More Slides from Ed Dolan’s Econ Blog Hidden Pitfalls of Increasing U.S. Dependence on Canadian Oil Sands Posted January

More Slides fromEd Dolan’s Econ Blog

http://dolanecon.blogspot.com/

Hidden Pitfalls of Increasing U.S. Dependence

on Canadian Oil Sands Posted January 9, 2011

Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics

classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishers.


http://creativecommons.org/licenses/by-sa/3.0/us/

http://www.bvtpublishing.com/disciplines.php?Economics

Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com

U.S. Imports of Canadian Oil

Canada is now the leading source of U.S. oil imports

About half of all Canadian oil output, and an increasing share of U.S. imports, comes from oil sands

What are the economic, environmental, and security implications of increasing U.S. dependence on Canadian oil sands?



The Production Process

Tailings pond

Surface mine

Sulfur stockpiles

Processing plant

Most “oil” from Canadian sands (more accurately, a heavy hydrocarbon called bitumen) is produced by surface mining. This photo shows Syncrude’s base mine in Alberta. Some bitumen is also produced by subsurface operations.Photo source: http://commons.wikimedia.org/wiki/File:Syncrude_mildred_lake_plant.jpg



Oil Sands Have a Big Carbon Footprint

Data from the U.S. Department of Energy National Energy Technology Lab shows that oil from Canadian sands has a bigger carbon footprint than U.S. domestic crude or other sources of imported oil

Download the full report from http://www.netl.doe.gov/energy-analyses/refshelf/detail.asp?pubID=227


http://www.netl.doe.gov/energy-analyses/refshelf/detail.asp?pubID=227

http://www.netl.doe.gov/energy-analyses/refshelf/detail.asp?pubID=227


Oil Sands Have a Big Carbon Footprint (details)

These data measure “carbon footprint” in terms of emissions of greenhouse gasses (GHG) per unit of diesel fuel produced from various sources

The chart shows a “well-to-tank” measure that covers only the production and refining phases of the energy cycle

US domestic crude is “light” and “sweet,” and produces relatively little GHG

Most imported oil is “heavy” and “sour”. Transportation adds more GHG. Some imported crude (e.g. Nigeria) is nearly as dirty as oil from Canadian sands



The Well-to-Wheels Approach

This chart shows GHG emissions from the complete well-to-wheel fuel cycle, including vehicle operation, the source of the bulk of GHG emissions in all cases



Picking the Number that Looks Best

Supporters and opponents of oil sands both “mine” the scientific data for numbers that best support their case

A well-to-tank comparison with US domestic crude suggests that Canadian oil sands are 2.5 times dirtier

A well-to-wheels comparison with imported Nigerian crude suggests that Canadian oil sands are just 4% dirtier

Both numbers are based on the same underlying data, but taken out of context, they leave the reader with very different impressions



Not Just Greenhouse Gasses

Greenhouse gasses are not the only environmental damage from oil sands

Toxic tailings ponds and land disturbed by mining must also be reclaimed

Canadian authorities require escrow deposits to ensure that restoration pledges will be met, but some Canadian environmentalists claim the regulations are inadequate

“If a bird flies over a river near the oil sands, the bird dies just from flying over the river. It's that toxic. They are just dumping all the waste into the waterways. If you did that in the U.S. you would be in jail.”

—Candice BeaumontOil industry consultant

http://seekingalpha.com/article/236566-oil-sands-could-delay-peak-oil-candice-beaumont



National Security Concerns

Supporters cite national security concerns as a benefit of importing energy from Canadian oil sands

They point out that oil price spikes caused by crises in unstable oil producing countries can damage the US economy

Also, in some cases oil revenues may go to authoritarian governments, arms programs of hostile nations, or even terrorism directed at U.S. interests

Photo source: http://upload.wikimedia.org/wikipedia/commons/5/5e/Flickr_-_The_U.S._Army_-_Security_in_Iraq.jpg


But Canadian Oil Provides only Limited Security Benefit

However, importing oil from Canada instead of more volatile countries provides only limited security benefits

Even if the US gets its oil from Canada, a crisis anywhere in the world would cause oil prices to spike globally, since the world oil market is a single pool

Prices would rise in the US, unless kindly Canadians agreed to sell their oil at cheap, pre-crisis prices

Rising world oil prices would still enrich dictators and terrorists, even if other customers were the ones buying their oil

World Oil Prices are Highly VolatileSource: http://www.eia.doe.gov/emeu/cabs/AOMC/Overview.html


So, What are the Hidden Pitfalls?

The hidden pitfalls of increasing U.S. dependence on Canadian oil sands

For policy makers: The comfort of convenient and secure Canadian oil supplies could make it easier to put off the hard work of developing an optimal energy policy

For investors: Investing in oil sands means making a bet that both Canada and the United States will continue to pursue present suboptimal energy policies

A Pitfall TrapPhoto source:

http://upload.wikimedia.org/wikipedia/commons/b/b2/Barber_pitfall_trap.jpg


The Pitfall for Policymakers

An optimal energy policy would account for the full cost of every unit of energy from every source, including environmental and national security costs, and impose those costs on the end user through higher prices.

Retail prices would increase for many types of energy, but oil from Canadian sands would take one of the biggest hits

Photo source: Ivo Shandor, http://commons.wikimedia.org/wiki/File:Standard_Oil_Gasoline

_Station2.JPG


The Pitfall for Investors

Oil from Canadian sands has high capital costs and high production costs

If either Canadian or U.S. policy were to impose the full environmental costs on oil sand producers, investments could quickly become unprofitable

Just as BP’s gulf oil spill set public opinion against offshore drilling, a dramatic climate event or a major toxic waste spill could turn opinion against oil sands

At such time, politicians run for cover and policy can quickly turn from overly permissive to overly restrictive

Photo source: Norman Einstein, http://commons.wikimedia.org/wiki/File:Athabasca_Oil_Sands_

map.png

Documents

More Slides from Ed Dolan’s Econ Blog Hidden Pitfalls of Increasing U.S. Dependence on Canadian Oil Sands Posted January