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The Petro States of America

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The Keystone XL pipeline should be an open-and-shut case from a climate perspective, the criterion President Obama has set for judging it. In a speech in June, he said he would approve the pipeline “only if this project does not significantly exacerbate the problem of carbon pollution.” By that standard, this should be an easy, data-driven call to make. It hasn’t been. And the core reason the Keystone saga has dragged on inconclusively for years has little to do with the well-aired talking points both sides of the debate trot out on cable TV talk shows.

The oil industry says Obama should stop stalling. The U.S. Department of State’s latest environmental impact report concluded that the Keystone XL pipeline that would transport 700,000 barrels of carbon-heavy tar-sands oil per day from Alberta, Canada, to refineries on the Gulf Coast is unlikely to significantly worsen carbon emissions. Even if the $5.4 billion, 1,700-mile pipeline were not completed, the report determined, the oil would still be extracted and transported to world markets. That’s all the rationale Obama needs to say yes. Climate advocates and parts of the Democratic base, on the other hand, deride the department’s report as exactly what one would expect from a document written by the industry itself; they’re calling on Obama to show some guts for once and reject a pipeline that would connect a massive amount of carbon to the world oil market and most certainly expand greenhouse gas emissions.

But there’s a deeper explanation for Obama’s caution on Keystone that rarely gets acknowledged. He is the president of a petro state, a country that ranks as an OPEC nation in all but name. And in a petro state, saying no to Big Oil is never easy.

“The United States is as much of an OPEC nation as most OPEC nations are,” Everett Ehrlich, an undersecretary of commerce for economic affairs in the Clinton administration, once told me in an interview. Ehrlich, who chaired the administration’s interagency deliberations on climate change, was explaining why a government that boasted Al Gore as vice president was nevertheless much more timid about cutting greenhouse gas emissions than were the European and Japanese governments. “The U.S. is an energy producer,” he added, “while the Europeans and Japan are energy consumer nations. Our natural resource industries are very powerful, and their executives saw dealing with climate change as punitive to their interests.”

Every producer wants to sell more product, but the oil industry has been able to pursue that desire more fully than most, thanks to its special relationship with the U.S. government. Oil companies have worked closely with the White House and State Department since the 1920s, when Big Oil persuaded Washington to help gain it access to the vast petroleum deposits of the Middle East, which in those imperial days were controlled by the British and Dutch governments.

The relationship between Washington and Big Oil began changing in the 1930s, when discoveries of massive deposits in Texas, Oklahoma, and California made the U.S. the world’s largest oil producer. This development conferred on Washington a huge advantage: Unlike any of the Axis and Allied powers, the U.S. had its own oil to fight World War II. Abundant domestic supply also transformed the postwar U.S. economy as Americans bought cars and commuted from rapidly expanding suburbs. Building all those cars and interstate highways propelled a decades-long economic boom that ranks among the most spectacular in human history.

This mindset, almost as much as the matchless wealth and political power of Big Oil, is what makes the U.S. a petro state. Washington has showered the oil and gas industries with far more tax breaks and other subsidies than any other energy source. Oil and gas received roughly two-thirds of all such subsidies from 1918 to 2009, averaging $4.86 billion a year (in 2010 dollars), according to an analysis by DBL Investors, a venture capital firm in San Francisco. These numbers exclude the cost of deployment of U.S. aircraft carriers in the Persian Gulf to ensure that the industry’s product can reach the U.S. market. This subsidy alone had a $235 billion a year price tag from 1976 to 2007, according to Roger Stern, an economic geographer at Princeton University.

To maintain these lucrative policies, Big Oil has long been among the largest corporate campaign contributors. With ExxonMobil (XOM) and the Koch brothers leading the pack, the industry contributed $365 million to congressional and presidential candidates from 1990 to 2014, according to the Center for Responsive Politics. To make sure that lawmakers didn’t forget its priorities, the industry has spent an average of $140 million a year on Washington lobbying since 2008.

So is it really surprising that Obama has found it hard to rule on Keystone or make progress against the larger climate problem? When is the last time a Saudi sheik or petro state strongman opposed his own country’s oil industry? Obama already possesses all the authority he needs to tackle global warming. In fact, the federal Clean Air Act obligates the president to limit pollutants, such as carbon dioxide, that endanger public health; the verb that the act repeatedly employs is “shall,” as in “must.”

