It's Alive!

Jim Brown
 
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The proposed Keystone XL pipeline came back to life on Friday after a government study found its impact on the climate would be minimal.

The $5.4 billion dollar pipeline project has been delayed for five years because the Obama administration has refused to approve it on the grounds it would be damaging to the climate. President Obama received a lot of donations from environmentalists and he has gone out of his way to delay the project under the guise of further studies are needed.

That stance suffered a blow on Friday when the U.S. State Dept found the Canada-U.S. oil pipeline would not greatly increase carbon emissions because the oil sands in Alberta would be developed anyway.

The study found that the construction of the pipeline itself would represent minimal environmental risk and would provide much needed jobs during the construction process. The report says 42,100 direct and indirect jobs would be created for the 2-3 years of construction. More than 3,900 construction workers would be involved. More than $3.4 billion would be added to the economy during construction.

Once built the pipeline would present a negligible environmental impact. The big complaint by the environmentalists was the increased pollution caused by the oil sands development in Alberta and by the burning of the Canadian oil in the U.S. as gasoline and diesel.

Obviously the argument had little basis in fact. If the pipeline was cancelled Canada already has plans to build a pipeline to the coast where the oil would be offloaded onto tankers and shipped to China and Asia. With or without U.S. involvement the oil sands would be developed so not doing the Keystone pipeline would have no effect on whether the oil sands would be developed.

On the second point concerning additional pollution from using the oil in the U.S. there is even less reason attached to the complaint. The U.S. refines and consumes 19 million barrels of oil per day. The oil we import is just over 8 million barrels per day and the majority of it is heavy oil with a high sulfur content from places like Venezuela. The Canadian oil has a lower sulfur content and would produce less emissions during the refining process.

We are going to import 8 mbpd every day. If it is not from Canada it will be from somewhere else. Not importing oil from Canada by pipeline means we import it from overseas by tanker and that involves risk to the Gulf of Mexico of a tanker accident capable of spilling two million barrels into the Gulf.

If there are two filling stations on the corner next to your subdivision it does not make any difference to the climate which one you choose. The emissions from your car will be the same. If one station closes the other will simply get more business.

If we don't import from Canada the overseas importers will simply get more business. Some of the people we import from don't like us. Why should we give them our money when Canada is a friendly neighbor and the oil pipeline in the center of the country is not a security risk. Tankers can be sunk or diverted at any time as we saw with the Arab oil embargo in the 1970s. Importing waterborne crude is a security risk. Importing Canadian oil by underground pipeline is a strategic asset.

The entire pipeline approval process is a disgrace. President Obama has delayed the approval of the pipeline for five years. In less time than the administration has been holding up the approval we fought and won WWII. Japan bombed Pearl Harbor on Dec 7th, 1941 and Japan surrendered on September 2nd, 1945. In less than four years the U.S. declared war, built tens of thousands of tanks, ships, planes, fielded a fighting force of 12 million men half way around the world and developed the atomic bomb and forced Japan to surrender.

Tony Gutierrez/AP Photo

Not only will the pipeline allow imports of oil from Canada but it will also transport oil from the Bakken and other shale fields in the Midwest. The 36 inch, 875 mile, 830,000 bpd pipeline would run from the Montana border to Steele City Nebraska. The state of Nebraska determined it would receive $134.6 million in annual taxes from the pipeline. Other states would also receive substantial benefits from its construction and operation.


Having a stable source of oil from the pipeline would also reduce crude prices in the USA and that means lower fuel prices for consumers. Waterborne crude is expensive crude with Brent prices running $10-$15 more than WTI.

The oil imports that will be most susceptible to being replaced come from Venezuela. That country is aligned with Iran and OPEC and hates the USA. By importing 1.4 mbpd of oil we are sending them $147 million per day to support their socialist economy. If they were forced to ship their heavy sour crude to buyers on the other side of the world they would receive far less in proceeds since their oil is less desirable and transportation overseas is expensive. Not having U.S. dollars flowing in would further complicate their socialist goals.

We import a lot of oil from Mexico. Over the last 7 years imports from Mexico have declined from 1.6 mbpd to 900,000 bpd because of declining production in that country. We need another source of pipeline oil to replace that lost production.

As you can tell I am a firm believer in the Keystone pipeline and the benefits of importing secure oil from Canada rather than insecure OPEC nations. I lived through the Arab oil embargo and waited in block long lines for gasoline. I do not want to do that again. Not approving the pipeline is a stupid political move and should be seen as such.

The neutral report by the State Dept puts the ball squarely in Obama's court. After a 90 day comment period the president must decide whether the project is in the nation's best interest. "The administration would be hard pressed to find that it was not in the national interest" according to Goldwyn Global Strategies, a Washington based energy consultant group. The study has left Obama with few options to delay it further. The White House said Obama would make a decision "only after careful consideration."

In a June speech Obama said he would not approve Keystone if it would "significantly exacerbate the problem of carbon pollution." The State Department report said climate impact would be minimal and would not significantly increase carbon emissions. That leaves Obama few options for denying the application.

Market

The major indexes closed near their lows for the day and at the lows for the year. That is not a good sign for next week. If the current support at 1,775 on the S&P and 15,700 for the Dow were to fail it suggests we could be headed for a full -10% drop. That puts the Dow target near 14,750 and another -1,000 point drop.

The emerging markets currency crisis could be long lasting and this is making investors nervous. Add in the fact that 59% of S&P companies that have reported earnings warned on future guidance and the outlook is far less bullish than a month ago.

If the January barometer is accurate we have a rocky year ahead. As January goes, so goes the year.

Beware long positions below 15,700 and 1,775.

Jim Brown

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