Obama's Keystone Rejection May Provide A Buffett Bonanza
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Obama's Keystone Rejection May Provide A Buffett Bonanza

Larry Bell
This article is more than 9 years old.

Image by shannonpatrick17 via Flickr

President Barack Obama has a lucky policy pal who may richly benefit from his administration’s latest energy decision.

Now that his State Department has decided to withhold approval for the Keystone XL pipeline that would have delivered millions of barrels of Canadian crude along with tens of thousands of jobs, a likely alternative is to transport that oil via the Burlington Northern Santa Fe (BNSF) railroad. That’s the 32,000 mile line with the best north-south infrastructure that Buffett’s Berkshire Hathaway purchased a 22% ($34 billion) share of one year after Obama was elected.

BNSF is already a major oil player in North Dakota where production from the enormous Bakken fields has maxed out existing pipeline capacity. Keystone XL would have relieved that bottleneck, and its delay or death serves as still another BNSF business boon. North Dakota pumped a record 113 million barrels of oil in 2010, and State officials estimate that daily production will reach 700,000 barrels in four to seven years.

Now with the TransCanada pipeline on hold, Canada’s best remaining choices are to reverse an existing Embridge-Kinder Morgan Northern Gateway pipeline and ship Alberta oil sand bitumen east, move it by rail to ports accessible for transport by ship to Asian markets, or deliver it via a North Dakota BNSF spur to U.S. refineries. Transport by rail costs more than by pipeline, but routing is more flexible and can begin almost immediately.

The Obama administration’s original decision to postpone Keystone approval until after the 2012 elections followed loud opposition on environmental grounds led by an anti-pipeline group called “Bold Nebraska”. This occurred despite three previous years of State Department environmental impact studies addressing likely risks and reasonable alternatives that determined it would have “no significant impacts”.

The BOLD Nebraska campaign was largely funded by Dick Holland, a close Buffett friend and business associate since the 1960s and an original Berkshire Hathaway investor. The two men share a similar political philosophy and are strong Democratic Party contributors. Prominent BOLD Nebraska cheerleaders are global warming alarmist James Hansen of NASA, and Hollywood celebrity Daryl Hannah.

Although the most prevalent environmental debate centered on potential pipeline leaks that might endanger the sensitive Ogallala aquifer area in Nebraska and other states along the route, it is clear that a primary opposition goal for many is not to simply to reroute the pipeline, but rather to discourage and handicap oil  use altogether. As a  New York Times editorial explained: “There is also the larger question of whether this country should keep conducting business as usual — that is, succumbing to the status quo of politics and big oil — or whether it will seriously grapple with the reality of climate change.”

The Friends of the Earth website echoes the same theme: “Investing in tar sands oil now will delay investments in clean and safe alternatives to oil, such as better fuel economy requirements, plug-in electric cars fueled by solar power, and smart growth and public transportation infrastructure that give Americans choices other than cars.”

Whereas State Department officials have previously claimed they weren’t under pressure from the president, threats to Obama’s reelection coffers and turnout were anything but subtle. As expressed by Tiernan Sittenfield, senior vice president of the League of Conservation Voters: “This is not just about LCV which spent nearly $1 million to help elect Obama in 2008, or any other group that engages in electoral politics in the upcoming election. It’s about people out there who care deeply about the environment, how much they volunteer, how many doors they knock on, how much they contribute directly. We have LCV voters who maxed out in the Obama campaign in 2008 who have told us they are not going to give this time around if the president approves this pipeline.”

TransCanada will be allowed to re-file a revised route proposal, yet the delay may lead developers to kill the pipeline project altogether.  Customers who have already signed up to take delivery of oil will lose money, and there will be added expenses to get new permits.  According to TransCanada CEO Russ Girling, if crude delivery can’t begin as scheduled, “Those shippers will only wait so long, and then they will start looking for other markets. Similarly, the refiners can only wait so long for Canadian crude oil to come into their marketplace.” A key prospective market is Asia.

Enbridge, which operates the Northern Gateway pipeline, Canada’s largest oil pipeline system along with Kinder Morgan,  has proposed expansions from Alberta to Kitimat, British Columbia for accessibility to Asian countries.  However this would require lifting a ban on coastal oil tankers that was established to protect sensitive rain forests from a possible spill such as Alaska’s 1989 Exxon Valdez event. As reported by Bloomberg, Gerald Graham, a maritime law consultant also argues that the port’s Burrard Inlet is too narrow and shallow to accommodate Chinese supertankers in any event: “The boats you can get in and out of there would only be big enough to take down the coast to California.”

Other options are to reverse an Enbridge pipeline to ship crude east, or moving it by rail to terminals such as the Arctic port of Churchill, Manitoba. First Asset Management Senior Vice President and portfolio manager John Stephenson in Toronto believes “The short-term solution if there’s someone who really needs to move crude would be by rail”.

Will the environment be better off if that Canadian oil is shipped to China? Or would it be safer for tankers to deliver oil to us from Brazil instead of getting it by pipeline from Canada?  Ironically, after we had invested more than $2 billion with Brazil’s state-owned oil company Petrobras to finance offshore exploration in their Tupi oil field in the Santos Basin near Rio de Janeiro, President Obama pledged that America would become one of their best customers. Speaking at a March 19 White House press conference last year he explained: “At a time when we’ve been reminded how easily instability in other parts of the world can affect the price of oil, the United States could not be happier with the potential for a new, stable source of energy.”

The Obama administration’s deep water drilling moratorium following the BP oil spill made competitive opportunities for Petrobras even better , freeing up out-of-business rigs that Brazil needed to do the job.  As reported in June 2010 by Reuters: “Even as an ecological catastrophe makes the future of U.S. offshore drilling less certain, Brazil is plowing ahead with a $220 billion five-year plan to tap oil fields even deeper than BP’s ill-fated Gulf well, which is still leaking crude.”

That six-month moratorium on deepwater drilling erased U.S. access to an estimated 7.5 billion barrels of oil and nearly 60 trillion cubic feet of natural gas along with tens of thousands of job opportunities they would have created. By the time Federal U.S. District Judge Martin L.C. Feldman finally overturned the ban the damage had already been done.

Canada accounts for more than 90 percent of all proven reserves outside of OPEC, and America currently purchases about 99% of all Canadian crude exports. According to Bloomberg, their Foreign Minister John Baird continues to believe that Keystone remains to be in the best interest of both countries.

Lots of Americans, including members of many labor unions who have urged the president to approve the project agree. Indiana Republican Senator Richard Lugar who sponsored legislation to set the February deadline for Obama’s decision argued in an e-mail that another delay compromises U.S. efforts to import more oil from a friendly nation.

“The studying time is done. The environmental concerns have been addressed. The job creation, economic and energy security arguments are overwhelmingly in favor of building it. The president opposing pipeline construction is not in the best interest of the United States.”

And so long as the Keystone pipeline is delayed and endangered, Buffett’s BNSF railroad holdings are likely to become healthier.

I am a professor and endowed professor at the University of Houston where I founded and direct the Sasakawa International Center for Space Architecture and head the…

I am a professor and endowed professor at the University of Houston where I founded and direct the Sasakawa International Center for Space Architecture and head the graduate program in space architecture. My background deals extensively with research, planning and design of habitats, structures and other support systems for applications in space and extreme environments on Earth. I have recently written a new book titled "Climate of Corruption: Politics and Power Behind the Global Warming Hoax". It can be previewed and ordered at www.climateofcorruption.com. Additional information about my book and views can be found on my YouTube address: http://www.youtube.com/climateofcorruption.