Monday, November 7, 2011

Keystone XL and the Kaleidoscope Picture of Energy’s Future

On Sunday protesters from around the United States descended on the White House to protest the Keystone XL pipe line. The protesters represent several environmental groups that want President Obama to stop the pipeline. Last week, President Obama stated that he would be making the final decision on the Keystone XL pipeline himself. Jobs, renewable energy, environment, greenhouse gases, and energy security all come into play in this decision, and I would not try to guess the President’s mind on this. This decision is an important one in the new world we face.

We thought we knew what the world’s energy supply looked like. Peak Oil, the maximum global oil extraction rate would be reached at the dawn of the 21st century, at which time the rate of oil production would begin its terminal decline. After the 1970’s the U.S. had become dependent on the oil from the Middle East and Venezuela and this would be compounded by rising fuel prices, potential shortages associated with declining global oil supplies . The cost of everything would be increased by more costly energy. The decline of the chemical manufacturing sector (plastics, pesticides, herbicides) would be accelerated due to expensive base stock and high fuel costs reducing U.S. manufacturing employment and increasing food costs. The future of the United States was not a rosy one, but it is one we would share with the world and the positive side to this reality was the opportunity to make renewable energy sources economically competitive.

The bell ringing of that world view was the failure of the American Clean Energy and Security Act of 2009 or the Waxman-Markley bill. This bill would have established a variation of cap and trade similar to the European Union Emission Trading Scheme. The emissions cap under that plan would grow tighter over time reducing the amount of carbon dioxide that can be emitted in total and pushing up emissions prices and thus prodding industry to release less carbon dioxide by utilizing cleaner energy sources or increasing efficiency of the existing ones. Other provisions of that bill included new renewable energy requirements for utilities, studies and incentives for carbon capture technologies, energy efficiency incentives and penalties for homes and buildings, and grants for green jobs. The bill was approved by the House in June 2009, but died in the Senate, and was possibly the last stand of the world view that cap and trade can stop climate change on a planet with an ever growing human population.

The change in the world energy picture had started slowly in the 1990’s with the first deep water wells in the Gulf of Mexico and Brazil, but it has taken off in the last decade as a result of declining conventional fields, climbing energy prices and swift technological change. The Deepwater Horizon disaster and the political environment slowed the U.S. exploration and extraction in the Gulf, but did not stop it. Regulations tightened as the failure was better understood. Massive new oil and gas fields are being identified and exploited in the United States and around the world utilizing new technologies developed in the past decade or two. Some of the reserves have been known to exist for decades but were inaccessible either economically or technologically, others have been newly found as in Brazil, Israel, Norway, and Argentina. Regulations need to be tightened before large failures in drilling, fracking and extracting oil from sands.

The devastating earthquake and tsunami that struck northeastern Japan in March, 2011 resulted in extensive loss of life and infrastructure damage, including severe damage to several nuclear reactors at Fukushima Daiichi. This nuclear disaster has prodded the European Union, notably France and Germany to rethink their nations’ reliance on nuclear power. Both are sun-setting their utilities’ reliance on nuclear power generation. The newly available natural gas from shale, oil from deep water drilling and oil steamed from sands will replace nuclear power in Europe and extend the era of the dominance of fossil fuels for at least a generation and possibly a hundred years.

The Canadian oil sands have been known for decades, but until oil prices rose and technology improved they were too expensive to exploit. Technology and rising oil prices altered the economics in their favor and streamlined the refining process. Recovering reserves from deeper underground using steam injection, rather than mining techniques, has reduced the footprint of operations and environmental damage to the forests. According to the New York Times “The United States may now have the means to reduce its half century of dependence on the Middle East.” This will only occur if the extension of the Keystone pipeline is approved.

Canadian oil sands production is expected to increase every year for the next two decades, and it is estimated that current known reserves exceed Iraq’s total reserves. Canada is now a premier oil producer- the world has changed. However, many American and Canadian environmentalists strongly oppose this change. These groups are fighting to stop the Keystone pipelines to the United States and western Canadian ports. In June 2010 the first phase of the Keystone Pipeline System went into operation moving crude oil from Canada to market hubs in the U.S. Midwest. Keystone Cushing (Phase II of the pipeline) extending the pipeline went into service in February 2011, connecting the storage and distribution facilities at Cushing, to the Midwestern hubs. The proposed Keystone Gulf Coast Expansion Project, Keystone XL, is an approximate 1,660 mile, 36 inch crude oil pipeline that would begin in Alberta and extend southeast through Saskatchewan, Montana, South Dakota and Nebraska. It would incorporate a portion of the Keystone Pipeline (Phase II) through Nebraska and Kansas to serve the markets at Cushing, before continuing through Oklahoma to an existing terminal not far from Port Arthur, Texas. The oil would arrive at the Texas refineries and ports for export.

So far President Obama has been non-committal on the project, which is strongly opposed by many environmentalists in both the United States and Canada. The Canadian Prime Minister Harper told reporters the project would create a vast number of jobs in Canada and the United States, and he fully supported the project. President Obama has said environmental issues would weigh just as heavily in any decision as job creation and energy security. The pipeline runs through the Osgallala aquifer in Nebraska, a very important water source to mid-west agriculture (secondary containment should be considered in sensitive locations) and continued dependence on fossil fuels goes against the administration’s support of renewable energy as the long term future of the United States.

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