Keystone XL pipeline would add link in U.S.-Canada trade relations

At the remote border crossing north of here, two stern U.S. border guards emerged from their spanking new post to check passports. There wasn’t another person or car in sight. An uninterrupted sea of prairie stretched in every direction.

On the Canadian side, the nearest town is Val Marie, the entrance to Grasslands National Park and home to 137 people. On the U.S. side, it’s Loring, population nine — not counting the dog called mayor.

“The border is 16 miles away, and in between, there are 4,000 Angus cattle and 3,000 acres of farmland and that’s about it,” said Kenny Clark, a mechanic and oil worker who lives in Loring with his wife, two children and parents.

Soon, there might be one more thing: TransCanada’s Keystone XL pipeline. The company wants to run its controversial new pipeline not far from this outpost.

In its May 4 application to the U.S. State Department for a permit to cross an international boundary, TransCanada said it would run a 1.2-mile segment of steel pipe into Phillips County, Mont., traversing the first 0.93 mile on Bureau of Land Management land and the next 0.27 mile on state land.

If the U.S. government gives TransCanada the go ahead, the Keystone XL pipeline will give another boost to U.S.-Canada trade relations. Canada — not China — is the largest U.S. trading partner. And oil and gas accounted for more than a third of the $316.5 billion of U.S. imports from Canada in 2011.

The oil in TransCanada’s existing Keystone and proposed Keystone XL lines alone could outstrip the value of all U.S. imports from Brazil and, depending on the price, roughly equal those from France or Taiwan.

The United States is a natural destination for that oil. “The best market is the one right next to us demanding 10 million barrels of oil every day,” TransCanada chief executive Russ Girling said. “It makes no sense having tankers moving to the U.S. from Europe and the Middle East and tankers going to Asia from America.”

The large volume of oil moving to the United States from Canada is a good thing in the eyes of many U.S. experts on national security and oil industry lobbyists, who have been promoting the idea of increased U.S. reliance on North American sources of oil rather than on imports from places like Venezuela or Saudi Arabia. Canada is already the United States’ largest source of foreign petroleum, accounting for about a quarter of U.S. crude oil imports.

But reduced reliance on imports from outside North America would not insulate the United States from geopolitical crises in other oil-producing regions. When it comes to oil prices, the increased reliance on Canada will make little or no difference. The price of crude oil is a function of world supply and demand. And if a geopolitical crisis choked off some of the world’s oil sources, other consuming countries would scramble for supplies, and prices would soar globally, including the price of Canadian oil. The U.S. tab for importing oil would increase as a result.

Even so, many trade experts say, boosting U.S. imports from Canada is good for the U.S. economy because for every dollar of exports to the United States, Canada buys 85 cents’ worth of U.S.-made products. That includes goods such as U.S. iron and steel, automobiles, refined petroleum products, fruits and juices, plastics and the supersized Caterpillar dump trucks that haul away oil extracted from the tar sands of Alberta.

By contrast, Saudi Arabia buys 29 cents of U.S. goods for every dollar of U.S. imports from the kingdom.

Irritated Canadians

Despite the strong ties between the United States and Canada, the long battle over the Keystone XL pipeline has irritated many Canadian leaders and sparked talk about sending output from Canadian oil sands to China. TransCanada has been working on U.S. permit approvals for nearly four years, and has faced vociferous opposition from environmentalists and scientists worried about the unusually high level of greenhouse gas emissions associated with oil extraction from the tar sands.

During a February visit to Beijing, Canadian Prime Minister Stephen Harper courted Chinese participation in such an arrangement. China’s rapidly expanding economy is thirsty for crude oil, although its ability to refine such oil may be limited.

Chinese firms already own minority stakes in oil sands ventures. Sinopec is one of half a dozen partners in the pit operations of a venture called Syncrude and China National Offshore Oil Corp. owns 17 percent of MEG Energy, which is producing 25,000 barrels a day from a steam-injection project.

