director of US Branded Licensing with 4Refuel Inc. in Lynnwood, Washington and can be contacted at (425) 216-9072 or by email at bvan@4refuel.com and web site: www.4refuel.com.

Bob’s personal web page address is: www.4vqp.com/ourconsultants/thegasguy.html

Any views expressed in this newsletter are those of the writer, except where the writer specifically states them to be the views of the 4Refuel group of companies.