Could NAFTA force the Keystone XL pipeline on the United States?

As the Obama administration puts off once again any decision on authorizing the Keystone XL pipeline, there are whispers of another intriguing possibility. If the U.S. government fails to approve the pipeline soon or rejects it outright, the Canadians may challenge the delay or rejection under the provisions of the North American Free Trade Agreement (NAFTA) signed by both countries. This move opens up a politically attractive option not previously available to the Obama administration, something I'll discuss below.

I've been wondering about how NAFTA might affect any decision. Under its provisions, Canada is obliged to maintain the same ratio of exports to total production of oil and natural gas as prevailed in the previous 36 months regardless of the situation, that is, emergency or no. The pain of any voluntary restriction by Canada must be borne in proportion to its current consumption. Each party to the treaty would be obliged to suffer the same percentage decline in oil or gas deliveries from Canadian production.

So, what if Canada decides to expand oil production from the tar sands and export that oil to Asia? Would that production be included in total Canadian production for the purposes of the treaty? Could the United States proceed against Canada for reducing the proportion that the United States is receiving from total production?

New York state shale gas: Not so much

A drilling foreman once told me, "Don't believe ANY reserve number unless it's linked to a price." And, that is just what petroleum geologist and consultant Arthur Berman and his colleague Lyndon Pittinger have done in a new report on the viability of shale gas in New York state.

Not surprisingly, when Berman and Pittinger considered what it would cost to extract the shale gas beneath New York state at a profit, the mammoth claims about recoverable reserves made by the oil and gas industry appeared heavily inflated.

Source: Business First

The stunning conclusion of the report is that at current prices--in the mid-$4 range per thousand cubic feet (mcf)--NONE of the natural gas trapped in the New York portion of the Marcellus can be profitably extracted. It's possible, of course, that someone would try. But, the economics look very shaky at current prices given what we know about the nature of the underground deposits.

Perverse outcomes: Lifting U.S. oil export ban would mean greater dependence on foreign oil

The United States today is a large net importer of crude oil and refined products. And, yet the story that the country can somehow export crude oil as a foreign policy measure to help reduce Ukraine's dependence on Russia won't die. Oil executives and their surrogates keep bringing it up, and unsuspecting reporters amplify a message that has absolutely no basis.

The reason for this oil industry public relations blitz on the Ukraine is rooted in the industry's desire to end a decades-old ban on U.S. crude oil exports--one which the industry hopes to persuade Congress and President Obama to overturn. There is, in fact, a case regarding market efficiency for overturning the ban, but this is NOT the one the industry is using in its public relations campaign.

Here's why: The major effect of lifting the ban would be to allow domestic producers to sell lighter grades of crude oil--which U.S. refineries have little remaining capacity to refine--to foreign refineries which do have spare capacity. Perversely, that would lead to GREATER imports of foreign oil--mostly heavier grades--more suitable for the current U.S. refinery infrastructure. Net imports would remain unchanged, of course, even as the country's oil supply becomes more vulnerable to events abroad.

Did crude oil production actually peak in 2005?

"Wait a minute," you must be saying. "Haven't we been hearing from the oil industry and from government and international agencies that worldwide oil production has been increasing in the last several years?" The answer, of course, is yes. But, the deeper question is whether this assertion is actually correct.

Here is a key fact that casts doubt on the official reporting: When the industry and the government talk about the price of oil sold on world markets and traded on futures exchanges, they mean one thing. But, when they talk about the total production of oil, they actually mean something quite different--namely, a much broader category that includes all kinds of things that are simply not oil and that could never be sold on the world market as oil.

I've written about this issue of the true definition of oil before. But Texas oilman Jeffrey Brown has been bending my ear recently about looking even deeper into the issue. He makes a major clarifying point: If what you're selling cannot be sold on the world market as crude oil, then it's not crude oil. It's such a simple and obvious point that I'm ashamed to have missed it. And, Brown believes that if we could find data that separates all these other non-crude oil things out, the remaining worldwide production number for crude oil alone would be flat to down from 2005 onward.

