19 May 2011

The Politics of Fungibility

The Obama Administration is soon to decide on whether or not to approve the building of a new pipeline from Canada's oil sands to US refineries. Even though the proposed pipeline cuts through a bunch of Red (Republican) states, my prediction is that the Obama Administration will approve the pipeline, regardless of the opposition. The simple reason for this expectation is that the recovered petroleum will either go to the US or, if not the US, to China. The last thing that the President will want during an election campaign is to eschew close and secure Canadian oil while gasoline prices are a national concern.

According to the FT today:
The Canadian province of Alberta could be one of the seven largest oil producers in the world by the end of the decade, its energy minister has said, as he urged the US to back a pipeline project that is vital for the industry’s expansion plans.

Ron Liepert, Alberta’s minister of energy, said that the US “has to make a decision” about whether it wanted the province’s oil, and that he was “proceeding all-out to find alternative markets for our product”, particularly in China. . .

Mr Liepert said Chinese companies, which are already active in the oil sands, “will take every drop we are able to produce, in a heartbeat.”
The fungibility of global oil supply means that reducing use of a particular source of oil in one place simply means that it will be consumed in another, and oil from elsewhere will have to fill that gap. Here is a nice explanation:
While Kenneth Medlock III, energy expert at Rice University, understands the environmentalists’ hope of reducing carbon emissions, he insists that if the US does not import the oil sands, someone else will, noting there is a project underway to export it to the Pacific Basin. Canada would then provide more fuel to China, which would require less fuel from the Middle East. That Middle East fuel would go to Europe and the US would get more of its fuel from Africa:
The protests are not going to stop oil sands development. You have to think of the world as one big bathtub. It doesn’t matter which end of the tub you fill from, as long as you are adding supply. The oil is going to flow.
He is right. The oil is going to be produced, and somebody is going to buy it. If the environmentalists truly want to make a difference, perhaps their focus should switch to pressuring the oil industry to work harder to reduce the carbon footprint of oil sands’ development. Surely nobody can object to that?
Efforts to develop alternatives to oil consumption via technological innovation would be even better yet.


  1. I dunno about that. The Gateway Pipeline at least hardly seems a sure thing. Lots of First Nations' and other people along the pathway that don't want it.

  2. Actually they should be focused on oil consumption not oil production. And people who are interested in low oil prices shouldn't be so focused on domestic production. In fact we would be better off saving our production for when prices are much higher.

  3. Use as much cheap energy we can now to create as much wealth as possible. If fossil fuels ever become scarce (a prediction made many times in the past, yet never realized), we will be in a much stronger position to adapt to other sources.

  4. Roger,

    Matt Ridley cites this approvingly http://www.cobdencentre.org/2011/05/a-long-way-from-reaching-our-peak/

    My favorite (of many good points):

    If, seized by a sudden fear that the world will one day lack for sufficient bicycles, our rulers summarily decide to tax both their existing makers and their heretofore satisfied users and to funnel the resulting booty to some favoured corporate giant which promises to equip us with a modestly-rejigged shopping trolley and a bargepole to propel it, we have hardly made progress, now have we?

  5. The difference between Obama and the Republicans:

    The Republicans talk cost/profit and act cost/profit.

    Obama talks green/environment and acts cost/profit.

    Any President that denies us secure Canadian oil would be effectively treasonous. Obama is not a stupid man. Nor is he an ideologue. When he gets together with his advisers, I have the sense that the grown-ups in the room usually win. When he gets in front of a camera or an audience, not so much.

  6. Stan -4,

    Did you actually read that rant?

    A quote from your link:

    "Because there is increasing evidence that abiotic, deep oil generation may be a thermodynamic reality, implying, if so, that at least some hydrocarbons would not be just a ‘fossil’ fuel, but an ongoing planetary process, i.e., ‘renewable’ in the real sense of the word?"

    Anyone who actually believes that the 'some hydrocarbons' in that statement represents anything more than a totally insignificant, vanishingly small fraction of total planetary hydrocarbon reserves cannot be taken seriously.

  7. Might be interesting to back-of-the-envelope what the difference in CO2 emitted through transport would be between scenario A where the US takes oil from Alberta through a pipeline and China gets that amount from elsewhere by ship (Africa?) and scenario B where the pipeline is successfully stopped, and Alberta's oil goes to China by ship and the US gets an equivalent amount by ship from the Middle East or Africa...

  8. bigcitylib,

    If they can't get the Gateway pipeline built they will ship bitumen by rail - just like they already do with coal.

