Tuesday, February 18, 2014

The Real Republican Agenda with Keystone -- Selling U.S. Oil Overseas

With the Keystone pipeline, Republican Strategists are using conflict over environmental issues to divert public attention from their real policy objective -- exporting U.S. oil.

In today's toxic political landscape of Red versus Blue States, almost any policy issue pinned with a label of "environmental" not only automatically invokes extreme partisanship. This division also closes people's minds, eliminating the need to question whether a proposed policy is in the best interests for all average Americans - regardless of environmental issues.

In trying to shape public opinion, it's always much easier to demonize an environmental label like Global Warming in a 30 second soundbite, rather than to explain and justify something complicated like trade policy.

Extreme Partisanship Over the Environment: For years, negative ideological "values" messaging from Conservative Think Tanks, Media Sources, and Religious Groups have associated and demonized environmental policy initiatives as big-government, socialism, anti-free markets, job loss, and even with Faith (worshiping the Green Dragon).

The effectiveness of this negative messaging is absolutely evident in national polling, where partisan divides on environmental issues are greater than on major issues like the budget deficit, health care, and Social Security.

Widest Partisan Differences Over Issues
(% rating each a top priority)
Protecting the Environment:
Problems of Poor & Needy:
Reducing U.S. Budget Deficit:
Dealing with Global Warming:

The Keystone XL pipeline project illustrates this strategy of diversion at work, where current Republican actions are now revealing what Keystone was really always about:

"With record growth in U.S. oil production, Republican and Oil State politicians, big business leaders, and oil lobbyists are all calling to end a nearly 40 year ban on U.S. crude oil exports. The ban was put into place after the 1973 OPEC Oil Embargo." (The Hill)

With a Keystone debate defined by the highly partisan environmental issue of Global Warming, there has been little discussion how Keystone is
intrinsically linked to the policy issue of exporting oil -- as the TransCanda and other north to south pipeline projects provide the critical infrastructure to move U.S. (and Canadian) oil to potential foreign markets.

The Issue of Trust: During the coming year, there will be much debate over whether lifting the U.S. oil export ban is good policy. Maybe its a good idea, maybe not. But the point in today's blog is not really about policy issues. It's about the bedrock of "Trust" to the American Public in addressing issues that have nothing to do with Global Warming.

In the 2012 Presidential Campaign, Keystone was the "Poster Child" of conflict between Environmentalists and Republicans over energy issues -- where Global Warming/Climate Change was (and still is) the epicenter of debate. Less than a year ago in the debt ceiling debacle in Congress, Republicans threatened to shut the Federal Government down unless President Obama approved Keystone XL.

But in current messaging to end the +40 year U.S. Oil Export Ban, Republicans are now refuting the very "principles and values" they have made of why Keystone is critically needed.

Republican Messaging:
Need for Keystone
Republican Messaging:
Need to Export U.S. Oil
Actual Republican
Objective All Along
Today, we will look at the first of three key building blocks of past Republican messaging of why Keystone was needed -- and how ending the oil export ban is a 180° about-face to the original Keystone arguments made to the American Public. Let's try and be clear though -- it's not the Republican "ideological values" that are in question here,
such as the principle of free market trade.

The problem is the inconsistency in the Republican double-speak messaging and the lack of public dialogue/debate of what ideological arguments like free market trade actually mean (e.g., potential of higher gasoline prices to U.S. consumers).

Foreign Oil Dependence: Spin Doctors are in over-drive giving the American Public the impression that the U.S. has or is on the cusp of attaining Energy Independence -- and that most of the remaining oil we do import is from Canada.

But per U.S. Department of Energy information, the U.S. currently imports ~40% of its oil requirements -- where the single largest importer is from the OPEC Cartel. As we've previously shown, every time you fill up your tank, you are sending 36¢ per gallon to OPEC countries.

Oil Sources of Current U.S. Gasoline Supply1
(Compared by barrels of oil produced)
(1) While it is technically correct that Canada is the largest "single country" oil importer, in a context of "energy security" this is misleading. OPEC currently imports far more oil to the U.S.

Understanding Some Oil Basics 101: Even in long-term forecasts through 2040, the Department of Energy projects that U.S. dependency on imported oil will stubbornly be above +30%. So with this likelihood, why would policymakers even consider lifting the U.S. oil export ban? The answer is found in the fact that not all crude oil is created the same. It can be heavy or light, sour (high sulfur content) or sweet.

