The Bit That Bill McKibben Misses

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Bill McKibben is outraged that the Keystone pipeline has been pushed through while the world suffers from the coronavirus. He might actually have a point that it’s a bit cute to get the approval done while so many are enforced out of action.

It’s also still true that the economics of the pipeline are still there, still make sense. The global oil price is somewhere in the $25 to $30 a barrel range now (who the hell knows what it will be by the time I print this). The price of that Canadian oil at Hardisty, the WCS price, is somewhere near $4.

That $21 to $25 price difference is the thing the Keystone pipeline is trying to address. For Ricardo was right, tradeable commodities will be the same price everywhere. The price to producers will thus be that one price minus transport costs to get to anywhere. There are few pipelines out there on the Canadian prairies, certainly not enough of them to carry away the local oil production. It thus travels by train, making a fortune for Warren Buffett’s Burlington Northern. Whoop, Whoop.

Those trains are expensive, the price difference between WTI (oil in Texas price) and WCS (oil in Canada price) is the cost of that rail transport.

No, it’s not exactly and only and wholly like this but it’s close enough that this allows us to understand what’s going on. So, build the pipeline and the price at Hardisty of that oil rises. Buffett doesn’t make so much money, Boo, Hoo.

At which point McKibben tells us:

and pretending that they are “essential” employees in order to build a pipeline that would carry oil no one wants or needs,

If no one wants or needs the oil then why are they willing to pay $25 a barrel for it in Texas? Heck, why are they willing to pay $4 for it in Canada? That people are willing to pay anything for it tells us that some people at least do indeed want it – whether they need it being something for the individual doing the wanting to decide of course.

Or if he means the pipeline well, why are people willing to pay $8 billion and up to build it if no one wants or needs it? Even by government standards that’s real money so there must be at least some estimation, somewhere, that some people desire this to happen.

This being what McKibben is missing. Sure, he doesn’t think that anyone should want oil, or need it. He’s even got a lovely plan – we should all be poorer – so that we don’t get it either. But some people do indeed want it, that oil, which is why people are spending eight large to build the pipeline to get it to them. The very economics of the project he’s decrying prove that his base assertion is incorrect.

And, you know, shouting at numbers because they disagree with you is not known as a greatly productive endeavour.

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Boganboy
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Boganboy

I suppose I’m a war-o-phobe, so I’d much rather none of our oil came from the Middle East. We can then leave the locals alone to make a mess of their affairs as they see fit, instead of us having to bother to do it for them.

Spike
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Spike

As a middle ground, I’d be willing to see US refiners free to buy from the Arabs, provided they never expect the armed forces to act to preserve their access to the product.

ScottR
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ScottR

A thought experiment, what would happen if the USA did a bit of self-isolation (in oil terms) and banned the import of “foreign oil”?

IIUC, US traditional oilfields cannot supply US domestic oil demand. However, tight (fracked) oil supply currently more than makes up the difference. Would the US market oil price rise sufficiently to cover the costs of fracked oil. Would the world price then fall further?

Of course, Alberta being “foreign” means its oil would be banned, therefore no need for the pipeline or, indeed, Warren Buffet’s oil trains.

Is this thought experiment just too silly for words?

Esteban
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Esteban

Unfortunately, the fact that the US exports oil is a useful weapon for the BANANAs (BUILDABSOULTELYNOTHINGANYWHERENEARANYTHING). When they oppose fracking, drilling, pipelines they argue that it’ll just be shipped to foreigners, so screw those evil corporations. Global product, supply and demand, efficiency, trade? Piss off mate.

Thomas Knapp
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Apparently the economics AREN’T there, or the pipeline builders would be able to buy the land to run the pipeline over instead of having to get state governments to steal it for them.

john77
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john77

You are ignoring the actions of state governments in determining where *they* think the pipeline should run. In a free market the pipeline builders could plan an optimal route and variations to cope with refusals to grant wayleaves or extortionate price demands and eventually obtain enough land corridors or wayleaves to provide a route. However when state governments dictate the route then any landowner who is greedy can demand several million dollars an acre and some guy who is tending exotic flora or fauna on a patch of land can refuse to sell at any price. The state governments “stealing”… Read more »

Thomas Knapp
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I’m not ignoring anything. Stealing is stealing no matter what excuses you make for it and even if you put it in scare quotes.

Spike
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Spike

This is a difficult one. With apologies to John77, you don’t just reroute a pipeline if you discover holdouts (as you always will); this is why the Takings clause in the US Constitution, and the limits on it.

It is far preferable that businesses rather than bureaucrats build pipelines, but in practice this REQUIRES the renting out of the Takings clause (seizure of one citizen’s land for the benefit of another), not only flatly improper but always widely unpopular. In practice, the economics are NEVER there to “buy the land” at a unanimously acceptable price.

Thomas Knapp
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Or. to put it a different way, “the economics” are never “there” for pipelines.

Boganboy
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Boganboy

Or roads or railways.

Thomas Knapp
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That’s possible. The only way to find out is to stop having the state steal the land and see what the market does about it.

Vern Cooke
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Vern Cooke

Alberta just recently cancelled a contract to buy rail cars to transport its oil to market. I think they should have bought them. And instead of the basic black those cars are, painted them: blue skies, green fields and children frolicking beneath windmills and solar panels. And each car would have a different saying, such as: “No LGBTQ people were harmed in the production of this oil”, and “Reliable energy for those calm summer days”, and “Cheap daycare in Quebec? Thank Alberta oil”, and “Alberta oil: The stuff solar panels are made from”, and “Alberta gas: Making the fertilizer to… Read more »