Are you comfortable using Canadian energy?
If you live in the Northeast, there’s a good chance that at least some of the time your life is running on Canadian electricity. Canada also provides a growing chunk of American petroleum imports — about as much as Saudi Arabia and Venezuela combined.
Canada’s energy industry says their exports are an “ethical” alternative to oil from the Middle East, and from other parts of the world where environmental laws are far less stringent.
But many green groups say Canada is paying far too high a price in environmental degradation, with the flooding of vast river valleys for hydro power in northern Quebec, and the sprawling tar sands development in Alberta.
The latest flashpoint is the Keystone XL pipeline, which would accelerate oil imports from our northern neighbor.
So what do you think? Is this a good relationship? Is the price too high? If so, what are the alternatives? As always, your comments welcome.
Tags: canada, economy, energy, environment
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I’ve never understood why Canada doesn’t just build their own refinery for their tar sands and then sell us the oil.
To build on what PNEIba said, or why US Refiners don’t build a refinery in Canada close to the source. Piping the oil all the way to the Southern US only to truck the fuel oil and gas back North (where most is used) seems terribly inefficient.
In answer to the title question, I’m no more bothered by using Canadian energy than any other. Given the population growth in my lifetime (6 decades+) and our energy dependent lifestyle I don’t see any way that we can avoid using energy from outside our borders. Is the price too high (environmentally)? Yes, but we’ve been there for a long time and no one, neither politician, energy producers or consumers, are showing any significant willingness to alter the situation. I try to be as energy efficient as I can but I can’t make much of a dent.
I don’t recall the details but I heard on NPR yesterday that the US is both an importer and exporter of oil, that we are producing more oil than we need but import to the North East because the pipelines coming from the Texas area can’t meet the demand on the east coast and some of that oil is shipped to South America.
PS I also understand with have a shortage in refining capacity.
c’est la vie.
Hi guys –
The closest potential sites for a Canadian refinery port are on the West Coast, on the opposite side of the Canadian Rockies.
Building a pipeline through the mountains would be prohibitively expensive and technically challenging — on par with the trans-Alaska pipeline.
The idea of a refinery port and heavy tanker traffic off the coast of British Columbia is also deeply unpopular with Canadians in cities like Victoria and Vancouver.
(Right now I believe tanker traffic in some parts of Canada’s coastal waterways is actually banned…)
So industry experts say it’s much cheaper to simply run a pipeline over the relatively flat terrain of the plains and the Midwest to existing refineries on the US Gulf Coast.
–Brian, NCPR
If we don’t buy oil from Canada will that mean the demand for US oil will go away?
Badly written (as usual). What I meant to say was, if we don’t import Canadian Oil, will our demand for oil stop?
Unless we reduce our demand for oil I don’t understand what the issue is with where we buy that oil?
Its like the war on drugs, the problem is not the suppliers the problem is our insatiable demand.
Jim says “Is the price too high (environmentally)? Yes but we’ve been there for a long time and no one, neither politician, energy producers or consumers, are showing any significant willingness to alter the situation.”
Jim, the only way to alter consumer behavior is to let the economic cost climb to the point where consumers stop buying gas-guzzling SUVs. Worked in the seventies (and this time Detroit is in a bit better position to handle the switch, and Japan will be saddled with a lot of gas-hogs too).
Mervel, it’s a straightforward market-based solution: if demand is too high, raise the price.
Mervel, according to that story I caught part of on NPR (I think it was on “On Point”) we have reduced our demand for oil.
I read that the oil that will travel through this pipeline would be destined for export to Asia. It won’t have any impact on our energy costs here.
Now we hear that we have a glut of natural gas. Has this caused our prices to drop dramatically? No. Our energy prices are controlled by something other than the “market”, or at least by forces within the market that will pursue peak profits no matter what’s happening down here.
TTMike –
It’s true that once the oil is refined, it will flow into world oil markets. It will go wherever the highest bidders are. However, I think it’s safe to say that if there is ever a world oil crisis — the kind of Middle East meltdown that keeps planners and politicians up late at night — there would be a very strong likelihood of Canadian oil being diverted to feed US consumption before going overseas.
