Small sacrifice to fight Putin and jihadis?

Bob Mercer notes that county emergency responders lack the training and resources to deal with oil train accidents. County emergency management officials don't even get updates on what sort of toxic train materials are moving through or parking in their counties. State Emergency Response Commission chairman Bob McGrath says that in response to this increased risk to emergency responders and the public at large, the Legislature is likely to do nothing:

The commission’s chairman, Bob McGrath of White, said training money is available, but he doesn’t know where equipment money would be found.

McGrath said he doesn’t foresee the Legislature imposing fees and won’t allow special tax assessments. “I think the legislation approach probably is not going to work,” he said [Bob Mercer, "Oil Trains Present Unmet Challenges for South Dakota," Aberdeen American News, 2014.12.16].

The Emergency Response Commission called for no action.

As we wait unprepared for the next messy derailment, let us take comfort in the fact that we are sacrificing our local safety to support the global war on bad guys. Our oil production is putting a serious crimp in Vladimir Putin's style:

Putin's Russia, like the USSR before it, is only as strong as the price of oil. In the 1970s, we made the mistake of thinking that the USSR's invasion of Afghanistan meant that we were losing the Cold War, when the reality was that they had stumbled into their own Vietnam and could only afford to feed their people as long as oil stayed sky-high. The USSR's economic mirage, though, became apparent to everybody—none less than their own people, who had to scrounge in empty supermarkets—after oil prices bottomed out in the 1980s. That history is repeating itself now, just without the Marxist-Leninism. Putin could afford to invade Georgia and Ukraine when oil prices were comfortably in the triple digits, but not when they're half that. Russia can't afford anything then [Matt O'Brien, "Sorry, Putin. Russia's Economy Is Doomed," Washington Post: Wonkblog, 2014.12.15].

We and the Saudis are also helping beat the Islamic State thugs, who can't command as high a price for the product of their commandeered oil fields. Well, that, and we're blowing up the oil infrastructure they control.

So anyone willing to trade local emergency responder safety and environmental integrity for geopolitical wins against Russia and the caliphate?

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Saudi Arabia gave a Black Friday gift to the world oil market. The Saudis have persuaded their OPEC partners to sustain OPEC's current oil production rates (30 million barrels per day) rather than cutting production to pull oil prices out of their current slide. The Saudis' main objective is to crush North American producers with low prices and regain market share.

Remember that our country's booming oil production is based on hydraulic fracturing, or fracking. 80% of the fracking fields in the U.S. require oil prices of $80 per barrel or more to remain profitable. Canadian oil firms have been making their budget projections around assumptions of oil hanging around $80 per barrel. Immediately after OPEC's decision, the price for North American oil, West Texas Intermediate, dropped to $69.05.

Venezuelan Foreign Minister Rafael Ramirez confirms the basic profit equation and declares himself a friend of U.S. environmentalists opposed to fracking:

"OPEC is always fighting with the United States because the United States has declared it is always against OPEC... Shale oil is a disaster as a method of production, the fracking. But also it is too expensive. And there we are going to see what will happen with production," he said [Alex Lawler, Amena Bakr and Dmitry Zhdannikov, "Inside OPEC Room, Naimi Declares Price War on U.S. Shale Oil," Reuters via KELO Radio, 2014.11.28].

If you're pumping gasoline into your car, you should be cheering this price war, right? Cheaper oil means cheaper gasoline, which means we can all drive around and buy more stuff, stimulating the economy.

The OPEC price war could save North Dakota from the ills of petro-state chaos and corruption. American drillers aren't going to keep pumping oil at a loss out of patriotism or a love of the view of Minot from the man camps. The Saudis drove Americans out of the oil business in 1986; they could do it again.

The OPEC price war could also make the Keystone XL pipeline disappear. Canadian tar sands oil requires a price of $85 per barrel to make scooping that goop profitable.

For bonus geopolitical excitement, the Russians need $100 per barrel to balance their budget. Vladimir Putin will have a hard time continuing his invasion of Ukraine if low oil prices threaten a repeat of the Soviet collapse. Then again, Putin is not Gorbachev. Faced with economic hard times, rather than retreating, restructuring, and releasing his grip on his neighbors, Putin might lash out, reaching for more land, resources, and power.

But then we get to a strangely familiar and ugly economic scenario. Big banks have made big loans to finance Big Oil in North America. The frackers carry a lot of junk-bond debt. If oil stays low, we could see defaults that could create another financial crisis:

Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry....

“A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report [Andrew Critchlow, "Oil Price Slump to Trigger New US Debt Default Crisis as OPEC Waits," UK Telegraph, 2014.11.14].

