America's Economic 'Bad Luck' Began with Keystone

President Joe Biden’s inauguration day decision to shut down and cancel construction of the Keystone XL pipeline from Canada is even more shocking when it is recognized that environmentalism has moved on to an ominous new phase. For the last two generations at least, the political battle over energy in the U.S. has revolved around the left’s attempts to strangle the oil, gas, and coal energy that generates 80 percent of America’s total energy supply. The typical move was challenging every drilling permit application, and having Democratic presidents seal off more federal land from exploration and production through the executive fiat of designating more “wilderness areas.”

Environmentalists wrapped their intransigence against domestic oil and gas with the lie that America’s oil and gas supplies were so limited that we couldn’t “drill our way out” of our dependence on foreign supplies, mixed with happy talk about the fantastic “renewable energy revolution.” While windmills and solar panels are spreading like kudzu grass throughout the land (thanks to lavish subsidies), strangling oil and gas production hasn’t worked fully worked out.

A funny thing happened on our way to the new green utopia—we did drill our way out of foreign oil and gas dependence, much to the fury of the left. Dramatic improvements in technology, especially precise directional drilling and hydraulic fracturing (“fracking”) unleashed a revolution in domestic oil and gas production. Much of this revolution occurred by stealth, and on private or state land, largely during the anti-oil Obama Administration. If the political class in Washington had known this revolution was under way, they would have moved aggressively to stop it.

By degrees environmentalists have become open and explicit about their goal, with the more honest slogan, “Leave it in the ground.” Environmentalists have long enjoyed considerable success in blocking or delaying oil and gas exploration and production even in the region of Alaska quaintly called the “National Petroleum Reserve,” let alone the oil-rich Alaska Natural Wildlife Refuge (ANWR) and many offshore areas. The offensive has broadened, with success in getting Wall Street and several federal bureaucracies such as the Federal Reserve, the Securities and Exchange Commission, and others to make life more difficult for domestic oil and gas production.

But while the environmental crusaders may hamper, they cannot entirely strangle, domestic oil and gas production. We can see this dynamic in action in real time right now. Between the typical epicycle of oil prices and the disruptions in the global market the Ukraine war has caused, suddenly we desperately need increased supply from our domestic producers. Credible predictions of $8 a gallon gasoline and rolling electricity blackouts this summer have had a sobering effect. While Wall Street may look down its nose at oil and gas companies in their public pronouncements, their capital allocation tells a different story. The oil and gas sector’s value has soared over the last year as capital seeks the best return, while the rest of the stock market is in bear territory.

Our domestic hydrocarbons are not going to stay in the ground in these circumstances. But there is another way for environmentalists to achieve their objective of strangling it—one that is a lot simpler and more effective than opposing every drilling permit application. In a variation of the old gangster approach to a protection racket, environmentalists have settled upon a new tactic: “Nice little oil well you have there; good luck getting any of it to a refinery.”

This is preface for understanding the deeper meaning of Biden’s decision to cancel Keystone. The decision made no sense on the merits, and seemed heedless of basic politics. The Obama Administration had concluded that Keystone would have no effect on "climate change" (because that Canadian oil is going to go somewhere regardless), and canceling it angered our largest trading partner and leading foreign oil supplier—this from a person who said he’d repair relations with foreign nations that President Trump supposedly trashed. It was also an unprecedented abuse of presidential power: no president has ever shut down a private-sector construction project—unionized, no less—already under way absent clear malfeasance or illegality.

Keystone should be seen therefore as a capstone to the strategy environmentalists have embraced by degrees in recent years of seeking to block pipelines and other infrastructure necessary for a flourishing hydrocarbon sector. The Dakota Access Pipeline, proposed in 2014 and under construction in 2016 after clearing the usual concerns from state governments and native American groups, suddenly faced a late vigorous protest movement that went national, supplementing spurious environmental claims with a heady mix of identity politics. The Obama administration intervened late to halt Dakota Access, but Trump swiftly gave it the green light upon taking office in 2017.