Contributing to Harper’s reoriention was President Obama’s decision to reject TransCanada’s initial permit application — which would have routed the pipeline through ecologically sensitive areas of Nebraska — because, Obama said, he could not evaluate the permit properly in the face of a congressional deadline.

“I think we need to be clear. As much as I want to see that Keystone project proceed, this incident underscores the fact it is in this country’s national interest to be able to sell its products beyond the United States,” Harper said in an interview with Reuters at the time of his China visit.

On the chance that the Keystone project fails, other pipeline companies are looking into alternative routes. The Enbridge pipeline company has proposed a 732-mile “Northern Gateway” line that would cross the rugged Rocky Mountain terrain and extend to Canada’s west coast for shipment in tankers that would have to navigate some dangerous shorelines. Critics have called it more of a pipe dream than a pipeline; the Enbridge plan faces a host of hurdles, including approval from Canada’s First Nation tribes and environmental concerns, especially in the wake of serious spills on other Enbridge lines.

On Monday, the U.S. Pipeline and Hazardous Materials Safety Administration slapped Enbridge with a record $3.7 million fine for its July 25, 2010, spill of more than 20,000 barrels of crude oil into Talmadge Creek, the Kalamazoo River and Morrow Lake near Marshall, Mich. Many people in the area were sickened by fumes. The agency, part of the Department of Transportation, also announced 24 enforcement actions against the company.

Last month, the Environmental Protection Agency reopened 34 miles of the Kalamazoo River and all of Morrow Lake for recreation, but the Morrow Lake Delta remains closed and Enbridge is still cleaning up.

The natural market

In any case, the United States is still the biggest, most accessible and most reliable market for Canada. Three-quarters of Canada’s exports go to the United States, and 60 percent of its imports come from the United States — because of the size and proximity of the U.S. economy.

“It’s cheaper to sell to the United States, just in transport costs,” said Stephen Gordon, professor of economics at Laval University in Quebec. “It doesn’t make a heck of lot of sense to be running oil over the Rockies to a port in British Columbia and shipping it to China while at same time the United States is bringing it in from Saudi Arabia.”

He added, “If we didn’t have to do it, we wouldn’t do it.”

With about 170 billion barrels of economically recoverable reserves in the oil sands, pressure to expand output and pipeline capacity there will continue over the long run. Trucks and rail transit, now being used in North Dakota, are not viable for the big volumes of oil from the remote sand. U.S. critics of the pipeline say a rejection of the Keystone XL project will at least delay oil sands development because of uncertainty about export paths.

Oil analysts say there is enough excess pipeline capacity from Canada to the United States to last at least until 2016 and perhaps longer. In addition to unused pipeline space, additional pumping stations can increase the volume of oil that can flow through existing lines by boosting the pressure in the lines. But proponents of Keystone XL stress limited choices.

“The only real question is whether the United States wants Canadian oil or do they want oil from somewhere else,” Girling said. “Will this cause U.S. consumption to decline? Will it delay the development of oil sands? No. It will increase greenhouse gas emissions because tankers to China use more” than a pipeline to the United States.

What’s good for Canada?

But is the Keystone XL pipeline good for Canada?

Thomas Mulcair, leader of the opposition National Democratic Party, said Canada is suffering from “Dutch disease,” a term coined by the Economist in 1977 when discussing the Netherlands’ shrinking manufacturing sector after the discovery of large North Sea natural gas reserves. The gas revenue drove up the Dutch currency, making the country’s manufactured goods too expensive to compete in the export market and vulnerable to cheaper imports.

Mulcair said that the expansion of oil sands production was having a similar effect on Canada. He said it has driven up the value of Canada’s currency, making Canadian manufactured goods less competitive internationally.

“Right now we think it’s measurable and confirmed by studies that we are losing the balanced economy Canada had built up since the Second World War,” Mulcair said in an interview. “We’re seeing the disappearance of manufacturing jobs that came with a good pension. It is something we’ve gone through in the last eight years.”