Critchlow hears 2007 all over again. Just like bankers underwriting real estaters in a housing bubble pre-2007, bankers are underwriting oilers in an oil bubble based on possibly unsustainable prices. The Saudis are now popping the bubble.

But if the joys of cheap gasoline are crushed by the pain of junk-bond defaults, at least you'll be able to blame Obama right alongside the Saudis:

...This rush to pump more oil in the US has created a dangerous debt bubble in a notoriously volatile segment of corporate credit markets, which could pose a wider systemic risk in the world’s biggest economy. By encouraging ever more drilling in pursuit of lower oil prices, the US Department of Energy has unleashed a potential economic monster and pitched these heavily debt-laden shale oil drilling companies into an impossible battle for market share against some of the world’s most powerful low-cost producers in the Organisation of Petroleum Exporting Countries [Critchlow, 2014.11.14].

The Saudis are dropping our gasoline prices more surely than anything Mike Rounds or Kristi Noem has promised us. OPEC may shut down fracking and Keystone XL more effectively than any spirit camp. But the potential for a financial crisis that could swamp the benefits of cheap gasoline should make us beware Saudis bearing gifts.

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Map of proposed Dakota Access pipeline route through South Dakota; see full route map at http://www.energytransfer.com/documents/DAPL_States_Counties.pdf

Map of proposed Dakota Access pipeline route through South Dakota (click to embiggen; see full route map at http://www.energytransfer.com/documents/DAPL_States_Counties.pdf)

Larry Pressler's pipeline plan is already rolling. The Dakota Access oil pipeline would ship Bakken oil from North Dakota to Patokia, Illinois, refineries. Thirty inches wide and moving 450,000 barrels per day, Dakota Access would match the first Keystone pipeline in size, destructive power, and, if our Legislature had the good sense to pass a pipeline tax, $200 million in budget-boosting potential.

Dakota Access, which is one of the heads of energy hydra Energy Transfer Partners, paid Strategic Economics Group of Iowa to write up an economic impact statement for its pipeline. SEG itemizes benefits for South Dakota:

Construction stage (2015-2016):

  • Estimated impact on production and sales: $835.8 Million
  • Estimated impact on labor income: $302.8 Million
  • Estimated number of additional job-years of employment: 7,100
  • Estimated increase in state sales, use, gross receipts and lodging taxes: $35.6 Million
  • Estimated increase in local sales, use, gross receipts and lodging taxes: $2.9 Million

Operations and maintenance stage (annually beginning in 2017):

  • Estimated increase in production and sales: $4.2 Million
  • Estimated increase in labor income: $1.9 Million
  • Estimated increase in full-time jobs: 31
  • Estimated increase in state sales, use, gross receipts and lodging taxes: $135,000
  • Estimated increase in local sales, use, gross receipts and lodging taxes: $62,000
  • Estimated increase in local property taxes: about $13 Million [Strategic Economics Group, "South Dakota Economic & Fiscal Impact Fact Sheet," November 2014]

Iowa State University economist David Swenson, who has not been paid by Dakota Access, is skeptical of this economic impact analysis:

“It’s not worthless, but it’s an industry-sponsored promotion piece designed to get the public to support it,” Swenson said. “Policymaker beware.”

...Swenson said the study uses a deceptive calculation for jobs, called job years. If one job existed for two years, it would be counted as two job years, he said. He said for the $1 billion economic output, a similar duplication by years is used, and he disputed using gross transactions as a measure of economic output [B.A. Morelli, "ISU Economist Doubts Study Touting Economic Benefits of Pipeline," Cedar Rapids Gazette, 2014.11.13].

Orland organic impresario Charlie Johnson won't be swayed by economic abstractions. Dakota Access will cut through 160 acres that he farms organically. If our state's embrace of the Keystone pipeline and Mike Rounds's Big-Oil lies are any indication, Johnson won't get any sympathy from state courts or regulators.

But maybe Johnson can divert Dakota Access by getting creative and copyrighting his land as a work of art, as Alberta artist Peter von Tisenhausen did:

Tiesenhausen made the decision after years of legal battles with oil and gas companies that wanted access to the deposits of natural gas that sit just beneath his 800-acre plot of land. Under federal law, Alberta landowners have the rights only to the surface of their land. The riches that lie beneath are generally owned by the government, which can grant oil and gas producers access so long as the companies agree to compensate landowners. This compensation is usually for lost harvests and inconvenience, but, Tiesenhausen reasoned, what if instead of a field of crops these companies were destroying the life’s work of an acclaimed visual artist? Wouldn’t the compensation have to be exponentially higher?

