Alberta Clipper Sets Sail for the US

Posted on 21 August 2009

Except that this Clipper is not a ship, it’s an oil pipeline to be built by Enbridge.  One that stretches 1,590 kilometers from Hardisty in central Alberta to Superior, Wisconsin and will carry 450,000 barrels per day of heavy crude, with an option to expand to 800,000 barrels a day.

The US State Department issued a presidential permit today and declared its motivations for approving the deal by stating “[t]hese included increasing the diversity of available supplies among the United States’ worldwide crude oil sources in a time of considerable political tension in other major oil-producing countries and regions.”

This decision comes on the heels of report issued by the Council on Foreign Relations that highlights the important energy security component provided to the US by the Canadian Tar Sands.  Scientific American gives us a key conclusion:

“The council’s analysis suggests the oil sands are unique in that they hold the potential to reduce OPEC’s revenues, thus weakening the cartel and those members that often undertake policies hostile to U.S. interests. If the oil sands could replace 2 million barrels per day of OPEC production, that would lead to a $70 billion per year cut in revenue to OPEC states, even with prices at $100 a barrel.”

The flip side of the issue is carbon intensity of bitumen production.  We wonder if the decision to build this pipeline would be different if there already was a price on carbon.   Michael Levi, the author of the CFR report dismisses the issue by estimating that a carbon price of $20 per ton would add only $2.21 per barrel of additional production costs to the oil sands. A price of $50 per ton of CO2 equivalent would add an extra $5.53 per barrel.

No doubt, his analysis, and similar conclusions by oil heavyweights Cambridge Energy Research Associates swayed State Department thinking towards the benefits versus the costs of enabling Tar Sands.

At the very least, this is an interesting display of the new political conflict that can arise between two previously aligned camps – those that favor energy independence and those that put climate change above all other concerns.   More tellingly, the Alberta Clipper sends the signal that renewables, to be truly competitive on a scale that can compete with oil sands, will either need the price of the externality (i.e. carbon) to be a lot higher than is currently contemplated, as Levi shows, or find a way to compete in the political realm with those that persuasively argue for diversifying energy security, even if it means embracing oil sands.