11/08/2011 09:36 am ET Updated Jan 08, 2012

Tough Times for Tar Sands

Sunday's stunning "hands around the White House" demonstration by 12,000 citizens in opposition to the Keystone XL tar sands export pipeline was the culmination of what's been a brutal three months for the tar sands cartel -- the Koch brothers, Shell, Valero, and TransCanada -- which thought it could slip the pipeline through without serious scrutiny or opposition in the wake of the economic crisis.

First, the Keystone proposal became the focus of the most significant climate civil disobedience in the U.S. to date, with over 1,000 demonstrators going to jail to alert the president to the risk. Then it became clear that a scandalously shoddy see-no-hear-no-speak-no-evil environmental impact statement from the State Department had only served to focus public and political attention on the blatant insider dealing and conflicts of interest that have plagued the handling of the pipeline at Foggy Bottom. The tar sands cartel had counted on State Department approval by the end of 2011; now the Obama administration has made it clear that it would not be rushed. The state of Nebraska, the center of heartland opposition, seems determined for force the pipeline to be rerouted, to avoid the Ogallala, America's Aquifer. A special session of the legislature was called to establish state policy. Members of Congress began focusing on the reality that the real business purpose behind the Keystone XL pipeline was not to increase U.S. supplies of North American oil but to decrease them -- by giving tar sands producers access to the Gulf of Mexico for shipping to European and Asian markets. (The Chinese turn out to have invested $15 billion in Alberta oil projects.) President Obama took personal responsibility for his administration's pending decision and sent signals that promised a thorough and serious review.

TransCanada's response to this unwelcome scrutiny has been a combination of whining and bullying. Pipeline backers offered the Nebraska state government a $100 million bribe if it would agree to rubberstamp the pipeline route. Nebraska's governor called a special session of the legislature anyway -- but other states that had previously approved the route began putting their hands out for promised pay-offs.

TransCanada then began lamenting the economic losses it would face from a delay. In a court case, the company claimed that delays could cost it $1 million per day: "TransCanada has a significant interest in being able to satisfy existing contractual obligations to its shippers on the Keystone XL pipeline." TransCanada also argued that it would fail to meet obligations to its customers: "Should the delay in issuance of a presidential permit extend beyond 2011, it will jeopardize TransCanada's ability to meet the terms of its shipping agreements and further increase the economic harm TransCanada will suffer..." The company's president warned that its shippers might cancel their contracts, and said that none of the refiners and producers involved had any back-up plan to meet their needs except getting Keystone built on the current schedule.

But the mainstream media have missed the real meaning of TransCanada's claims that it will be unable to meet its obligations and that the tar sands producers will be unable to ship their product. Clearly, in the view of the tar sands cartel, the U.S. review of the project was pro-forma. Not only did they assume it would be approved, but they also signed extensive contracts, bought billions of dollars of steel and other materials, purchased rights of way, and negotiated shipping agreements -- all based on the assumption that the U.S. government would automatically approve the pipeline in its original configuration, scale, design, and routing.

This is a bit like a man proposing marriage to a woman and, when she says she needs time to think about it, objecting that he has already printed the invitations and spent $50,000 on the wedding dinner, the floral arrangements, and the honeymoon. TransCanada, Koch, Shell, and Valero had no reason to assume that approval of Keystone XL would be a slam dunk. In fact, they (more than anyone) knew when they planned the project that it did not meet the required legal standard -- that it be in the best interest of the United States.

We can be sure of this because they designed the route to be in the best interest of themselves, perhaps Canada, perhaps even Europe and China -- but certainly not the United States. Current routes for shipping tar sands oil to U.S. refiners have a major disadvantage -- the oil they provide is dirty and dangerous, so dirty and dangerous that one U.S. refiner, Marathon, has just agreed to buy out the community surrounding its Detroit refinery. But those routes do have an advantage as well -- the price paid by the U.S. for Alberta oil is protected from spikes in the global oil market, so if Iran were to shut down its oil shipments, tar sands oil would not go up nearly as much as global prices. This is a useful economic hedge to keep oil prices down in the Midwest.

The Keystone XL, however, would get tar sands oil to the Gulf of Mexico, from where it could be exported to wherever the most lucrative market might be in the case of a petroleum price spike. TransCanada denies this in the U.S., but freely admits it in Canada, as do its partners like Valero. The economic purpose of this pipeline is to raise the price of oil in the Midwest -- hardly in the national interest of the United States. And when asked if it would support legislation requiring that its new oil supplies be sold here in the U.S., TransCanada loudly rebuffed the idea -- because, they said, it would be an unnecessary safeguard!

They actually routed the pipeline through the most sensitive regions of one of our biggest and most important aquifers, the Ogallala, because that was the shortest, cheapest route for them -- although also the most environmentally risky.

Additionally, the pipeline backers made sure that the refineries at the end of their route were in tax-free zones, so that the U.S. would not even get the benefit of higher local taxes from allowing its territory to be used as a transshipment corridor for foreign oil being shipped to foreign markets. And they picked refineries in Texas, a state where they knew lax pollution regulations and generous state giveaways by Governor Rick Perry would fatten their profits at the expense of the communities that suffered the pollution from refining their filthy bitumen.

It's important to remember what the National Environmental Policy Act requires -- the U.S. government must approve not simply an acceptable alternative but the best alternative for the country. Clearly, the Keystone XL is not that best alternative.

But Koch, Valero, Shell, and TransCanada gambled that the complaisant, all-oil-24/7 regulatory regime of the Bush administration would still be in place for their project. They hoped no one would notice. Now they are forced to hope that even though their game has been exposed, the Obama administration, the state of Nebraska, and the U.S. courts will all roll over and play dead.

After Sunday's massive protest, that seems less likely.