...In 2003, he presented his copyright argument before the Alberta Energy and Utilities Board, which told him that copyright law was beyond its jurisdiction and he would need to pursue that in the courts. So far that hasn’t been necessary. The oil and gas companies have since backed off, even paying for an expensive rerouting of pipelines, and have yet to bother testing his copyright [Amy Fung, "An Alberta Sculptor Fights Oil Companies to Exhibit Art on His Own Land," 2010.04.22].

Ah, so that's why Dennis Daugaard doesn't want kids majoring in liberal arts.

I invite the legal scholars in our audience to determine whether the land-copyright argument would transfer from Canadian to American law. Lawyer Monica Goyal notes that von Tisenhausen's argument hasn't faced court scrutiny yet; his willingness to lawyer up and press up has simply deterred the pipeliners eying his land from pushing the issue.

But Charlie, we know an artist or two around Lake County who like to work big. Perhaps a few acres of artistic ingenuity could keep that black snake from burrowing through your land. Start an art-protest-pipeline-barrier demo project, and perhaps Dakota Rural Action could collaborate with Christo to come up with a creative state-spanning installation that would keep Big Oil from trampling our property rights.

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There is something perverse about capitalism and the global economy when a shipping company suspends cargo runs from Minneapolis at the height of harvest. We have food, something human being needs every day, and big business would rather haul coal and oil across the Pacific. The capitalist system shows further malfunction in failing to pay those who grow food enough to make shipping their product to eaters pay off.

Senator-Elect Mike Rounds and his facilitators think the solution is more more more! Pump and pipe more oil instead of challenging the root problem, an addiction to fossil fuels.

In my reading on the grain-rail-oil problem, I notice that Northwest grain farmers are having an easier time getting their product to market because barges can haul their grain down the Columbia. That gets me thinking: why don't we alleviate the shipping shortage by returning to barge shipments on the Missouri River? Let's even expand it: install some storage bins and grain chutes at the dams—up and over!—and maybe we could float grain all the way down from Bismarck.

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Senator-Elect Mike Rounds based his campaign on a series of laughable lies, including the claim that building the Keystone XL pipeline will drive trains to every farmer's doorstep to haul away their grain.

Would you believe the railroads themselves don't buy that argument? An eager reader sends me this BNSF newsletter from Winter 2013, before Republicans Doctor Moreau'ed Keystone XL and agricultural rail service, in which the company says Keystone XL will have little impact on its business choices:

Huge growth in Canadian crude oil production is expected in the next 20 years. In anticipation of the growth, many crude-loading facilities are currently under construction in Canada, and many more are being planned. Even if the Keystone XL pipeline is built, the growth in production is projected to exceed the capacity of the Keystone.

In addition, rail provides some unique advantages, including destination flexibility, and reduces time-to-market. Rail also has the potential to move the heavy bitumen crude with little to no diluent; pipelines require a diluent of 30 percent to flow. These all bring value to our customers, and so we see crude-by-rail being a key player in the Canadian market regardless of whether the Keystone XL is built [Teresa Perkins, "Oil Will Continue to Be Important Cargo at BNSF," Railway newsletter, Winter 2013].

Perkins says BNSF has invested $3 billion in crude oil rail facilities and tank cars (which can't haul grain). It would seem unlikely BNSF is going to let those assets sit idle just because Mike Rounds wants them to haul grain for a couple months a year. BNSF also contends that rail is cheaper and more flexible for Bakken shippers, which suggests Keystone XL is a non-starter for our North Dakota oil baron neighbors.

BNSF chief Matt Rose underlined this business analysis just last month:

BNSF Railway Executive Chairman Matt Rose says that even if the controversial Keystone would not take away business from BNSF. “I don’t think it would take business,” Rose says. “I think it would make the curve of our growth go down a little bit."

Rose tells Fox Business News that Keystone will not take away its crude oil business because the pipeline would largely carry heavy crude south, while pipelines won’t be able to handle all the crude oil destined for east and west coasts. BNSF is a major mover of crude oil from the Bakken formation ["Rose: Keystone Pipeline Won't Take Away from BNSF Oil Business," Trains, 2014.10.01].

We'll see how long it takes for business reality to set in with Mike Rounds and the pro-Keystone XL Republicans. The only pipeline we're going to need is the ink pipeline to load President Obama's veto pen against all of the Congressional Republicans bad ideas.

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Evidently Big Oil is going to lay pipelines and hogwash all over South Dakota. Oil and Gas Association dirctor Adam Martin is running around East River telling folks that having the Dakota Access pipeline shoved through their land is somehow a glorious chance to participate in the oil boom.

