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By EK Hornbeck
On November 10, 2011, the US announced it would defer approval of the Keystone XL pipeline, citing the need for further study of the project's environmental impact — a decision with major economic consequences for Canada and the Alberta oil sands. For some perspective on what the Keystone XL decision means, 20/20 turned to three analysts for their thoughts
Christopher Sands, Hudson Institute:
Christopher Sands, senior fellow at the Hudson Institute in Washington, DC, predicts that Keystone will be approved in the end. "I would expect President Obama to approve Keystone XL after the 2012 election, perhaps claiming that TransCanada's decision to re-route part of the pipeline as a political victory that wouldn't have been possible without his decision to delay approval. Or a Republican will win in 2012 and approve the project."
Sands sees some lessons in Keystone for Canadian companies. "CME members should realize that when it comes to infrastructure decisions in the US, these decisions are highly localized. That means local interest groups can be key" — even ones that appear small, like the Nebraska land-owner groups that loomed so large in the Keystone XL debate.
Sands' advice: "Don't underestimate these groups. Don't underestimate their ability to unite with people concerned about different, but linked, issues around a project like Keystone XL, and use opposition to that project to raise money from donors, to build up their influence over political decision-makers, etcetera From an activist's perspective, Keystone involves oil, pollution issues, water and air quality, farmland, the possibility of effects on the habitats of endangered species — that is to say Keystone XL touched on a constellation of issues around which you can construct a strong coalition. And no one should underestimate the sympathy that some political decision-makers (President Obama would be one) feel for community or coalition activism."
"A Canadian company that is making a major investment in the US needs to be sensitive to the coalition of interest groups involved in issues around that investment. You have to monitor those issues. You have to manage them. And you need to be out there until the project is complete. Don't dismiss what some want to call political ‘noise,' when it may be serious ferment. It's a cliché, but don't assume that people will come around to doing what you think is in their best interest, without you engaging with them to make your case."
Alan Alexandroff, Munk School of Global Affairs, University of Toronto:
"The reality of this decision is that the Obama Administration wanted to avoid a political problem as it enters into a new political cycle, and American voters begin to turn their thoughts to the 2012 elections," says Dr. Alan S. Alexandroff. Dr. Alexandroff is director of the Digital20 Project at the Munk School of Global Affairs, the University of Toronto.
He continues: "During the 2008 campaign, the Obama camp had a strong focus on green energy and climate change. However, it has little to show environmental groups, in terms of accomplishments, as it goes into 2012 — so this Keystone decision was a good way to solve a political problem, by delaying making a final decision on the pipeline, and astutely appearing to address environmentalists' concerns. But even environmentalist groups acknowledge that the Obama Administration has only delayed a final decision."
Following the Keystone XL decision, members of Canada's pundit class mused how this country could retaliate by simply redirecting its energy exports to Asia, away from the US. This overlooks some practical issues, Dr. Alexandroff observes. "There has always been a vein of policy discussion in Canada, not only in the oil patch, that emphasizes the need to ‘become less dependent in the US as a market.' This goes back decades. But the US, because of its size, remains Canada's primary market, in the eyes of many Canadian companies (and foreign-owned companies in Canada). This is difficult to shake, for a variety of reasons."
"So I don't think there is any hard reality to the statements out there that the Keystone decision is like a starting pistol going off to herald a sudden economic shift in Canada away from the US to Asia. Think of how cautious Canada can be around questions of foreign investment and foreign takeovers. Think of how long it took to craft the recent trade deal with South Korea. The talk about building pipelines to the west and looking to Asia seems very sensible, but let's not overlook the practical and political difficulties involved."
Daniel V. Kish, Institute for Energy Research:
"When you add it all up, by every measure, there's no reason for the US not to approve the Keystone pipeline," says Daniel V. Kish, senior vice president, policy, at the Washington, DC-based Institute for Energy Research. "One thing this decision is not going to do is stop Canadian oil sands production. That is the goal of the opponents of the pipeline — the people behind the demonstrations, and their surrogates in Congress and the Obama Administration. But Canada's oil sands will continue to develop. The investments into the oil sands will continue — they will be made either by people who want to sell the oil to the US, or who want to sell it to China. Who will benefit from the energy production that flows from the oil sands — that ought to be the question that is front and centre in President Obama's decision-making process."
Kish points to the State Department's 2008 National Interest Determination document on the oil sands (see sidebar), which lays out how the oil sands development will help address US energy needs. The case for the oil sands development is even stronger today, Kish says. "When it comes to development of energy resources, there is no other place in the world where the US benefits more from this than in Canada. The demand in the oil sands for engineering expertise, for specialized workers, for materials and for equipment all helps the US.
"The logical thing would be for Americans to feel that the oil sands represent one of the luckiest breaks we could ever have, given how our reliance on overseas energy has increased since World War II. The oil sands are helping reverse this."
That is one reason why Kish says the Keystone pipeline decision represents "an exotic and troubling approach taken by President Obama to foreign policy and to relations with Canada — a neighbor, an ally, a friend with whom the US has shed blood in the defence of freedom."
As for President Obama's December 7 vow to veto any Congressional effort to overturn his administration's decision on the pipeline, Kish cites the White House's threat as proof that when it comes to the US debate over the pipeline, "this is far from over."
The addition of crude oil pipeline capacity between [Alberta] and the United States serves the strategic interests of the United States for the following reasons :
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It increases the diversity of available supplies among the United States' worldwide crude oil sources. Increased output from [Canada] can be utilized by a growing number of refineries in the United States that have access and means of transport for these increased supplies.
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It shortens the transportation pathway for a portion of United States crude oil imports. Crude oil supplies in Western Canada represent the largest and closest foreign supply source to domestic refineries that do not require marine transportation.
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It increases crude oil supplies from a source region that has been a stable and reliable trading partner of the United States and does not require exposure of crude oil in high seas transport and railway routes that may be affected by heightened security and environmental concerns.
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It provides additional supplies of crude oil to make up for the continued decline in imports from several other major US suppliers.
SOURCE: US State Department's 2008 National Interest Determination
document on the Keystone XL pipeline
