"Joe Nocera Still Loves Keystone XL, Is Still Confused About The Basic Economics Of Oil Markets"
By Dr. Jim Barrett
It’s nice to know that the Joe Nocera at the New York Times can be taught. The last time I read one of his columns, he made the mistake of calling people “boneheaded” because they understood the economics of oil markets in a way that he clearly didn’t. He actually claimed that taxing oil production would increase oil production.
This time out, Joe has clearly showed that he learned his lesson: Don’t call people “boneheads” while displaying your own ignorance. Unfortunately for Joe, the lesson seems to have ended at not calling names, because his ignorance is once again on full display.
As with his last column, the discussion is about the Keystone XL pipeline which would bring crude from the tar sands of Canada to oil refineries in Texas. If you haven’t been paying attention to the issue, environmentalists and others oppose the pipeline on the basis of both local environmental issues surrounding the possibility of a leak in sensitive areas and on the global environmental grounds that developing Canada’s tar sands would be catastrophic for climate change.
Nocera, who to his credit admits openly to being a “longtime supporter” of the pipeline, abandons his previous comically flawed attempt at making economic arguments. This time, he attempts a political one: Allowing the pipeline to go through the U.S. will help us achieve “energy independence.”
Ignoring both the fact that the tar sands crude would flow to Texas refineries and then exported to other parts of the world as well the odd trend of treating Canada as though it were part of the U.S. (I wonder how Canadians feel about that), Nocera’s new energy security argument is just as flawed as his old economic one.
The problem is that even if Canada were just a northern U.S. state and even if all of the oil it produced were consumed in the U.S., the pipeline wouldn’t bring us any closer to actual energy independence. The reason is economics (sorry Joe, the stuff is everywhere). Oil is sold on global markets. The price oil is the same no matter where it is sold and who is buying it. If a buyer in Japan is offering $100 for a barrel of oil, and a U.S. company is only offering $80, the Japanese buyer will get it. That’s just how markets work. If the U.S. wants oil, we’re going to have to pay the market price.
The companies developing Canadian tar sands are not going to sell us that oil at below market rates because we are neighbors or because they like us. American oil companies don’t even do that. If global oil prices go up, we pay more for oil no matter who we buy it from.
Despite Nocera’s claim that “[w]e would no longer need OPEC,” (the oil producing cartel centered in the Middle East) we would still be very much subject to their whims and the impact it has on global oil markets. Whether or not the Keystone pipeline gets built, OPEC will still be a major supplier of oil. If OPEC decides to decrease production, global oil prices will rise, and the existence of the Keystone pipeline won’t change that. Fighting in the Middle East, sadly common, will still send global oil prices rising as it always has, and unless the Canadian oil companies promise not to raise their prices or only to sell to Americans (which they have literally sworn they won’t do (see video below), oil from the Canadian tar sands will go through the same price gyrations as all the other oil in the world.
Energy independence in the way most people think of it has always been something of a mirage. It has never really been about being able to get the oil want. It has always been about getting it at the price we want. If Venezuela (a member of OPEC) decides it doesn’t want to sell oil to the U.S. any more, there are other suppliers can get it from. We may have to pay more to get it, and that is the problem.
To be truly independent, we would have to sever ourselves from global oil markets. That is only possible if we can both supply all the oil we need and are willing to ban all oil exports. Otherwise the global price signal will find its way into our market. Even if we pretend that Canada is a part of the U.S., and even if this new and suddenly much larger U.S. could supply as much oil as it consumes, no one has ever seriously proposed banning oil exports, and so energy independence has never seriously been on the table, with or without the Keystone pipeline.
If we want to be free from the influence of oil markets, we have to be free from oil. To the extent that allowing the Keystone pipeline to go through slows or diverts investment from alternative energies and efficiency efforts, it actually makes us more dependent on oil markets, more vulnerable to volatile price swings, and less secure.
– Dr. Jim Barrett is Chief Economist at the Clean Economy Development Center