    In any case, the first nations will be bought off. There opposition is simply an initial negotiation stance.

    Bottom line: no matter how much the enviros whine the oil sands will get dug up and sold as long as there is a demand. If they want to change that they need to find cheaper alternatives.

  9. DeWitt, Freeman Dyson appears to believe in the possibility of abiogenic gas:


    I'm more skeptical than he is about it. But I certainly take him seriously and agree with him that the threat of AGW is exaggerated.

  10. And if the Gateway pipeline is delayed the existing pipeline owned by Kinder Morgan is expected to be expanded for another 80,000 barrels a day. They already have all the rights of way so getting approval should be reasonably easy. The bigger problem was a potential for a "tanker ban" on the West coast which was targeting the new pipeline. But with the recent election putting the Conservatives into a solid majority position that is unlikely as well.

  11. Trey,

    Abiotic gas is an entirely different matter. There is evidence for the existence of that, i.e. methane in hard rock mines that has the standard ratio of 13C/12C as found in carbonate rocks rather than having the lower ratio characteristic of biologic origin. But we're talking about traces in rock that isn't porous at all. And abiotic methane would still have to be trapped in porous formations to be recoverable in quantity.

    Higher molecular weight hydrocarbons (kerogen in oil shale) are cracked apart to lower MW compounds and finally to methane as the rock formations containing them are subjected to higher temperature and pressure. The zone for formation of conventional petroleum is narrow, between 7,500 and 15,000 feet below the surface. Below 15,000 feet you get nearly pure methane.

    The experiment that 'proved' that abiotic petroleum was possible was a joke. By subjecting methane to high temperature and pressure, small amounts of ethane and traces of higher MW hydrocarbons were formed. The more interesting experiment would be to take a higher MW hydrocarbon like butane and do the same thing. My prediction would be that the end result, if equilibrium were to be achieved, would be exactly the same as starting from methane, mostly methane.

  12. You over rate Obama. He is developing a very bad habit of
    1- attempting to lead by speechifying
    2- cutting nose to spite face
    3- belittling those with whom he has to negotiate while
    4- making incomprehensible arbitrary policy changes
    5- ignoring his obligation, if he does not like the obligation.

  13. to Raven-

    to give some perspective of what is " cheap", here on the other side of the pond a US gallon of unleaded goes for over 8 US$ right now (dollar at 1.40 euros).

    Even with these prices, there is no cheaper alternatives. Fossil fuels have to be very expensive indeed before people switch to alternatives, which in any case do not exist yet. Drove 350 miles today, no electric car has such a range yet.

  14. -13-

    I understand that Obama drinks the blood of Christian babies as well.

    Get a grip - life is not of contest of who can spew the most bile.

  15. -15-

    His list actually read like a pretty accurate description of the current administration's M.O. And really a minimum amount of bile.

    The version of that with bile would have accused the President of things like attempting to destroy America's economy, world standing, incompetence, etc. (i.e., speculation on motive). This list was more about the what than the why.

  16. Despite all the lists anyone likes to create about Obamas shortcomings he still ranks far above Bush (and Palin the new dumb darling) in almost every category imaginable. Of course to realise that you have to be objective and few people are.

    As for conservatives talking cost/profit; well not when it comes to porking, earmarking red state subsidies or funding illegal and pointless wars from Chinese debt.

    Remember when the US budget balanced do we? Hint: It wasn't a conservative that managed it.

  17. DeWitt,

    Yes. I actually read the whole thing (and without moving my lips!) He made a lot of very strong points. I have no opinion whatsoever about abiotic sources and don't care what he had to say about the subject. It was a throwaway line and didn't negate anything pertinent he had to say.

  18. -17- jgdes,

    That sounds like a very objective take on the matter.

  19. Stan,

    I consider throwaway lines a good indicator of critical thinking. If it wasn't important, it shouldn't have been included. Otherwise it's throwing sticky stuff at a wall and seeing what doesn't fall off.

    The tone didn't help either. It was a cornucopist rant that was no more convincing than the rants from the Malthusians. Barring a miracle, the cost of energy is going to continue to increase. Markets or governments will allocate resources and I guarantee you won't like the results.

  20. jgdes -17,

    Oh, puhleez, not the myth of the Clinton balanced budget again. If the budget had actually been balanced, why did total US statutory debt increase by $178 billion that same year (FY1998)? Answer, because the budget was not balanced.


  21. DeWitt said... 20

    "Barring a miracle, the cost of energy is going to continue to increase."

    Haven't you been paying attention? A miracle has already happened.