With the exceptional increase in U.S. oil production from tight shale formations/fracking (e.g., North Dakota, Texas, etc.) there is good and bad news. Most of this oil is high quality light crude, relatively easy to refine in refineries that are not terribly complex. The bad news is many U.S. refineries can not use this lighter oil. Prior to the shale boom, U.S. refiners spent billions of dollars to configure their plants for heavier and sour foreign oils (Canada, Venezuela, and Saudi Arabia).

The below chart from the EIA illustrates this above point. While U.S. imports of light crudes have been reduced dramatically in recent years (displaced by new oil production from North Dakota, Texas, etc.), imports of heavy crudes have remained constant.

U.S. Oil Dependency & Security: The OPEC Oil Cartel (which largely influences international oil prices) is comprised of countries in the Middle East, Africa, and South America. Currently, OPEC is the largest foreign oil supplier to the U.S. with imports primarily consisting of heavy oil from Saudi Arabia and Venezuela (the 2nd and 3rd largest individual country oil importers to the U.S.).
OPEC Imports to U.S.

When the issue of U.S. foreign oil dependency and security are raised, it's important to understand several key points: (1) Where oil refineries are located; (2) Ports of entry for OPEC oil; (3) The oil pipeline infrastructure; (4) A Federal maritime law called the Jones Act.

While most Venezuelan oil goes to U.S. Gulf Coast refineries, ports of entry for Saudi heavy crude are much more diverse -- not just to refineries on the Gulf (where Saudi Arabia owns three major refineries), but to U.S. East and West Coasts as well.

Location of U.S. Oil Refineries
The significance of Saudi and other Middle East OPEC countries oil imports to the U.S. can be illustrated by California -- where foreign imports (with Saudi Arabia being by far the largest importer) make up 50% of Refiners' oil sources (with very little Canadian imports).

There are two major reasons for this high OPEC and Middle East dependency on both the U.S. East and West Coasts: (1) The U.S. oil pipeline system; (2) The Jones Act.

Oil Sources for California Refineries
The U.S. oil pipeline infrastructure is primarily a North to South system, moving oil in America's heartland. While the Keystone XL pipeline project enhances this existing distribution System -- it really doesn't address major deficiencies in moving oil East or West to refineries on U.S. Coasts (e.g., Northeast and California).

Major U.S. Oil Pipelines & High OPEC Imports
There are three transportation ways to move oil, via: (1) Pipeline (least costly), (2) Maritime shipping; and (3) Rail (the most expensive and as recently seen, the most dangerous).

Shipping between U.S. ports costs significantly more than international voyages. This is largely because of a 94-year-old federal law (Jones Act) which requires domestic cargoes to travel on U.S.built, owned and crewed vessels. A qualifying U.S. tanker currently commands rates about 10 times more than a non U.S. tanker of the same size.(2)

The Jones Act explains how importing oil from half way around the world (Middle East OPEC countries of Saudi Arabia, Iraq, etc.) can be cheaper than transporting oil via tanker from the U.S. Gulf Coast area to East and West Coast markets. Also, the Jones Act combined with the lack of East/West U.S. oil pipeline capacity can explain why the Department of Energy's long-range forecast (through 2040) expects U.S. foreign oil dependency to remain stubbornly above +30%.

A Needed Change in Approach: When Environmentalists allow (and embrace) any policy issue to be solely defined by an environmental label, they are taking a "bait" that Republicans want. In achieving this "Framing", Republicans are given a free pass (or certainly less public questioning) on whether proposed policies are in the best interests of all average Americans regardless of environmental issues and even if these policies truly "walk the talk" on conservative or libertarian values.

To be more effective, Environmentalists must improve in engaging Republicans on two fronts: (1) Questioning the validity of their message; and perhaps even more importantly, (2) Questioning whether their Messengers can be trusted on any policy issue that could have environmental consequences.

Keystone XL was never about U.S. oil security. At best, the heavy oils from the Canadian tar sands would displace Venezuelan and Mexican heavy oil imports to Gulf refineries. Republican bravado that Keystone XL would achieve U.S. oil security from Mid-Eastern oil if not a "pants on fire" statement, is pretty darn close to it.

(Note: Our next Blog will discuss the Republican double-speak on two other key claims of Keystone XL -- (1) Reduction in gasoline prices; (2) Net Job Creation.)


Additional News Stories:
U.S. Ruling Loosens Four-Decade Ban On Oil Exports (Wall St. Journal)
U.S. Refiners Don't Care if Keystone Gets Built (Wall St. Journal).
The Psychology of Why Environmentalists Need to be More Specific.
Pew Research Poll on Keystone Pipeline
On a Decade Left in U.S. Shale Boom?
U.S. Light Crude under price pressure without lifting oil export ban
Washington Post Poll Shows 65% of Americans Approve of Keystone


No comments: