Back in April I wrote the post "Is There Anything Behind the Delay of the TransCanada Pipeline?"
Well, it's taken a while, but the mainstream press might actually be onto something. In the Bloomberg BusinessWeek article "Study: Tar sands oil will reach US sans pipeline", from September 7, 2011, we read this:
Canadian tar sands oil will almost certainly move to U.S. refineries even if a $7 billion pipeline from western Canada to the Gulf Coast fails to achieve federal approval, a U.S. State Department consultant's report says.
How would the oil make it to the gulf?
The study commissioned by the State Department estimated that rail alone could haul 1.25 million barrels of Canadian crude daily by 2030, or nearly twice the amount of the proposed pipeline.
When will the final decision be made?
State Department spokeswoman Wendy Nassmacher said a final decision on the proposed project is slated to be made by the end of the year. The review will consider if the pipeline is in the national interest. Part of the criteria in determining that will be "what will happen if the pipeline isn't built," she said.
Who benefits by not building the pipeline and instead transporting Bakken oil via trains? Anyone who owns the North-South route from Canada to the gulf, that's who. And who would that be? Like I said in my previous post, Warren Buffett. His ownership of ConocoPhillips benefits him since he already gets oil cheaper than others who rely on Gulf oil. His eventual ownership of the transportation of this oil will grow this even more.
Do you think that Warren Buffett's latest "tax-me-more" message and assistance to Obama is a favor to convince the State Department to back off on the pipeline?
The State Department is having two meetings this week in Nebraska to discuss the pipeline. One in Lincoln, Nebraska on Tuesday, September 27th, and in Atkinson, Nebraska on Thursday, September 29th. Will there be any train talk? I doubt it.
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Let's not forget Buffet's recent BoA money infusion, just as credit default swaps were reaching crisis mode. Warren has been doing lots of favors for people lately. What a guy.
Posted by: Eric Parks | 09/27/2011 at 05:07 AM
Interesting analysis - and an approach much more in touch with probable reality than that of "Bold Neb", et al.
One thing bothers me however - I don't quite follow your logic regarding Buffett's place in all this. It would seem that if the pipeline(s) were built then the Okies could pump their crude to the Gulf and get $15 - $20 more per barrel than would be possible in Oklahoma - which puts money in the Buffett ConPhil pocket, but takes it out of the Burlington Northern pocket - because his trains wouldn't then be hauling the oil from ND and points north. Reverse the situation (no pipeline) and the converse applies. In other words, either way the cookie crumbles, I don't see how Buffett does anything but essentially break even. What did I miss?
Good post.
Posted by: Ed Stevens | 09/27/2011 at 10:08 AM
Good points, thanks for the post!
Posted by: Will | 09/27/2011 at 10:24 AM
Ed,
ConPhil already has a pipeline that moves oil from the gulf to Oklahoma. See the original post and the linked article there. Why do they do this? For some reason they want the price of oil to be cheap in OK but more expensive in the Gulf. ConPhil has more refining capability in the gulf then in OK. Not sure why they would like this setup though. Maybe that's why Buffett has announced his getting out of ConPhil, but it still shows up as a major source. And since you're right about the train thing being counterintuitive maybe he's keeping his bet on ConPhil just in case nothing (pipeline or train) happens.
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Posted by: Triple Hash | 09/27/2011 at 06:36 PM