Forget ‘peak oil’ - America has a glut of the black stuff

I'VE NEVER believed in 'peak oil', the notion held with religious conviction by many on the left here that world production is topping out and will soon slide, plunging the world into economic chaos.

There's plenty of oil, with the constraints as always being the cost of recovery, as witness the vast new North Dakota oil shale fields. I regard oil "shortages" as contrivances by the oil companies and allied brokers and middlemen to run up the price. I fill my aging fleet of 50s and 60s era Chryslers with a light heart. The 59 Imperial ragtop and the 62 Belevedere wagon get around 18 mpg, which is still way ahead of the SUVs.

Contrary to the lurid predictions of declining US oil production, disastrous dependence on foreign oil and the need for new offshore drilling, not to mention the gloom-sodden predictions of the 'peak oil' crowd, the big crisis for the US oil companies can be summed up in a single word that drives an oil executive to panic like a lightning bolt striking a herd of snoozing Longhorns: glut.

Here let me wheel on a very useful report, Exporting - Energy Security: Keystone XL Exposed, just issued by Oil Change International (OCI), a 'clean energy' advocate.

The explosive sentences (underpinned by the latest figures from the government's Energy Information Administration) come on pages three and four: "For the last two years, and for the foreseeable future (my italics)... demand [for oil in the United States] is in decline, while domestic supply is rising... Gasoline demand is declining due to increasing vehicle efficiency and slow economic growth"; meanwhile, "as a result of stagnant demand and the rise in both domestic [notably North Dakota] and Canadian oil production, there is a glut of oil in the US market. Refiners have therefore identified the export market as their primary hope for growth and maximum profits."

By the way, I am by no means endorsing the rest of Oil Change International's piously trendy "clean energy" platform. But I am full of admiration for whoever put this report together. In two pages they've brought out enough useful facts on the domestic oil situation to devastate a decade's worth of Stakhanovite propagandising by Time, Newsweek, the Economist, the New York Times, the TV networks, the environmental mega-foundations and, of course, the entire spectrum of establishment think tanks from loony liberal to crazed conservative.

The current focus of debate on whether America is oil-rich or oil-starved is the proposed 1,700-mile Keystone XL pipeline extension - a $7 billion project to bring heavy, "sour" crude oil extracted from tar sands in Alberta, Canada, down through Montana and the Plains states to refineries on the Gulf Coast, notably in Port Arthur, Texas.

There were fierce protests outside the White House last month, led by environmentalist Bill McKibben, about the proposed pipeline, which is prospectively guilty of many sins, led by its putative enhancement of the theory known as anthropogenic global warming. The protesters have now furled their banners and headed home, or maybe they're "occupying" Wall Street, this month's whack at capitalism and greed.

Now the Obama administration will decide whether to issue a presidential permit for the object of last month's protests.

There will now be a 90-day review period. If federal agencies aren't unanimous, then the final say-so is up to Obama. It's a political hot potato and a 'Yes' from Obama will cost him a bit among the greens, but where are they going to go? It's a sound bet that Obama will issue approval. Would the ductile president risk a thrashing from Republicans for putting birds ahead of jobs?

Undoubtedly the prime rationale put forward by the president will be security of supply and energy "independence", meaning in this instance supply from the fine, upstanding Calgary-based Trans-Canada Corporation, as opposed to "not secure and reliable sources of crude oil, including the Middle East, Africa, Mexico, and South America".

We saw this bait-and-switch game a generation ago amid the battles over oil in Alaska, where the North Slope drilling and pipeline were approved by Congress only because the oil was intended to buttress America's energy independence. Congress required the oil companies operating on the North Slope to refine the crude in the United States, with no exports permitted.

In fact the oil companies had as their long-term strategy the aim of exporting Alaska's crude to Asia, thus ensuring that home heating fuel prices in the Midwest in winter would stay high.  

In 1996 President Bill Clinton, extending Lincoln Bedroom sleeping privileges and a Rose Garden birthday party to Arco's former CEO Lodwrick Cook in exchange for campaign cash, signed an executive order okaying foreign sales of Alaskan crude.

This time there will be no 25-year pause. From day one of the Keystone XL scheme the oil companies' plan has been to take the heavy crude from Alberta, refine it in Texas and then ship it out in the form of "middle distillates" - diesel, jet fuel, heating oil - primarily to Europe and Latin America.

Enter San Antonio-based Valero Energy, the largest exporter of refined oil products in the United States and a big-time retailer of gasoline in this country through its Valero, Diamond Shamrock and Beacon stations.

As OCI's report emphasises, the Keystone XL pipeline would "probably not have gotten off the drawing board" if it hadn't been for Valero. The company has the biggest commitment to the pipeline, guaranteeing a TransCanada purchase of at least 100,000 barrels a day, 20 per cent of Keystone XL's capacity, until 2030.

Valero's CEO and chairman, Bill Klesse, doesn't keep his firm's business plan a secret. The big overseas market is diesel because Europeans, Latin Americans and others like the more fuel-efficient diesel engine. Valero's Port Arthur refinery can process cheap heavy crude from Canadian tar sands into high-value, ultra-low-sulfur diesel. Better still, since the refinery operates as a "foreign trade zone", it won't pay tax and custom duties on exports.

In fact there's no national need for the Keystone XL extension. It spares TransCanada the task of trying to send the tar sands oil to Canadian terminals through fractious First Nations north of the border. It feeds Big Oil's bottom line. It's an environmental nightmare - mainly because of the certainty of corporate penny-pinching in maintenance and the equally appalling (and deliberate) lack of government safety enforcement.

Money talks, of course. Obama received $884,000 from the oil and gas industry during the 2008 campaign, more than any other lawmaker except John McCain. Valero throws the money around. Across 2008, 2010 and thus far in the 2012 campaign, it ranks in the top six contributors from the oil and gas industry - favouring Republicans by 80 per cent or more.

Between 1998 and 2010 Valero gave $147,895 to Rick Perry, outstripped only by Exxon. Surely, one way or the other, Bill Klesse can hope for a night in the Lincoln Bedroom. ·