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Ethical oil revisited amid Keystone XL decision

Does the US really depend on repressive nations to meet its oil consumption needs?

CANADA'S government and its powerful oil companies just can’t understand why the US would turn down a steady stream of oil supply from a reliable, friendly neighbour in the north.

So when the State Department shelved its decision on whether to let Calgary-based TransCanada build a huge pipeline from the oil sands to Texas, commentators in Canada saw it as a triumph of green idealism over pragmatic politics.

Not only would $7 billion Keystone XL pipeline pour jobs and investment into a needy US economy, ran the argument, but it would help the country overcome its reliance on oil imports from countries that are hostile to US interests.

Russ Girling, TransCanada’s disappointed boss, summed up his position succinctly. "If Keystone XL dies," he said, "Americans will still wake up the next morning and continue to import 10 million barrels of oil from repressive nations."

It is a compelling bit of rhetoric, which will be replayed as the US presidential election season gears up. Newt Gingrich, who hopes to win the Republican nomination, says he would approve Keystone XL on his first day as president. Calgary executives must wish they could vote for him.

But is it true? Forget the debate about the merits of developing the oil sands, or whether any source of oil can be more ethical than another, as some boosters in Canada’s industry claim. If the US decides not to increase oil imports from Canada, will it really have to buy 10 million barrels a day (b/d), at a daily price of about $1 billion, from repressive regimes?

The statistics don’t bear this out. US oil consumption in 2010 was 18 million b/d, according to the International Energy Agency (IEA). But demand is falling. By 2020, the IEA’s best guess (under its new policies prediction, which assumes steady implementation of policy in line with stated energy plans) is that it will be 16.8 million b/d. In 2035 this will have fallen to 14.5 million b/d.

Production in 2010 was 7.8 million b/d, says the IEA. Under the same forecast, it will rise to 8.2 million b/d in 2020 and 8.3 million b/d in 2035.

So the import need last year was 10.2 million b/d, but will fall to 8.6 million b/d in 2020 and 6.2 million b/d in 2035. Of the 9 million b/d or so the US imported in September, according to data from the US Energy Information Administration, Canada was by far the biggest source of crude, sending about 2.3 million b/d to the US in September, followed by Saudi Arabia, Mexico and Venezuela. Smaller volumes, from countries including, in descending order, Nigeria, Colombia, Iraq, Ecuador, Angola, Russia, Brazil, Kuwait, Algeria, Chad and Oman made up the rest.

Girling probably doesn’t consider Canada’s regime repressive. So if we take away its share, the US imported 6.7 million b/d in September, which, if demand falls as the IEA expects, will decrease further over time.

Of this, how much oil comes from repressive regimes? Freedom House, a non-governmental body that scores countries by their record on human rights and political freedom, put Saudi Arabia on its list of "worst of the worst" in 2011. (The grim shortlist also includes Muammar Qadhafi’s Libya, which, before he was toppled, also exported oil to the US).

Mexico (deemed "partly free" by Freedom House) is Canada’s and the US’ partner in the North American Free-Trade Agreement. Venezuela ("partly free") is a bugbear of the US, but to describe it as "repressive" would be harsh. Nigeria ("partly free") is Africa’s biggest democracy. Colombia ("partly free") is a staunch US ally in Latin America. Democracy in Iraq ("not free") was established at the end of US guns. Kuwait ("partly free") is another US ally. Angola, Algeria, Russia and Oman are all considered "not free" and Brazil "free".

So by Freedom House’s yardstick, US September imports from "not free" countries were about 2.7 million b/d, including 400,000 b/d from Iraq. That’s a long way from the 10 million b/d Girling thinks the US buys from repressive regimes.

And the statistics don’t just blow up that part of the Keystone XL argument, either. If imports decline as the IEA predicts (losing 1.6 million b/d over the next eight years and 4 million b/d by 2035), it seems that the US could afford to shed its repressive oil suppliers – and keep new pipelines from Canada at bay.

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