Help me understand: my neighbor Charlie Johnson gets a big oil pipeline under his organic farm that will carry potentially leaky, explosive oil for maybe 30 years, then sit there and pollute and collapse long afterwards, and he capitalizes on that... how?

As long as America and the industrialized world remains addicted to oil, there's probably no getting around pipelines. But if we buck long enough, we might get the pipelines to go around us. Look at Keystone XL. President Barack Obama as been keeping TransCanada's tar sands pipeline at bay for years with his cowardly but clever delays. And now Alberta's oil producers may take a different route, east through Canada to the Atlantic!

In this period of national gloom comes an idea -- a crazy-sounding notion, or maybe, actually, an epiphany. How about an all-Canadian route to liberate that oil sands crude from Alberta’s isolation and America’s fickleness? Canada’s own environmental and aboriginal politics are holding up a shorter and cheaper pipeline to the Pacific that would supply a shipping portal to oil-thirsty Asia.

Instead, go east, all the way to the Atlantic.

Thus was born Energy East, an improbable pipeline that its backers say has a high probability of being built. It will cost C$12 billion ($10.7 billion) and could be up and running by 2018. Its 4,600-kilometer (2,858-mile) path, taking advantage of a vast length of existing and underused natural gas pipeline, would wend through six provinces and four time zones. It would be Keystone on steroids, more than twice as long and carrying a third more crude [Rebecca Penty, Hugo Miller, Andrew Mayeda and Edward Greenspon, "Keystone Be Darned: Canada Finds Oil Route Around Obama," Bloomberg, 2014.10.08].

Running even more tar sands oil through Canada instead of South Dakota wouldn't make Bill McKibben, climate-change crusaders, or alternative-energy advocates happy. But it would keep South Dakotans from bearing the costs of a pipeline that does not serve South Dakota interests.

And if Energy East supplants Keystone XL, it will be because committed activists kept up the pressure that forced the market to seek other solutions. That's not a total win, but it's better than nothing.

So Charlie, what can we do to get Dakota Access to seek alternatives?

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Stick to your guns, Rick and Corinna!

Mr. Tsitrian extends and revises his August remarks to maintain that opposition to the Keystone XL tar sands oil pipeline loses votes for Democrats. Tsitrian and I continue to disagree on the merits of the new argument onto which Republicans have latched, that building Keystone XL will free up rail cars to ship South Dakota grain.

Whether or not moving more oil out of Alberta by pipeline would result in more available rail cars in South Dakota remains a dubious prospect. U.S. oil may make up less than 8% of what flows through Keystone XL. Bakken producers can make more money shipping their product by rail east and west rather than south via Keystone XL to the Gulf Coast refineries, which already have plenty of light crude like North Dakota's product.

I maintain that we could get more direct and immediate transportation results for our farmers by a variety of policies:

  1. Nationalize the railroads.
  2. Build more railroads.
  3. Impose a "bumper crop" rule requiring railroads to dedicate a percentage of their hauling capacity to crops that rises with reported stockpiles at prairie elevators.
  4. Mandate priority for domestic products: U.S. grain moves before Canadian oil.
  5. Create big immediate tax incentives for training and hiring new truckers to relieve the shortage of road haulers, move more transport to trucks, and free up rail cars for farm products.

Those policy options would have at least as much impact on rail shipping as building Keystone XL, without the harmful side effects, like raising gasoline prices and lowering property values. Imposing regulations on the railroads (who exist by the good graces of government and eminent domain) would not be as socially or environmentally harmful as forcing a pipeline on landowners with eminent domain. Even if we used eminent domain to build a new railroad right along the Keystone XL route instead of the pipeline, we would at least be using eminent domain in its intended spirit, to create a true common carrier that could benefit multiple shippers and other businesses rather than a pipeline that profits one company and hauls one product from one region.

The problem is that to beat Tsitrian and the new GOP spin, we have to explain all that. Tsitrian and I will have immense fun digging up evidence to support our claims (we need a TV show! John, let's buy Gordon Howie's studio!), but we're both past the 30 seconds we need to convince voters, and I'm the one swimming uphill against popular sentiment in favor of Keystone XL.

Even so, beam my brain into Rick Weiland's or Corinna Robinson's body, and I stick to their guns and keep saying to South Dakotans, "You and I agree on most issues, but I'm telling you what I've told you from the start of this campaign: Keystone XL is a net loss for this state. A few more available rail cars won't make up for a letting a Canadian company take our land. I'm just being honest, and that's more than you'll get from my opponents."

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TransCanada has put in motion the official process to renew its expired construction permit for the Keystone XL pipeline. On Monday, the Canadian pipeliner asked the South Dakota Public Utilities Commission to recertify its project.