So this cuts both ways. I think it’s fair to say that Keystone won’t lower gas prices. On the other hand, it probably does contribute somewhat to America’s “energy security” situation.
Brian, NCPR
Building a pipeline through the mountains would be prohibitively expensive and technically challenging — on par with the trans-Alaska pipeline.
I don’t see how this is a USA problem. They want to export oil, they should build a pipeline in their own country.
The idea of a refinery port and heavy tanker traffic off the coast of British Columbia is also deeply unpopular with Canadians in cities like Victoria and Vancouver.
Well we wouldn’t want to inconvenience Canadians with possible pollution problems. And, who really cares if the Ogallala aquifer is put at risk?
Is the issue the specific environmental problems with the XL pipeline; or is the issue that we don’t want to import oil from Canada due to the very dirty nature of the way oil shale is extracted in Alberta and that it will increase carbon in the air overall?
Mervel:
I think the answer to your question is, “It depends on the timing and the audience.”
If the pipeline “line” is working, stick with it. If it isn’t, move on to the extraction issues. Sometimes, you can use both.
“I think it’s safe to say that if there is ever a world oil crisis — the kind of Middle East meltdown that keeps planners and politicians up late at night — there would be a very strong likelihood of Canadian oil being diverted to feed US consumption before going overseas.”
Using that logic, we could make arguments for all sorts of things.
It is hard to justify something like this based on a worst case scenario world crisis that is less than inevitable.
Most of that oil will be exported that is why it is being piped down to where the refineries are and the established shipping ports are. We have been reducing our consumption and coming up with alternatives. Now we are on the verge of exporting more oil than we use. Brace yourself, the oil refiners are getting more money for exports than domestic. We compete worldwide for energy so the more we produce the more that will be sold. The Oil companies don’t really care who they sell it to as long as they pay. Just remember that the Oil companies are multinationals corporations not domestic corporations.
A refinery doesn’t HAVE to be built at a port to ship it overseas. There could be swaps where the mid west and northeast could buy refined Canadian oil from a new refinery in Canada in exchange for Gulf Coast oil being shipped around the world.
Until recently there has not been a problem of refinery capacity, but large refineries have recently been shut down by companies that claim the old refineries aren’t efficient enough. Funny thing is that those refineries have been able to produce plenty of refined product up until now. What? Don’t they do maintenance and upgrading on a regular basis? So the price of refined products has been rising at a faster rate than the cost of crude. As all the arm-chair economist already know, the way to get the price to rise is to create a scarcity. Closing refineries creates a scarcity.
There is also the problem of speculation. It is easy enough to say “golly, the Iranians are going to cut off our God-given flow of oil” and speculate that the price will rise. And so it does as long as everyone else does the same thing. And they will because it is a good ruse to make a pile of money off the backs of ordinary people.
But I think it is more cost effective and efficient to build a new pipeline than it is to build a new refinery.
For me as someone from that part of the country, the importance of the Ogallala aquifer to that region and really the whole US cannot be overstated.
http://www.waterencyclopedia.com/Oc-Po/Ogallala-Aquifer.html
“Mervel, it’s a straightforward market-based solution: if demand is too high, raise the price.”
To do this and avert a disaster you need to have an alternative ready. We have no such thing.
Demand is dropping (at least temporarily). If the price is rising that means it is a supply issue. That is what we have now. There is fear in the market that supply will be interrupted and also we cannot get the product to the places that have the highest demand.
Also (I know many folks don’t like it) gasoline isn’t a luxury item. The folks at the lowest income will again be the first ones to suffer with rising gasoline prices.
Natural gas powered vehicles are one alternative that doesn’t have all the supply side issues.
“Natural gas powered vehicles are one alternative that doesn’t have all the supply side issues.”
