You Scratch My Back And I'll Scratch Yours

As many of you know, I live in Central Texas but work in South Texas. During my weekly to-and-fro commutes I pass through the Eagle Ford oil shale region, the Texas equivalent of the Athabasca Oil Sands in Alberta, Canada. The Athabasca Oil Sands are the originating point of the proposed Keystone Pipeline, an ambitious project to build a 2000+ mile-long pipeline to transport Canadian oil to American refineries. If you've been paying attention, you know that the Keystone pipeline (or, as oil folks call it, the KXL) has been in the news lately.

But first, let's take a look at the economic impact of Eagle Ford.

It's lunchtime at Lee's Steakhouse (in Carrizo Springs, Texas), and the restaurant has few empty seats.

At a nearby convenience store, there are long lines at the two registers, and there's a wait to fill up at the gas pumps. Roads are clogged as tankers barrel through to deliver equipment to remote oil rigs.

Last year, the Eagle Ford shale generated 6,800 full-time jobs and paid $311 million in salaries and benefits...

When spinoff jobs are included — from wholesalers to waiters - the study found the development in the shale play supported 12,600 jobs and paid $512 million in salaries.

... by 2020, 5,000 new wells will be drilled, and the Eagle Ford will support almost 68,000 full-time jobs, account for almost $21.5 billion in total annual economic output, and add almost $1.2 billion to Texas' revenues.

The level of activity is astonishing. In order to support the drilling, there is a frenzy of infrastructure development (roads, rail lines, utilities...) and secondary support (grocery stores, restaurants, housing...). Most of this activity is 24/7. Employment is up, property values are up, levels of prosperity and quality of life are up. It's all good.

Now let's consider the Keystone Pipeline.

The proposed Keystone XL Pipeline offers nothing but promise: tens of thousands of desperately needed jobs, and a big step toward ensuring North American energy security.

But last week, promise gave way to politics when U.S. President Barack Obama punted on the pipeline permitting decision, delaying it until after the November 2012 election.

What could make more sense than approving a project that means 20,000 new jobs in the U.S.? These jobs come as the United States is struggling to recover from a deep recession, with unemployment continually exceeding nine per cent. Add to this that only last month, the president’s own White House Jobs Council cautiously supported the KXL project, and the environmental impact statement found the pipeline would not cause undo harm...

But cancelling the pipeline will definitely cause undo harm...

Canadian Prime Minister Stephen Harper said Sunday that he was looking at exporting more oil to China after the United States delayed a decision on a controversial pipeline.

The conservative Canadian leader, taking part in a summit in Hawaii hosted by Obama said the pipeline decision had produced "extremely negative reactions" and that he discussed oil exports with Chinese President Hu Jintao.

"This does underscore the necessity of Canada making sure that we are able to access Asian markets for our energy products," Harper told reporters. "I indicated that yesterday (Saturday) to President Hu of China."

So we are (potentially) losing jobs and strategic resources to the chicoms, all because of politics. At least that's what the conventional wisdom would have us believe.

... last week, promise gave way to politics when U.S. President Barack Obama punted on the pipeline permitting decision, delaying it until after the November 2012 election.

Environmental radicals in the U.S., which include the various “Occupy” protesters and Hollywood hipsters, stung by a series of environmental disappointments the last two years, decided the KXL pipeline was their cause célèbre.

As a result, the more strident environmentalists were demanding a victory and what was a “no-brainer” pipeline project approval, became a “no way!” for a portion of President Obama’s base who demanded tangible proof of his fidelity to their cause.

But remember, this is Washington D.C., where nothing is as simple as it seems, and everything (and everyone) is crookeder than a dog's hind leg.

... President Obama is doing everything he can to indirectly kill the Keystone XL Pipeline  project, which was to bring millions of barrels of oil from Canada's tar sands region into the United States, creating jobs and growing our North American energy supply.  Canadian leaders are now talking up an alternative pipeline to their western ports to ship all that oil to China.  That may not be so easy though, as such a pipeline would be very expensive, having to cross the Canadian Rockies, and it faces its own enormous environmental opposition.

However, there is a quick and easy, but not so cheap, solution at hand: railroads.  Railroads are often called on to transport oil when pipeline capacity is maxed out. Much of the giant Bakken Field in the North Dakota is now being rail served while waiting for new pipelines to be built. Shipping oil by rail costs more than a pipeline, but is more flexible, allowing shipments to wherever oil is priced the highest, and can be started almost immediately, compared to a pipeline which can take years to permit and build.

BNSF Railway is the major oil player in North Dakota, and its extensive lines into Canada make it the logical choice to ship most of the Canadian oil when all the alternatives are ruled out.  Railroads typically charge several thousand dollars just to ship one tank car from the Dakotas to the Gulf, which move in 100 car unit trains.  Canada could potentially supply many dozens of these trains daily if it totally committed to rail shipments, providing many new billions of revenue for BNSF.

Oh, by the way, you may know the guy who just bought BNSF; Warren Buffet.

Yes, the same Warren Buffet who supported obama's 'tax the rich' proposal.

Is this the quo of that quid pro quo?