While TransCanada and its dupes peddle their inflated jobs numbers, let's look at the original arguments the coaxed the PUC to approve the project in 2010. The PUC's Amended Final Decision greenlighting Keystone XL included the following findings of fact on the purpose of and demand for the project:

14. The purpose of the Project is to transport incremental crude oil production from the Western Canadian Sedimentary Basin ("WCSB") to meet growing demand by refineries and markets in the United States ("U.S."). This supply will serve to replace U.S. reliance on less stable and less reliable sources of offshore crude oil.

24. The transport of additional crude oil production from the WCSB is necessary to meet growing demand by refineries and markets in the U.S. The need for the project is dictated by a number of factors, including increasing WCSB crude oil supply combined with insufficient export pipeline capacity; increasing crude oil demand in the U.S. and decreasing domestic crude supply; the opportunity to reduce U.S. dependence on foreign off-shore oil through increased access to stable, secure Canadian crude oil supplies; and binding shipper commitments to utilize the Keystone Pipeline Project.

25. According to the U.S. Energy Information Administration ("EIA"), U.S. demand for petroleum products has increased by over 11 percent or 2,000,000 bpd over the past 10 years and is expected to increase further. The EIA estimates that total U.S. petroleum consumption will increases by approximately 10 million [sic] bpd over the next 10 years, representing average demand growth of about 100,000 [sic] bpd per year (EIA Annual Energy Outlook 2008).

26. At the same time, domestic U.S. crude oil supplies continue to decline. For example, over the past 10 years, domestic crude production in the United States has declined at an average rate of about 135,000 bpd per year, or 2% per year.... Crude and refined petroleum product imports into the U.S. have increased by over 3.3 million bpd over the past 10 years. In 2007, the U.S. imported over 13.4 million bpd of crude oil and petroleum products or over 60 percent of total U.S. petroleum product consumption. Canada is currently the largest supplier of imported crude oil and refined products to the U.S., supplying over 2.4 million bpd in 2007, representing over 11 percent of total U.S. petroleum product consumption (EIA 2007) [South Dakota Public Utilities Commission, Amended Final Decision and Order, TransCanada Keystone XL Pipeline application, 2010.06.29].

First let us note that Finding of Fact #14 is not fact. TransCanada is not seeking to ship more oil to the U.S. Keystone XL will ship more oil through the U.S. to the international market, raising our gasoline prices in the process.

Besides, TransCanada can't count on the U.S. market, because we are using less oil. Let's look at new EIA data and projections showing the significant changes in the oil market in the four years since the PUC issued its findings:

U.S. demand for petroleum is no longer increasing. U.S. demand for petroleum peaked in 2007, which appears to be the final year the PUC considered in formulating its economic analysis. Petroleum demand plunged during the recession. The EIA projects U.S. petroleum use will remain flat over the next 25 years.

EIA AEO 2014-primary energy use by fuel 1980-2040

EIA Annual Energy Outlook 2014, p. MT-6

EIA projects U.S. crude oil consumption will decrease 0.1% a year through 2040 (see EIA AEO 2014, p. A-1).

U.S. domestic crude production is no longer declining. U.S. production troughed at about the same time U.S. consumption peaked. Booming oil production on the Bakken and elsewhere has erased the preceding twenty-year decline and will likely remain above the previous 1990 peak through 2040.

EIA AEO 2014 - U.S. Crude Oil Production 1990-2040

EIA Annual Energy Outlook 2014, p. MT-27

The EIA projects domestic crude oil and lease condensate energy production will increase 0.5% a year through 2040 (see EIA AEO 2014, p. A-1).

U.S. petroleum imports are no longer increasing. Same arc: increase to the mid-2000s, followed by a dramatic decrease thanks to recession- and conservation-driven reductions in consumption and Bakken-frackin' production increases. In the best-case scenario, the U.S. is a net exporter by the mid-2030s. Worst-case, our imports return to a bit above current levels, still less than 50%.

EIA AEO 2014 - Net import share of US petro-liquids 1990-2040

EIA Annual Energy Outlook 2014, p. MT-29

The EIA projects that U.S. crude oil imports will decrease 0.2% a year through 2040 (see EIA AEO 2014, p. A-1).

TransCanada does not have to make an economic case to the Public Utilities Commission. The pipeliners' burden of proof consists mostly of showing that they'll follow the rules and not kill anybody.

But if Commissioners Hanson, Nelson, and Fiegen are going to include economic and energy security justifications in their discussion of the merits of Keystone XL, they'll want to revisit the oil market and consider the significant changes that have taken place in U.S. oil consumption, production, and imports since the PUC issued TransCanada its initial permit.

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