Meanwhile, the successive governors of New York (David Paterson, Andrew Cuomo, and now Kathy Hochul) have not only refused to allow production of ample supplies of natural gas in economically sluggish upstate, but refuse permission for a pipeline to send natural gas from Pennsylvania and Ohio to northeastern states that otherwise now have to import it from, among other places, Russia. (Massachusetts generates two-thirds of its electricity with natural gas.) Michigan governor Gretchen Whitmer wants to tear up an existing pipeline from Canada, and while the effort is temporarily in abeyance, no doubt the idea will come back if Whitmer is re-elected.

The point should now be obvious: Biden’s Keystone decision was a political rather than a serious policy decision. Message: Don’t even think about proposing any new pipelines in the U.S. Keystone isn’t just one pipeline; it is all pipelines. And even if a future Republican administration approves construction of a new pipeline, we’ll tear up the permit and expropriate your project the next time we’re back in office. Who is going to risk billions on new pipelines with this kind of political uncertainty? (Little noticed in the media is that international rating firms now place the United States as one of the highest risk countries for oil and gas investment.)

They hate you. They really hate you.

Blocking hydrocarbon infrastructure is only one part of the strangulation strategy of environmentalists. We haven’t built a new major oil refinery (with capacity over 100,000 barrels a day) in the U.S. since 1977. Modernization and expansion of existing refineries have been able to keep up with market needs, but the strain is starting to show and the limits of this patchwork adaptation are being reached. Refining constraints explain a lot of the reason gasoline in California now costs $2 more than the national average, but good luck proposing to build a new or expand an existing refinery in California.

The point is clear: blocking the infrastructure to transport and process hydrocarbon energy reduces the need to block production at the well. It’s like saying automakers can make all the cars they want, but taking away the roads. (Actually environmentalists want to do that, too.) The long-running argument about whether to drill more at home has become a classic misdirection. It represents a revival of the mid-20th century socialist strategy that sought to control the “commanding heights” of the economy (steel, autos, rail, etc.) so as to control everything else, and it is fitting that the pipeline that makes this keystone strategy vivid is called Keystone.

This problem won’t get fixed until there is fundamental reform of basic laws and regulations that allow this kind of obstruction to gain traction. GOP 2024 candidates take note.

Democrats’ Energy Spousal-Abuse Syndrome

Listening to Democrats suddenly begging the oil and gas industry to increase domestic output resembles nothing so much as the serial spouse-abuser who promises to be good, only to resume their abuse as soon as the cops leave, all the while pining to shower their cheap mistresses (in this case solar and wind energy) with ever more expensive gifts.

Energy Secretary Jennifer Granholm, to whom Donald Trump’s famous epithet “low-energy” applies better and more literally than to any other target, is begging the oil and gas industry to ignore the administration’s repeated assaults, and to carry on as if Trump was still in office:

We are on war footing. That means [crude oil] releases from the strategic reserves all around the world. And that means you producing more right now if and when you can. I hope your investors are saying this to you as well. In this moment of crisis, we need more supply. [Emphasis added].

Would those be the same investors that the Biden administration and woke capitalists like Black Rock’s Larry Fink are trying to intimidate from investing in fossil fuel production? The same companies for whom the Biden regime has sought to raise the cost of capital (with partial success already) through administrative harassment, such as setting the Federal Reserve and the Securities and Exchange Commission after them? The same industry whose viability the Biden administration’s Federal Energy Regulatory Commission (FERC) is trying to hobble with restrictions on new oil and gas pipelines? Never mind proposed or half-built pipelines such as the Keystone XL.

Granholm: Big Nurse is not happy.

There are ongoing efforts to shut down existing pipelines such as Enbridge’s Line 5 pipeline under a small stretch of Lake Michigan that transports more than 500,000 barrels of Canadian oil and petroleum products a day to the U.S. A court has temporarily stopped Gov. Gretchen Whitmer’s attempt to close Line 5, and FERC has abruptly halted its anti-pipeline rulemaking. But the crazed anti-pipeline activists will be back. The Biden administration is “studying” the issue, which means attempting to find another means to shut down Line 5, and FERC will surely return to its strangulating ways.

