Energy News and Analysis

Published in the San Diego Union-Tribune
Sept. 23, 2011
By Jeremy Martin

It is odd to witness the demonization of Canada these days. Or, more specifically, the chastisement of Canada for its desire to bring to its most important market vast reserves of oil by way of a 3,800-mile pipeline called Keystone XL.

Keystone XL has in many ways become ground zero in the debate over fossil fuels, the environment and climate change, with proponents and opponents ceding little ground.

The pipeline’s approval process by the U.S. State Department has served as nothing less than gasoline on the smoldering debate over production of oil from Alberta’s so-called oil sands. Indeed, protesters by the dozen have been arrested during demonstrations against the project outside the White House.

Just as passionately, supporters of the project have fanned out to extol the economic, job creation and other virtues of the project. Indeed, with all-pervading gasoline prices, continued turmoil in North Africa and the Middle East on top of declining supplies from longtime oil providers Mexico and Venezuela, the energy security card in this debate appears to be a strong one.

But practically absent in the current row over Canada’s oil sands and Canada’s desire to pipe it to the oil-thirsty United States is the role of China and another pipeline under consideration in Canada. Indeed, it is worth considering an important tangent to the Keystone XL debate: China’s emergence and desire to secure global oil supplies and a specific effort to tap Canada’s oil sands and direct it to the Chinese market.

Certainly, the implications and role of China are implicit in any assertion of the energy security benefit of expanded delivery from the United States’ foremost supplier of oil. And choosing terminology such as “friendly” supplier undoubtedly aims to underscore what is at stake in global geopolitical terms.

But as Keystone XL becomes a household phrase in the U.S. among those active in energy and environmental matters, rarely mentioned is the Northern Gateway project in Canada.

Northern Gateway, like Keystone XL, is a mega-pipeline project that would tap the Albertan oil sands. But instead of a southern route, the pipeline would head west and traverse 731 miles to Canada’s Pacific coast for export to Asia and an outlet that would allow for more financial upside than the typically discounted U.S. price fetched by Canadian producers.

The concept for the Northern Gateway project is the culmination of several factors but most importantly supply and demand. That is, Asia’s – China’s, really – craving and need for oil has soared at the same time that Canada’s oil sands, thanks to the surging global oil market and technological advances, can be feasibly developed.

Perhaps unknowingly, a New York Times editorial that declared of Keystone XL, “wrong pipeline, wrong assessment,” was prescient. One can imagine Chinese energy policy makers and oil men nodding affirmatively as they read the headline and thought of the Northern Gateway as the “right pipeline, right assessment.”

Add to the market fundamentals for the project the fact that it behooves Canada to diversify its markets and China’s ample checkbook and you have all the ingredients to bring to bear the immense and costly infrastructure. Indeed, on many levels, Northern Gateway may have as strong of a rationale for Canada as does Keystone XL. But as with Keystone XL, there are environmental and aboriginal arguments against the project that could become fiercer as it moves forward.

Whether there is a pipeline zero sum game unfolding in Canada is more fodder for the ongoing debate. But what does seem readily apparent is that without continued progress on increased access to the U.S. market for Canadian crude oil – Keystone XL or an alternative – the near-term development of excess resources could conceivably be routed to the Pacific through the Northern Gateway pipeline that counts high-level political and important financial support.

U.S. Secretary of Energy Steven Chu ably summed up the situation when he noted that when it comes to these types of projects “there are trade-offs.”

Regrettably, no trades seem forthcoming within the United States in this debate. Indeed, the clearest signal may just be that energy is yet another divisive wedge issue affecting domestic policy makers as well as those charged with diplomacy and international relations.

And that isn’t in the interest of the U.S., Canada or China.

Martin is director of the Energy Program at the Institute of the Americas at the University of California San Diego.