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With U.S. Awash in Oil, Nat'l Interest Argument for Keystone Weakens

U.S. oil production is suddenly booming. Question now is, will Obama say yes to the Canadian tar sands being part of this fossil fuel revival?

May 21, 2013
President Barack Obama speaks at the site of the southern leg of the Keystone XL

U.S. oil production is suddenly growing so fast that some analysts are questioning how much the country really needs the Canadian tar sands oil that would move through the proposed Keystone XL pipeline.

This month, the U.S. Energy Information Administration (EIA) said it expects domestic crude oil production to surge 20 percent by the end of 2014 from its level at the start of this year. That means an additional 1.4 million barrels of U.S.-produced oil will be available each day—about twice as much as the Keystone would bring in from Canada.

Although the United States will still need foreign oil for years to come, declining demand and increasing supply are cutting into imports surprisingly fast. The Energy Information Administration, which is the Energy Department's data reporting and forecasting arm, expects the nation to import just 30 percent of its oil needs next year, the lowest since the mid-1980s. Under one particularly optimistic EIA scenario, the U.S. could even achieve the grail of zero net imports in the 2030s.

"A country that 150 years ago served as the cradle of the oil industry, but which for decades seemed to face an irreversible production decline, now finds itself, all of a sudden, at the center of an oil boom," said Maria van der Howeven, director of the International Energy Agency, in a statement introducing that group's latest study of world oil markets. The IEA represents dozens of countries, including the United States and Canada.

The question now is, will Canada's oil sands co-star on the stage of this spectacular North American fossil fuel revival? Or will it become an understudy that never sees the spotlight?

The answer depends largely on the State Department's decision, expected later this year, whether to approve the Keystone XL permit—a decision based on "the national interest."

Given the American petroleum boom, it is now harder to make the case that the oil the line would carry is vitally needed to quench the nation's thirst for fuel.

Instead, analysts say that in this era of plenty the Keystone’s main function isn't meeting U.S. needs, but getting oil from the land-locked province of Alberta to overseas markets via U.S. refineries on the Texas coast. Two pipeline projects from Alberta to the Canadian coast face such stiff opposition that some analysts say they're unlikely to be built.

Meanwhile, the project's opponents argue that the nation can now afford to put environmental priorities, including global warming, before the oft-cited need to bolster U.S. oil supplies. If oil must be burned—a necessary evil, perhaps—they say it would be best to avoid the tar sands oil, which is significantly dirtier to produce and refine.

"The facts on the ground have changed," said Anthony Swift of the Natural Resources Defense Council, "The case for Keystone and the tar sands was never particularly strong. It has never been weaker than today."  

"With this outlook, why would the United States need the controversial Keystone XL pipeline?" asked Earle Gray, the former editor of Oilweek magazine and author of several books about Canadian oil, in the Toronto Star.

"We do not really need the oil," said an editorial entitled "Pipeline to Nowhere" by Jerald L. Schnoor, editor in chief of Environmental Science & Technology, published this month by the American Chemical Society. Schnoor said the real key to securing energy independence is to use less oil.

Others are not so quick to dismiss the Keystone project.

Stephen R. Kelly, a professor at Duke University who studies energy security and U.S. trade with Canada, said that "we are still going to need to import several million barrels a day of oil from somewhere for the next 20 years."

"My bottom line," Kelly said, "is that we should approve Keystone, but it should be the last pipeline from Canada that we should ever approve."

Christopher Knittel, a professor of energy economics at the Massachusetts Institute of Technology, told a House committee last week that he favored Keystone on economic grounds even though “the national security benefits are likely to be small.”

"One of the most compelling arguments for building the Keystone XL pipeline is that it will increase the profits of oil producers," he said, dismissing the proposed project’s effects on global warming or consumer prices as trivial.

Canadian officials continue to press hard for the Keystone.

At an appearance before the Council on Foreign Relations in New York last week, Prime Minister Stephen Harper cast the benefits of the pipeline in terms of reducing American imports from elsewhere, such as Venezuela, whose shipments to the United States have declined as Canada’s have increased in recent years.

"Now this is an enormous benefit to the United States," he said.

In the U.S. House of Representatives, which is to vote this week on legislation forcing the Keystone’s approval without further review, the pipeline’s advocates continue to argue the energy-security case.

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