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Keystone Cops - if Obama kills the pipeline what are the implications for the northern economy ?

January 26, 2013

In last week’s inaugural address President Obama stated that the United States had to be a leader in sustainable energy, putting the issue as a matter of national security and economic opportunity. Canadian Finance Minister Jim Flaherty stated that Obama’s speech was ‘not encouraging’ for the fate of the southern leg of the Keystone Pipeline.

The Canadian government has been an enthusiastic supporter of TransCanada Corp’s plan to build the $5.3-billion pipeline, which would open up a huge new market on the U.S. Gulf Coast for crude derived from oil sands in Alberta. Surging output and tight export pipeline capacity has pulled the price of Canadian heavy crude in recent months to less than half the value of international benchmark Brent crude. This is hurting the public finances in Alberta, which warned this week of a $6-billion shortfall in revenue for its 2013-14 fiscal year as a result.

There is support in Congress in favour of the Keystone XL pipeline, with 53 Senators at least onside.

The State Government in Nebraska favours the construction of the pipeline. The pipeline would create about 20,000 construction and manufacturing jobs, which will increase the personal income of American workers by $6.5 billion.

The forces opposed to the pipeline include:

The reasons for killing the southern leg of the Keystone are all political. Obama was just re-elected with support from the green/environmentalist movement. At Mr.Kerry’s confirmation hearing last week he skirted around the Keystone pipeline issue. The President’s decision will be known likely in March.

Meanwhile demand on Keystone XL, based on these established contracts, has pushed the capacity of this pipeline to 1.1 million barrels per day.



Mr. Flaherty stated that if Keystone XL goes down “We will go wherever we have to go. We are going to create markets for Canadian commodities.”  There is no capacity right now to ship more bitumen out of Canada. So if exporting via pipeline is not an option, alternate routes become more pressing. These include:

Ironically, if Obama kills the Keystone for political reasons, he could well be the enabler of bitumen exports off the West Coast. I wonder if the folks in Washington State know this.