That depends upon who you believe with regard to the actual amount of Natural Gas both here and abroad. Click the below link to get some insight into how the Natural Gas boom of late could in fact be a bust. I’m not saying I believe it’s entirely hype, but it is an interesting perspective on the supposed recent boom regarding what some consider a “greener” fossil fuel:
http://www.rollingstone.com/politics/news/the-big-fracking-bubble-the-scam-behind-the-gas-boom-20120301
The other issue is the jobs and economic activity created by the energy industry. Increasing refining capacity in the US from an economic standpoint is a good thing; becoming a net exporter of oil and natural gas from an economic standpoint is a good thing.
We need water also though and I don’t trust these guys to protect our water resources. Just build the pipeline in such a way as to avert the worst if there is a major leak or even a series of minor leaks.
I have no idea what the safety record is on large oil pipelines?
Clapton, agreed. There are challenges even there. The trick is to find some kind of alternative that can be used in vehicles pretty much the way they are designed now. What you are talking about here is just buying time till you can develop and especially implement new and better alternatives.
NG isn’t necessarily the answer just a reasonable piece of the puzzle.
Clapton, Not sure what is available but I do have a “spigot” right outside my house so at least that part of the supply chain is already worked out.
“…if there is ever a world oil crisis … there would be a very strong likelihood of Canadian oil being diverted to feed US consumption before going overseas.”
Brian, if there is ever a world oil crisis, oil will be available at a high price to whoever is willing to pay it. It won’t really matter where it’s coming from.
“Demand is dropping (at least temporarily). If the price is rising that means it is a supply issue. That is what we have now.”
Paul, there is a lot of evidence that it’s as much a speculation issue as a supply issue. Yes, there’s some justification for speculators to jack up the price, but they’re always very quick to raise it and very slow to lower it. In short, people are making a ton of money on more or less manufactured “uncertainty.”
Yes I agree walker, we have one international oil market there is not “US” oil or “Canadian” oil etc.
The international market sets the price. So if there is an oil crises, the price of oil will be really high and that is that, oil itself will simply be sold on the open market as it is now.
The fact is oil producers NEED oil consumers more than consumers need producers. Consumers have options, more limited than we like maybe, but oil producers only have one product. I think WE should block the Persian gulf to show OUR power as a consumer nation who does not need oil, we could absorb the price shock and our oil producers would sell more at higher prices.
“In short, people are making a ton of money on more or less manufactured “uncertainty.””
Walker you have to help me with this one? Not quite sure what you mean. There is certainly plenty of real uncertainty right now.
But yes prices always drop slower than they rise.
As far as a world oil “crisis” it is always a very near possibility. With oil I like the bathtub analogy. The oil is always leaking out the drain just about as fast as it is flowing in. If you tweak open the drain or squeeze slow the tap things change very quickly. If you have a problem at both ends then you have a “crisis”. A war with Iran would be devastating to the economy. Bombing targets in Syria would also not help the economy right now.
Being dependent on Canada is a far better option that being dependent on China like would be the case if we don’t find other sources for rare earth elements that are required for the alternative sources we are working on now like solar and wind power. At least with oil you are not stuck with one country controlling 90%. As far as the lithium we need for batteries for things like hybrids I think it is one South American country that is sitting on that stash. Energy policy cannot be done by the seat of the pants.
Paul, surely you know by now that markets do not behave perfectly rationally. Oil speculators know that oil prices are supposed to rise when news that threatens the stability of a commodity occurs. Of course, being quick to raise prices is good for profits, especially if everyone develops lighting-fast reflexes. Being slow to lower prices is good for profits, especially if everyone is slow to lower prices. Being hyper-sensitive to “bad news” is good for profits, especially if everyone is hyper-sensitive to bad news. So, unsurprisingly, that is how everyone acts.
See http://www.huffingtonpost.com/2011/04/29/gas-prices-your-pain-their-gain_n_855673.html
And http://www.huffingtonpost.com/2011/05/12/exxon-ceo-wall-street-oil-prices_n_861326.html
And http://www.forbes.com/sites/robertlenzner/2012/02/27/speculation-in-crude-oil-adds-23-39-to-the-price-per-barrel/
On this “crisis” thing…The looming crisis in Iran worries me. It seems like a womped up argument in the first place. Who are we do decide that it’s OK for India and Israel to have nukes, but not Iran. Last I checked, Israel was the most belligerent mid-east state after Libya. The situation between Israel and Palestine destabilizes the entire region.