A Three-Week Hiatus - Posting to Resume April 13

A crush of consulting work, a heavy travel schedule and an impending move (closer to downtown Portland) necessitate a three-week hiatus in posting. I expect to resume posting on Sunday, April 13.

Net vs. gross energy: Is it wise to be complacent?

Everyone knows that when a potential employer makes a job offer, the salary or wage he or she proposes isn't what you'll be taking home. What you'll take home is your net pay. The number the employer offers you is your gross pay, and that's just what it says on your pay stub.

It's not quite a perfect analogy with net energy versus gross energy. But it's an everyday analogy that most people can understand. Net pay is what you have to pay your bills today. And, net energy is what society has in order to conduct its business (and its fun) on any given day. Net energy is what's left after the energy sectors of the economy--oil and gas, coal, nuclear, hydroelectric, renewable energy industries, and farming which provides food for human and animal energy and crops for biofuels--expend the energy they must to extract energy from the environment and then sell the surplus to the rest of us.

We don't often think of these sectors of the economy because for most people they are out of sight and therefore out of mind. And, until the last decade food and energy have been so consistently cheap in the last 60 years or so, that few people ever paused to ponder the fact that it takes energy to get energy. And, after all, cheap energy is an indication that it takes very little energy to extract huge amounts of energy from the environment. So, why worry about that?

Ukraine, Russia and the nonexistent U.S. oil and natural gas "weapon"

Commentators were falling all over themselves last week to announce that far from being impotent in the Ukraine crisis, the United States had a very important weapon: growing oil and natural gas production which could compete on the world market and challenge Russian dominance over Ukrainian and European energy supplies--if only the U.S. government would change the laws and allow this bounty to be exported.

But, there's one very big problem with this view. The United States is still a net importer of both oil and natural gas. The economics of natural gas exports beyond Mexico and Canada--which are both integrated into a North American pipeline system--suggest that such exports will be very limited if they ever come at all. And, there is no reasonable prospect that the United States will ever become a net exporter of oil.

U.S. net imports of crude oil and petroleum products are approximately 6.4 million barrels per day (mbpd). (This estimate sits between the official U.S. Energy Information Administration (EIA) numbers of 5.5 mbpd of net petroleum liquids imports and 7.5 mbpd of net crude oil imports. And so, to understand my calculations, please see two comments I made in a previous piece here and here. My number is for December 2013, the latest month for which the complete statistics needed to make my more accurate calculation are available.)

Taking a short break--No post this week

Other responsibilities have made it impossible to find time to write my weekly piece. I expect to post again on Sunday, March 9.

Is ammonia the holy grail for renewable energy storage?

"If you want to beat carbon, it's the only way to do it unless you change the chemical charts." So says Jack Robertson about the prospects for making ammonia the world's go-to liquid fuel and renewable energy storage medium.

Robertson is chairman and CEO of Light Water Inc., an ammonia energy storage startup. The carbon he mentions refers, of course, to the major carbon-based fuels of oil, natural gas and coal that provide more than 80 percent of the world's energy. The charts he mentions refers to the periodic table of elements, a listing of the basic elements of the universe which are about as likely to change their properties as the proverbial leopard is to change his spots.

Most of us think of ammonia as a pungent household cleaning agent that disinfects and deodorizes. Farmers are familiar with anhydrous ammonia (essentially ammonia that is not mixed with water) that is a common nitrogen fertilizer.

Progressive Commentary Hour with guests Kurt Cobb and Nate Hagens

In lieu of my regular weekly piece, I'm posting a link to a radio interview I did last week for the Progressive Commentary Hour as I take a brief hiatus. I was privileged to be on with Nate Hagens, former editor of The Oil Drum. We focused on the effect of peak (affordable) resources and climate change on the economy and society. I was pleased that host Gary Null had such a deep understanding and appreciation of the issues we discussed. You can find streaming and downloadable versions of the interview on the Progressive Radio Network site by clicking here and then scrolling to the bottom of the page.