Pipelines and oil - Canadian crude will get out

I previously posted an article about the intersection of oil and politics and wanted to update you on one of my statements

Obama may feel the need to stop this project for political purposes but all he will succeed in doing is building more pipelines in Canada going east and west and sending that oil to Asia.  

Kinder Morgan, a large pipeline / energy company in North America is seeking firm commitments from oil shippers to expand their Trans Mountain Pipeline to the Canadian West Coast.  From Alberta Oil Magazine

Kinder Morgan Canada said yesterday it would extend an open season as it seeks firm commitments from shippers for an expansion to its Trans Mountain pipeline to Canada’s West Coast. The Canadian arm of Dallas-based Kinder Morgan aims to double capacity on the Pacific-bound line, from 300,000 to 600,000 barrels per day. Among other products, the $3.8-billion expansion would carry additional volumes of oil sands to a port at Burnaby, British Columbia, for export to Asia-Pacific markets and the West Coast of the United States.

The expanded oil production in Canada and the Midwest is creating a localized glut of oil and various companies are capitalizing on this price differential.

Western Canada Price Differential
Source: Bloomberg

While there are quality differences between these two benchmarks one can see how the spread has widened recently.

Regardless of the decision on the Keystone pipeline, Canadian oil will (eventually) get out to the worldwide marketplace.

Additional reading:
http://www.albertaoilmagazine.com/2012/04/u-s-pipeline-constraints-weigh-on-canadian-crude-prices/

Obama shuts down Keystone pipeline. The oil must flow!

It appears the Obama administration will block approval of the Keystone pipeline.

Your political leanings aside, this will not stop 'dirty oil sands' oil from getting out. I was going to work up a nice post about how Canada can ship the oil east or west but NPR beat me to it:

Philip Verleger, an economist who specializes in oil markets, says even if environmentalists convince Obama to block the Keystone XL pipeline, it won't stop the growth of production in the Canadian oil sands.
"With prices around a hundred dollars a barrel globally, that oil is going to make it to the market somehow," Verleger says. "The development may be slowed for a year or two. But one can move the oil west on the existing Kinder Morgan pipeline. They could expand pipelines east. Those pipelines already exist, and they can be expanded."
In fact, Enbridge, a Canadian energy company, recently asked Canadian regulators for permission to reverse the direction of one of its pipelines in Ontario, which many see as the first step to move more Canadian oil to the American East Coast — and relieve some of the Canadian oil glut in the upper Midwest.

Not only is the oil going to flow east but the article mentions Kinder Morgan planning to increase the flow westward to British Columbia and then down to the Pacific Northwest and out to Asia as well.

The NPR article continues...

But demand is the key, say most economists. If you can get American drivers to buy less gas — by raising fuel efficiency standards, as the Obama administration recently did — then, they say, you stand a much better chance of slowing production in the oil sands.

Sorry but these are economists? American drivers are just one user of energy, don't forget all of Asia, India, South America, etc.  

All is not lost
For those of you worried the end is nigh and we will run out of oil soon and that will be the end of us all I would like to point you to this graph and article from the Economist

Energy used per unit of GDP has been declining in America since the 1920's. For nearly a century America has become more efficient at extracting more value out of each barrel/btu/pound of energy and the trend is to greater and greater efficiency.

Furthermore oil is not the only form of energy we have available in America.  Through new techniques the amount of natural gas in America is at all time highs and current prices are extremely low and production continues to rise. From Sober Look

But I digress from the Keystone pipeline.  Obama may feel the need to stop this project for political purposes but all he will succeed in doing is building more pipelines in Canada going east and west and sending that oil to Asia.   Would it not be better to have the cheaper oil captive in America and depressing our prices relative to the rest of the world? Believe it or not but oil has been cheaper in America than the rest of the world for nearly a year, and some of that is due to the increased production up north in Canada. 

 For those of you concerned about the risk of the Keystone pipeline, there are already skads of them all over America

The Keystone pipeline would not have reduced our energy 'dependence' from external sources but would you rather buy our oil from next door Canada or Saudi Arabia and Venezuela?

Additional Reading

http://soberlook.com/2011/12/us-net-oil-imports-lowest-since-1996.html

http://soberlook.com/2011/12/sober-look-at-us-natural-gas.html

http://soberlook.com/2012/01/whats-driving-brent-wti-spread-wider.html

http://soberlook.com/2011/12/six-common-myths-about-us-and-global.html

The politics of oil

Yesterday President Obama announced new measures to increase drilling.  From Reuters

 U.S. President Barack Obama, under pressure from Republicans and the public to bring down gasoline prices, announced new measures on Saturday to expand domestic oil production in Alaska and the Gulf of Mexico.

Elections are hard to win with high gas prices:

High fuel prices have dented Obama's ratings in opinion polls and threaten to dampen the economic recovery that is critical to his re-election in 2012.

Considering the lead time required to get oil to market from a new find this will ironically help whomever is in office after the elections of 2012.

I seriously doubt the President would have increased leases available to oil companies if gasoline prices were $2.00 a gallon versus the current $4.00.

There's a reason alternative energies are called alternative and its because they are much more expensive per unit of energy than gasoline.  Until new forms of portable energy become cheaper than gasoline a President's politics will bend to the reality of high gas prices.

edit: if you are wondering why we are attacking Libya and not Syria, this is one reason.

Betting markets are predicting a win for Brown in Massachusetts -- What does this mean?

The betting site intrade.com shows Scott Brown leading in the special election for the vacant Senate seat in Massachusetts.  (The image is a static picture and does not show the current odds, click on the link above to get a current number)

While there has been much talk regarding this being the '60th Senate vote that will stop health care' I believe more attention should be paid to the House.  Health care passed by the slimmist of margins in the House and Mr. Brown's strong showing in a very Blue State most likely has quite a number of  Democratic House members quaking in fear. 

It does not matter if Brown wins now, even a close defeat may be enough to scare some House members into not voting for the health care bill.

Politics is not my strong suite and I'll try to avoid discussing it as much as possible.  This event just struck me as interesting due to the predictions markets opinion and the ramifications of one Senate vote.  Please no hate mail regarding one party being better than another.   I prefer neither party and hold my nose when I vote.