August 28, 2011

When it comes to energy, America is lucky to be next to Canada, whose proven oil reserves are estimated by Oil and Gas Journal at 175 billion barrels. This ranks just behind Saudi Arabia (260 billion) and Venezuela (211 billion) and ahead of Iran (137 billion) and Iraq (115 billion). True, about 97 percent of Canada’s reserves consist of Alberta’s controversial oil sands, but new technologies and high oil prices have made them economically viable. Expanded production can provide the U.S. market with a growing source of secure oil for decades.

We would be crazy to turn our back on this. In a global oil market repeatedly threatened by wars, revolutions, and natural and man-made disasters — and where government-owned oil companies control development of about three-quarters of known reserves — having dependable suppliers is no mean feat. We already import about half of our oil, and Canada is our largest supplier, with about 25 percent of imports. But its conventional fields are declining. Only oil sands can fill the gap.

Robert J. Samuelson writes a weekly column on economics. View Archive

Will we encourage this? Do we say yes to oil sands? Or do we increase our exposure to unstable world oil markets?

Those are the central questions raised by the proposed $7 billion Keystone XL pipeline connecting Alberta’s oil sands to U.S. refineries on the Texas Gulf coast. The pipeline requires White House approval, and environmentalists adamantly oppose it.

To be sure, there are dangers. Pipelines do crack; there are spills. Susan Casey-Lefkowitz of the Natural Resources Defense Council reminds of recent spills of about 1 million gallons into the Kalamazoo River in Michigan and about 40,000 gallons into the Yellowstone River in Montana. Moreover, converting into oil the “bitumen” found in oil sands is messy. Some processes have required up to two barrels of water for every barrel of oil. Because energy use is also high, so are greenhouse gases. On a per-barrel basis, emissions have sometimes been double and triple that of standard oil production.

Environmentalists are outraged. They’ve made Keystone into a cause celebre. Sit-ins outside the White House have led to arrests. For President Obama to approve the pipeline would be regarded by his environmental supporters as a complete betrayal.

Actually, the reality is more complex. If Obama rejects the pipeline, he would — perversely — increase greenhouse gas emissions. Canada has made clear that it will proceed with oil sands development regardless of the American decision. If the United States doesn’t want the oil, China and other Asian countries do. Pipelines would be built to the West Coast. Transporting the oil by tanker to Asia would almost certainly create more emissions than moving it by pipeline to closer U.S. markets.

Next, oil sands’ greenhouse gases are exaggerated. Despite high per-barrel emissions, the cumulative total is not large: about 6.5 percent of Canada’s emissions in 2009 and about 0.2 percent of the world’s, according to Canadian government figures. More important, most emissions from oil (70 percent or more) stem from burning the fuel, not extracting and refining it. Here, oil sands and conventional oil don’t differ. When all these “life cycle” emissions — from recovery to combustion — are compared, oil sands’ disadvantage shrinks dramatically. Various studies put it between 5 and 23 percent.

By all logic, the administration’s Keystone decision — overseen by the State Department, which issued a final environmental impact statement last week — should be a snap. Obama wants job creation. Well, TransCanada, the pipeline’s sponsor, says the project should result in 20,000 construction and manufacturing jobs. Most would be American, because 80 percent of the 1,661-mile pipeline would be in the United States. Continued development of oil sands would also help the U.S. economy; hundreds of American companies sell oil services in Canada. Finally, production technologies are gradually reducing environmental side effects, including greenhouse emissions.

The real benefit would be a stronger strategic alliance between Canada and the United States. Canada’s oil exports now go almost exclusively to us. Our interest is for this to continue. From 2010 to 2020, oil sands production is projected to double, to 3 million barrels a day; most of that would be available for export. On paper, it might seem that Canada should diversify its oil customers. Not so. Canada’s prospects are so tied to ours that any narrow advantage of having more buyers would vanish if that weakened the U.S. economy.

The United States and Canada are each other’s largest trading partners and closest allies. Oil markets are subtly changing, as more countries — led by China — seek preferential access to scarce global supplies. In the future, security of supply may matter as much as price. The more we can reduce oil demand and increase supply stability, the better off we’ll be. On oil sands, we should just say “yes.”

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