- The Washington Times - Monday, January 2, 2012

The political and environmental debates swirling around the proposed $7 billion Keystone XL pipeline from Canada to Texas miss a crucial point, energy analysts say: The Canadian oil is needed to replace fast-dwindling production from two other major suppliers of oil — Mexico and Venezuela.

The United States remains the largest consumer of oil in the world, requiring more than 8 million barrels a day of fuel imports to feed its appetite, with nearly half of that coming from oil-rich neighbors in Latin America as recently as 2005.

But oil production south of the border has fallen off dramatically, and Canadian crude in recent years quietly overtook imports from Mexico, Venezuela and even Saudi Arabia to become the most important outside source of oil for the U.S.

The trend toward replacing unstable sources of oil in Latin America and the Middle East with reliable and friendly sources in Canada was heartily welcomed in political circles until the pipeline controversy broke out last year. After trying to delay a decision until after the presidential election, the White House agreed in a compromise with congressional Republicans to determine within the next two months whether to proceed with the pipeline.

Because nearly all of Canada’s production will come from the Alberta tar sands served by the Keystone pipeline, energy analysts say, the pipeline extension will be needed to ensure that promising trend continues and that the U.S. does not go back to relying inordinately on unstable and hostile suppliers.

Because oil production from Mexico and Venezuela has fallen drastically in the past decade, Gulf Coast refineries like this one in Deer Park, Texas, now have the capacity to process an additional 500,000 barrels per day of Canadian crude that would come through the Keystone pipeline. (Associated Press)
Because oil production from Mexico and Venezuela has fallen drastically in the ... more >

“As traditional supplies of heavy crude from countries such as Mexico and Venezuela decline, Canadian oil sands become more important,” said Lucian Pugliaresi, an analyst with the Energy Policy Research Foundation Inc. Canada ships about 2.5 million barrels a day of crude to the U.S., more than twice as much as Mexico and Venezuela combined.

Growing impatient

He said environmentalists have a false idea that killing the pipeline will ensure the Canadian oil stays in the ground while forcing increased U.S. reliance on alternative fuels and conservation. Canada, he said, would continue to develop its vast oil reserves, but would sell it to another customer — most likely China.

Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, said it is little wonder that Canadian Prime Minister Stephen Harper threatened to open routes to Asia after the Obama administration delayed a decision on approving the Keystone pipeline in November.

“Canada cannot be wholly dependent on the vagaries of U.S. politics,” he said. Rising tensions and instability around the world should “give new urgency to assuring that North America’s oil resources are developed to what is now their much greater potential,” and that will require construction of the XL pipeline, he said.

Expansion of the vast pipeline network between the U.S. and Canada is the most efficient way to funnel the tar sands oil to consumers — generating fewer environmental pollutants than an overseas route to Asia, analysts say. They add that it seems a natural fit, given the historically friendly and beneficial economic ties between the countries.

U.S. refineries along the Gulf Coast, where Canadian oil would be sent in the Keystone plan, are geared up to turn the heavy tar sands crude into gasoline and other essential fuels because of their experience refining heavy crudes from Mexico and Venezuela. The processing of heavy crudes requires costly equipment upgrades not available at all refineries.

Because oil production from Mexico and Venezuela fell drastically in the past decade, the Gulf Coast refineries now have the capacity to process an additional 500,000 barrels per day of Canadian crude that would come through the pipeline. Refineries closer to Canada — in Chicago, for example — are operating at full production and do not have the capacity to handle more crude.

Jobs versus environment

Mr. Obama’s decision on the pipeline often has been portrayed as one pitting jobs versus the environment. Construction of the pipeline would create thousands of construction jobs, at least temporarily. Meanwhile, powerful environmental groups remain fiercely opposed to development of the tar sands because the extraction process releases more carbon dioxide and other greenhouse gases than conventional drilling.

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