Asking the oil and gas industry to produce more oil while preventing new pipeline construction and shutting down existing pipelines is like asking the auto industry to produce more cars and trucks while tearing up existing roads and prohibiting new ones.

Unknown to most consumers, pipelines are the most versatile part of the energy supply chain, as they transport much more than crude oil between refineries. They can transport a wide variety of distillate products in addition to crude oil—propane in the particular case of Michigan’s Line 5—which adds to the overall resiliency and adaptability to consumer and industrial needs from the energy sector; Line 5 provides over half of the propane supply to propane-dependent parts of rural Michigan, for example. Non-pipeline transport, chiefly trains or trucks, is more expensive and difficult to secure.

Still other administration actions display its fundamental hostility to domestic oil and gas production. The Interior Department is dragging its feet on new required five-year plan for oil and gas leases in the Gulf of Mexico. Due in June, the plan is far behind schedule, and in the absence of the new plan no new leases can be processed. (Needless to say, Interior’s plans for offshore wind power leases are breezing through the department’s review process very quickly).

On the surface a neutral observer might think the Biden administration’s current energy policy is schizophrenic. It is actually mendacious, and rests on a cynical calculation that both the oil and gas industry and finance capitalists won’t play along in the long run. The great irony of America’s self-inflicted energy disaster is that profits for incumbent oil and gas producers are soaring, as are their stock prices. So naturally Democrats are going back to the Jimmy Carter playbook and demanding a “windfall profits tax” on current energy producers. In other words, please produce more, but don’t expect to get to keep any profits from expanded activity!

"Windfall profits" tax, anyone?

Oil and natural gas, like real estate, have been prone to boom and bust periods for more than 50 years, as large global price epicycles have delivered fat profits in boom times and inflicted severe pain during recessions and cycles of overproduction. Following the most recent wave of bankruptcies in oil and gas over the last decade, the domestic industry and its investors have at last become more disciplined about production and investment strategies. Neither producers nor investors are likely to be taken in by the administration’s temporary relief of the government boot on their neck. They know that once the current “crisis” has passed, the beatings will resume.

The last missing piece of this maddening puzzle brings us back to the opening analogy of oil and gas as the abused spouse of American industry. The oil and gas industry, with precious few exceptions such as Chris Wright, founder and CEO of the comparatively small Liberty Oilfield Services, does not defend itself against the green onslaught. Most of the oil and gas majors implicitly apologize for providing a product everyone uses, and promise to “do better” (that is, go out of business slowly) just as the abused spouse will internalize blame for the bruises her husband inflicts.

Not since Mobil Oil’s Herb Schmertz (ironically a liberal Democrat most of his life) fought back against the left in his famous “advertorials” in leading news publications in the 1970s and 1980s has the petroleum industry made a sustained defense of itself. A major oil company that tried this today would likely face an internal revolt from its woke millennial staff in the HR and public-relations departments. But until and unless the petroleum industry stands up for itself again, the abuse at the hands of the left will intensify until they are beaten out of existence.

Jennifer Granholm, Secretary of Cringe

This is painful:

Of course, while Secretary Granholm was doing her best Dusty Springfield, a federal judge was issuing a nationwide injunction halting the Biden Administration's attempt to end all oil and gas exploration on federal land. I'm just glad she was having fun as her life's work began to go up in smoke.

Biden's Line 5 Fecklessness is No Laughing Matter

Looked at from a certain angle, there's a delicious irony to the worldwide energy crisis going on while the world's leaders gather in Scotland to celebrate the ongoing energy transition which is, you know, the cause of the crisis. Europe's transition to so-called renewable energy hit the world's most predictable snag when the North Sea's wind stopped blowing and the wind turbines stopped turning, leading to an explosion in energy prices. The situation in Europe (plus the intransigence of OPEC) is having knock-on effects in the American market as well, but those have been exacerbated by the fecklessness of the Biden administration, whose policies -- from the Keystone XL cancelation to the oil and gas leasing ban -- have helped transform the U.S., in record time, from a net energy exporter to a nation facing shortages and sky-rocketing rates.