The US. and Russia have done much over the last few years to reduce the nuclear stockpiles. Maybe It’s time for Israel to reduce too.
Then there’s the possibility of restricted oil flow through the Strait of Hormuz. Endless sanctions against Iran certainly don’t make for easier communication, and only fuel the expansion of anti-American rhetoric among the people in the region. It’s bad enough that their president is a donkey, but the people of Iran have long been friendly in the west.
Allowing this to escalate has been on of Obama’s worst moves.
The reason Iran wants nukes in the first place is that they see the actions of the US and Israel and to a small extent Pakistan and existential threats. We have misplayed our hand in our dealings with Iran.
I know, I know, the right wingers are going to roll their eyes and say “but the Iranians are crazy, you can’t trust them.” But, in fact Iran is a signatory to international treaties regulating the use of nuclear power and the development of nuclear weapons while our ally Israel is not. Iran allows inspections of its nuclear sites while Israel does not. Israel wont admit to having nukes even though everyone knows they have them.
From their point of view it is the United States that does not have a consistent set of standards.
I wish people would stop deluding themselves into thinking Israel is an ally.
Remember the USS Liberty!
Israel has been a constant pain in the butt. If anyone should defend Israel, it should be the English who created it and the ensuing mess with the Palestinians.
I agree tootight, I mean today if a country has the money and the desire they are going to get a nuclear weapon. Iran IS going to get a nuclear weapon if they desire, it is a matter of what they want to do.
Militarily there are no options anyway. Sure we and Israel could bomb them so what, that may set them back a couple of years, it may also make them buy a nuke from our good friends in Pakistan. Bombing does not always work. So then if bombing does not work we could invade them and fight a giant war. Now lets see we couldn’t change Afghanistan with a ten year occupation; a country of medieval tribes, how long would Iran be, 20, 30 40 years of occupation?
I would rather let them have a nuclear bomb.
Walker, I think right now is an strange time for folks trading in oil. Usually you could always be pretty sure that oil prices were going to rise in the future so it was pretty straightforward business. Now it is very hard to know what will happen. Prices could continue to rise but they could also drop considerably with a few quick changes or based on some long-term trends. I tend to disagree that there isn’t a large percentage of genuine uncertainty in that market.
Walker, thanks for these articles. They define well the effect of speculation on the markets. But I think that the basis for that speculation is mostly founded in reality rather than “manufactured” as you suggested earlier. If that were the case the speculators that sense that prices are going to fall based on the fact that the threats are not real would take short positions (they talk about Soros doing that in the Forbes article back in 2008). That is how the market works. Right now you have more traders that think the threats are real. Hence the higher prices. Hopefully they are wrong.
Is it possible in a very large trading house to have it both ways? You take the quick gains on the way up with your own money and you use small investors’ money to soak up the risk on the way down.
knuck, don’t quite understand the question. What do you mean “your own money” investment firms do everything with investor funds? You certainly can use investors money to do both. The object is to try and make a net profit? It is called hedging. Lots of investors what their brokers to do this for them, especially large pension funds and the like.
want not “what”, sorry.
It wouldn’t be unheard of for the heads of the big financial firms to bet one way with their personal money and bet the other way with the funds of small investors.
Paul, when was the last time you heard of oil companies or oil speculators losing money? Doesn’t that tell you what you need to know?
Walker, oil speculators lose money every day. Some lose big.
Paul, you’re right, I’m sorry, I’m shooting my mouth off on a subject I know too little about. A good link on the subject: http://seekingalpha.com/article/269036-in-defense-of-oil-speculators-no-really
But then there is this piece by Matt Taibi on bubbles generally and the oil bubble specifically. The link is to the 5th page of the piece; skip down half a page to “BUBBLE #4 $4 a Gallon.” The oil argument just goes to the end of the next page. See what you think…
http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405?page=5