The Harper government responded by vilifying Mulcair, accusing him of insulting workers in the oil industry and of pitting one region against another.

“I am wondering when the leader of the Opposition will apologize to western Canadians for suggesting the strength of the western Canadian economy is a disease on Canada,” Heritage Minister James Moore said in the House of Commons. “He attacks western Canada. He attacks our energy industry. He attacks all of the West and the great work that is being done by western Canadians to contribute to Canada’s national unity. He should be ashamed of himself.”

Mulcair cites an economic study that attributed most of the appreciation in the Canadian dollar and a large chunk of manufacturing job losses to Dutch disease.

“It’s certainly been a contributing factor,” said Gordon, of Laval University. “It has contributed to a reduction in manufacturing employment. And since manufacturing is centered around Ontario and central Canada, there have been some regional frictions.”

The oil sands are concentrated in northern Alberta.

But Gordon added that the companies that “are losing are low-tech and low-wage and didn’t have hope of hanging on in a rich country anyhow.” He compared them to maquiladora plants in Mexico, the low-wage, low-cost assembly factories that sprang up near the U.S. border to take advantage of the North American Free Trade Agreement. He said Canadian manufacturers with particular advantages and healthy research and development departments are still doing well.

There aren’t any maquiladora plants at the remote border crossing where the Keystone XL pipeline would go if approved. Just rolling prairie on one side of the road and the national park on the other.

On the U.S. side, Kenny Clark drives 40 miles to Malta to buy groceries. The railroad no longer runs through here; the grain storage buildings are rarely used anymore. By having two kids, Clark jokes, he became responsible for a population explosion. He only managed to meet his wife because he was visiting friends in Billings who were going to college there with her.

“You think it’s bad going 40 miles for groceries,” he said. “Try going three hours for a date.”

Steven Mufson covers energy and other financial news.
SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, defaultsort=reverseChronological, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: {allow_comments=true, allow_photos=false, allow_videos=false, comments_period=14, comments_source=washpost.com, default_sort=, default_tab=, display_comments=true, is_ugc_gallery=false, max_items_to_display=15, max_items_to_display_top=3, moderation_required=false, stream_id=}!!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, defaultsort=reverseChronological, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Comments
SECTION: {section=business, subsection=null}!!!
INITIAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, defaultsort=reverseChronological, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!!

UGC FROM ARTICLE: {allow_comments=true, allow_photos=false, allow_videos=false, comments_period=14, comments_source=washpost.com, default_sort=, default_tab=, display_comments=true, is_ugc_gallery=false, max_items_to_display=15, max_items_to_display_top=3, moderation_required=false, stream_id=}!!!

FINAL commentConfig: {includereply=true, canvas_permalink_id=washpost.com/8bvh5zpd9k, allow_comments=true, commentmaxlength=2000, includeshare=true, display_comments=true, canvas_permalink_app_instance=m6yzjj840m, display_more=true, moderationrequired=false, includefeaturenotification=true, canvas_allcomments_id=washpost.com/km4ey0dajm, comments_period=14, defaultsort=reverseChronological, includevoteofftopic=false, allow_videos=false, includesorts=true, markerdisplay=post_commenter:Post Commenter|staff:Post Writer|top_commenter:Post Forum|top_local:Washingtologist|top_sports:SuperFan|fact_checker:Fact Checker|post_recommended:Post Recommended|world_watcher:World Watcher|cultuer_connoisseur:Culture Connoisseur|weather_watcher:Capital Weather Watcher|post_contributor:Post Contributor, childrenitemsperpage=3, includeheader=true, includeverifiedcommenters=true, defaulttab=all, includerecommend=true, includereport=true, maxitemstop=3, source=washpost.com, allow_photos=false, maxitems=15, display_ugc_photos=false, includepause=true, canvas_allcomments_app_instance=6634zxcgfd, includepermalink=false}!!
Show Comments
Most Read Business