Keystone XL, Venezuela and The National Interest

Mark Green
Posted March 10, 2015

A postscript to our post explaining that the crude oil the Keystone XL pipeline would deliver is comparable to other heavy crudes already being refined in the U.S.: Oil sands crude would replace other heavy oils – most significantly, crude currently imported from Venezuela.

The point is made in the U.S. State Department’s most recent (of five) environmental reviews of Keystone XL:

Gulf Coast refiners’ traditional sources of heavy crudes, particularly Mexico and Venezuela, are declining and are expected to continue to decline. This results in an outlook where the refiners have significant incentive to obtain heavy crude from the oil sands. Both the EIA’s 2013 AEO (Annual Energy Outlook) and the Hart Heavy Oil Outlook (Hart 2012b) indicate that this demand for heavy crude in the Gulf Coast refineries is likely to persist throughout their outlook periods (2040 and 2035 respectively).

And in IHS Energy Insight’s 2014 report comparing the greenhouse gas intensity of oil sands and the average crude oil:

Oil sands will not replace the average crude consumed in the United States. The vast majority of future oil sands production growth will be heavy crude oil that targets US Gulf Coast refineries that are configured to processing heavy crude oils. Growing volumes of Canadian heavy crude are likely to displace other heavy crude oils imported from Venezuela and Mexico. Based on our earlier analysis … crude from Venezuela is in the same GHG intensity range as oil sands. Further, if Canadian oil sands supply to the US Gulf Coast is limited, Venezuela is the most likely alternative source of supply.

Let’s boil down the above:

• U.S. Gulf Coast refiners are largely configured to handle heavy crudes and need heavy crude supplies to process.
• Heavy crude supplies from traditional sources (Mexico and Venezuela) are in decline.
• Canadian crude would replace declining heavy crude supplies from those countries.

In fact, it’s already happening:

And Keystone XL would bring more oil sands to U.S. refiners (along with crude from the U.S. Bakken region).

Bottom line (from a separate HIS CERA report):

Venezuelan heavy oil—and Venezuela—will be the number one beneficiary of a negative decision on Keystone.

Hold that thought and fast forward to this week – with the U.S. government declaring Venezuela a national security threat and ordering sanctions against a group of Venezuelan officials. The question for President Obama: Why make a strategic energy policy decision that limits oil imports from neighbor and ally Canada to the benefit of Venezuela, hardly a friend of the United States and nowhere near as good a trading partner as Canada?

The answer is clear: The president shouldn’t make such a decision. And he wouldn’t if the decision was based on the merits of the Keystone XL pipeline, in terms of energy security, national security and the national interest. To reject the Keystone XL, the president would have to decide on some other basis – while abdicating his responsibility to decide, simply, whether the project was in the U.S. national interest.

It’s a decision the president can and should make.