Ironic and amusing, but also scary. Our leaders have made no attempt at course correction, even as it becomes increasingly clear that they're building our foundation on sand. To stick with the domestic situation for a moment, even reliably leftist organs have begun to say that last week's loss in the Virginia gubernatorial race and near-loss in the race in New Jersey signal widespread voter discontent with their radicalism. Biden ran as the Return-to-Normalcy candidate, and a majority of Americans were happy to vote for that. But when he got to the White House he began to govern like the love child of White Fragility author Robin DiAngelo and enviro-truant Greta Thunberg, embracing policies he didn't run on and Americans don't want.

Even so, Sleepy Joe doesn't look like he's backing down. Take the drama surrounding Enbridge Line 5, for example. Regular Pipeline readers know all about Line 5 -- it's a pipeline which carries 540,000 barrels of Canadian petroleum products per day from Alberta to Ontario by way of Michigan, where governor Gretchen Whitmer and her environmentalist cronies are trying to shut it down. That would be a catastrophe for Ontario and Quebec, immediately costing the provinces tens of thousands of jobs and cutting off a major oil and gas artery to some of the coldest parts of populated Canada. The U.S. wouldn't fair so well either -- half of the propane used in Michigan is transported through Line 5, and much of the oil and gas that ends up in Ohio and Pennsylvania as well.

Naturally, the anti-energy Biden Administration is openly flirting with the idea of giving Whitmer what she wants:

White House deputy press secretary Karine Jean-Pierre confirmed the administration is considering shutting down [Line 5], as President Biden finds himself caught between an environmental promise and looming gas price hikes. The administration is exploring the possibility of terminating the Line 5 pipeline... and gathering data to determine if shutting down the line will cause a surge in fuel pricing. 'Yes, we are,' Jean-Pierre said, asked in a news briefing if the administration is 'studying' the impacts of a potential shutdown.

They're "gathering data to determine" if this will cause a surge in fuel prices? An Intro to Economics textbook should contain all the data they need. And, failing that, the evidence of the past ten months or so.

Asked about the consumer costs associated with shutting down Line 5, and their anti-resource policies generally, Biden's Canadian-born energy secretary Jennifer Granholm laughed and  proclaimed that energy prices are going to spike no matter what they do. "Yeah, this is going to happen. It will be more expensive this year than last year," Granholm told CNN. It's as if they haven't considered how bad this can actually get.

It's all one big joke to them:

 

Biden Administration: 'Actually, Pipelines are Good'

I quoted this the other day, but Kyle Smith's line about how anti-pipeline Joe Biden has been bears repeating. For candidate Biden, "Keystone XL not only was a menace to our American way of life by bringing us energy, Biden thought it had to be cut off before his first afternoon nap." And he did, in fact, kill Keystone on Day 1 as promised.

That's a good fact to remember, since during the Colonial pipeline fiasco at least three officials in the Biden administration have admitted that pipelines are the safest and most efficient way to transport fuel. H/T to Breitbart for collecting the quotes:

First, "Climate Czar" John Kerry:

Kerry, when asked by Republican Rep. Darrell Issa (CA) if it is “true, the pipelines are more carbon-delivery efficient than trains or trucks or other forms of delivery?” Kerry immediately responded and said, “Yeah, that is true.”

Next, Energy Secretary Jennifer Granholm:

Granholm... admitted Tuesday, “pipe is the best way to go” when transporting fuel, during a press briefing regarding the Colonial Pipeline cyberattack.

And finally, Transportation Secretary and former McKinsey Globalist... er, sorry, Small Town Mayor/Presidential candidate Pete Buttigieg. Asked whether he agrees with Secretary Granholm's comments that "pipelines are still the best way to move oil,”

Buttigieg responded by saying, “certainly.” He then continued, especially “when you’re talking about the efficiency of moving petroleum products.” “That’s why we have pipelines,” he added after.

Maybe someone should clue in the old man upstairs, after he wakes up from his nap.