Venezuela's president Hugo Chavez is threatening to cut off oil exports to the U.S. But a new oil pipeline from Canada could help undercut his leverage in the future.
Expect President Obama to approve the new connection from Canada to Texas, but not until after the November elections. Many Democrats are against it, and Obama doesn’t want a fight during the campaign. By year-end, though, he’ll grant the permit, arguing the U.S. will need the oil during the 10-20 years it will take to build up alternative energy supplies.
The $7-billion pipeline from Hardisty, Alberta, to Port Arthur, Texas, already named the TransCanada Keystone XL, will boost Canadian exports to the U.S. by nearly 60%, to 3 million barrels a day within about five years. Canada is already the top U.S. foreign oil supplier at around 1.9 million barrels a day, far outdistancing Saudi Arabia and Mexico, which each export around 1 million barrels of oil here daily. Nigeria and Venezuela round out the top five, shipping roughly 980,000 and 895,000 barrels of oil here, respectively.
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The increase will also wean the U.S. from Mexican oil, which is beginning to play out after years of underinvestment in new production by Pemex, the state-owned oil company. Ultimately, the U.S. may whittle down Saudi Arabian imports, too.
The pipeline would also temper prices. “The fact that it’s coming from Canada from a reliable supplier will help to keep oil prices more stable by easing traders’ concerns” about potential supply disruptions, says David Pumphrey, deputy director for energy policy with the Center for Strategic and International Studies, a think tank.
While we expect the administration to approve the permit, it won’t come without a fight. Fifty House Democrats, led by Rep. Henry Waxman (CA), who chairs the House Energy and Commerce Committee, object to importing oil derived from Canadian tar sands. They contend this oil is “dirtier” than crude produced from conventional wells, because gobs of energy are needed to convert buried bitumen into liquid oil, thereby increasing greenhouse gas emissions. Their argument is likely to delay the pipeline’s approval, but not derail it. “One can debate national energy security versus climate change, but as oil is a fungible product, if the U.S. doesn’t buy Canadian oil, China or others will,” says Adele Morris, policy director for climate and energy economics with the Brookings Institution, another think tank.
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