Oil Scene: A Drab Debate Becomes Interesting

Syed Rashid Husain
Publication Date: 
Fri, 2008-04-04 03:00

Being at the top is not easy. Somehow Saudi Arabia, the world’s largest crude producer, has been dragged into the debate about Canadian oilsand and if it is clean enough to be used or not.

In an interesting tussle, a virtually unnoticed clause was added almost at the least moment to a US energy bill that bars the government, in particular the Department of Defense, from using Alberta crude because it is deemed unconventional and too dirty.

A provision in the US Carbon Neutral Government Act incorporated into the Energy Independence and Security Act of 2007 act effectively bars the US government from buying fuels that have greater life-cycle emissions than fuels produced from conventional petroleum sources.

The United States has defined Alberta oilsands as unconventional because the bitumen mined from the ground requires upgrading and refining as opposed to the traditional crude pumped from oil wells.

California Democrat Representative Henry Waxman, chairman of the House Committee on Oversight and Government Reform and Republican Tom Davis added the clause.

In a letter dated March 17 to the Senate Committee on Energy and Natural Resources, Waxman wrote the clause was in response to proposals by the Air Force to develop coal-to-liquid fuels which produce almost double the greenhouse gas emissions of comparable conventional fuel.

“The provision is also applicable to fuels derived from tar sands, which produce significantly higher greenhouse gas emissions than are produced by comparable fuel from conventional petroleum sources.”

The US Department of Defense is the largest single purchaser of conventional oil in the world — almost 300,000 barrels a day (excluding overseas imports).

This set in motion the Canadian government. Canada’s Ambassador to Washington, Michael Wilson, urged the White House, State Department and Department of Defense to reconsider the clause, and to reclassify Canadian oilsands crude as conventional. In a letter to the US administration, Wilson warned of “unintended consequences” if the law is applied.

American refineries that import Canadian crude will be caught in the middle: They will have to sacrifice the importation of Alberta crude to adhere to the US legislation.

In the letter, Canada’s ambassador to Washington encouraged US Defense Secretary Robert Gates and other members of President George W. Bush’s Cabinet to exclude oil derived from the tar sands in its application of the new legislation.

“Canada would not want to see an expansive interpretation of (the legislation), which would then include commercially available fuel made in part from oil derived from Canadian oilsands,” wrote Wilson in a letter dated Feb. 22, 2008 that also was sent to Secretary of State Condoleezza Rice and Secretary of Energy Samuel Bodman.

In the letter, obtained by Greenwire — an American online environmental policy magazine — Wilson noted that Canada had surpassed Saudi Arabia as the largest supplier of crude oil to the United States, at 2.3 million barrels per day. He suggested it would be difficult to identify fuel on the US market that was 100 percent extracted by conventional means.

He warned the legislation “could exclude all fuel commercially available on the US market from being eligible for purchase by the US government. As such, there would be many other unintended consequences. The US government would be seen as preferring offshore crude from other countries over fuel made in part from US and Canadian sources. Further, the US government would be contradicting other stated goals to encourage greater biofuel use and Canadian oilsands production.”

Wilson also stressed both the governments of Canada and Alberta were addressing greenhouse gas emissions from industries linked to global warming.

“At present, oilsands production does have somewhat higher GHG emissions on average as compared to conventional light sweet crude,” he wrote. “The good news is that technologies continue to improve. Oilsands GHG emissions per barrel already have fallen by 32 percent as compared to 1990.”

The actual amount of greenhouse gas emissions from petroleum refining, upgrading and fossil fuel production has increased by at least 40 percent since 1990, according to the federal government’s inventory of pollution from industry.

However, as the Canadian opposition to the provision was getting apparent, a spokeswoman from the US House Committee on Oversight and Government Reform said there are no plans to redefine unconventional to include oilsands crude. With it now being a “matter of law,” she said the government would be enforcing the clause.

Some analysts, however, are claiming that the clause was added after some political maneuvering by Saudi Arabia as it is “increasingly threatened” by Canada’s growing market share of oil production.

Strategic resource analyst Paul Michael Wihbey recalling the November OPEC summit, said it was then that for the first time Saudi Oil Minister Ali Al-Naimi “took a swipe at the oilsands.” He claimed the minister then said “Canada is one of the world’s costliest oil producers and requires high prices to remain viable.” Al-Naimi had suggested the Saudi product was a better value for investors, claiming, it costs $40 to $60 a barrel to produce the oilsands crude from the massive reserves.

Wihbey underlines Saudi Arabia and Canada were direct competitors for the biggest customer: the US. David Kirsch, head of Oil Markets PFC Energy, says that “In the US mid-continent, the penetration of oilsands crude is deep, they are increasingly competing with the long haul crude from the Middle East. Until recently we saw a Saudi domination, but now it is becoming a Canadian affair.” And that’s why the Saudis are starting to play hardball, claimed Wihbey.

“They’re playing hardball ... then all of a sudden this legislation pops in, literally a month after these statements were made in November,” noted Wihbey.

And thus from nowhere, Riyadh is being dragged, transforming the otherwise a drab debate into a very interesting one. Let’s enjoy it, after all it is not only here that people believe in conspiracy theories; others too. For a change this is a rather consoling realization after all.

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