Yet in a petro state, Big Oil’s agenda can trump such considerations. The Keystone episode is an almost comical example. Environmental Resources Management (ERM), an oil industry consultant that wrote the long-awaited report for the State Department concluding the pipeline project would have a negligible impact on climate change, was proposed for the job by none other than TransCanada (TRP), the company that wants to build the pipeline. (TransCanada spokesperson Shawn Howard confirmed in an e-mail that the oil company provided a list of four potential consultants, including ERM, to the State Department and assured the department that it hadn’t worked with ERM—which declined to comment—in the previous five years.) Environmental groups allege ERM failed to disclose several business ties to TransCanada in the conflict-of-interest forms it filed when it won the contract in 2012. On Feb. 26, an internal State Department review said ERM’s business ties to TransCanada had no impact on the consulting firm’s findings.

Most media coverage of Keystone XL has treated the State Department report as settling once and for all the crucial question of whether the pipeline would significantly exacerbate global warming. Yet the findings simply defined the problem away. Reflecting the worldview of its oil industry authors, the report proceeded from the self-serving but hardly self-evident assumption that Canada’s tar-sands oil will eventually reach the world market no matter what. It then largely confined its analysis to evaluating whether a pipeline would be a less carbon-intensive method of transportation than alternatives such as rail.

Obama promised in his recent State of the Union address to leave our grandchildren “a safer, more stable world.” But in a petro state, it’s difficult, even for a president, to take on Big Oil. Obama can only do so if he is given political cover by a large, insistent, popular movement. Ironically enough, Keystone has given rise to just such a movement: If the pipeline gets approved, 77,000 people have pledged to occupy building sites and block bulldozers to prevent its construction. Further complicating matters is a Nebraska court ruling that struck down a 2012 law that gave Republican Governor Dave Heineman authority to single-handedly approve the pipeline’s route through his state. Ultimately, Obama’s decision will reveal much about what comes first in today’s Washington: the prerogatives of the petro state or common sense against climate change.


Oil companies made buckets of money, but they were hardly the only ones that profited. The auto, steel, and construction industries also did well (as did politicians who aided them). Others benefited, too: unions whose workers found steady jobs; farmers whose petroleum-based fertilizer boosted crop yields; and owners of gas stations, fast-food outlets, and the other drive-in establishments whose outlets mushroomed across the American landscape.

All these developments called forth a pro-oil constituency within the U.S. political economy that extended far beyond the industry. For nearly a century now, broad swaths of the populace and powerful individuals in government, finance, and other key sectors have seen oil as indivisible from national interest. That presumption has arguably deepened with the current shale oil and gas boom that the International Energy Agency forecasts will turn the U.S. into the world’s biggest oil producer by 2015—and may have already by some estimates.

17 Comments on "The Petro States of America"

  1. Davy, Hermann, MO on Fri, 28th Feb 2014 2:28 pm 

    Well Society is your Choice status quo BAU or contraction/collapse. Don’t fool yourself into thinking you can maintain this status quo BAU on anything other than growing fossil fuel supply especially oil. You can blame and complain all you like but the outcome of reduced fossil fuel supplies is a financial crash. A financial crash leads to a collapse of our global support system on down to the dependent local support system failure. There are unintended consequences to any actions at the global level with the world being locked into a complex interconnected global economic system. Don’t fool yourself into thinking you can decouple, substitute, and or manage de-growth. An end of status quo BAU is likely a much lower standard of living at the level or below the great depression. If really poor decisions are made combined with bad luck then it is a game ender!

  2. DC on Fri, 28th Feb 2014 2:47 pm 

    Well, this article is positively subversive by Bloombergs standards, someone must have been asleep at the editors desk. I guess this soft-ball piece of puffery is about as ‘accurate’ of a description of the Us of oiL you can expect to see from the 1% press.

  3. Northwest Resident on Fri, 28th Feb 2014 3:19 pm 

    BAU is the mortal enemy of nature and planet earth. Every day that BAU exists, it sucks up another batch of natural resources and belches out megatons of CO2 and other toxic substances. Keystone is nothing more than an attempt to keep BAU going. The powerful drivers behind Keystone are all super-wealthy power-mongers who won’t be the ones suffering from climate change — the suffering will be done by all other living things on the planet, in order that the super-wealthy power-mongers can pocket a few billion/trillion more digital bucks and keep themselves propped up on top of the totem pole for a little while longer. We’re all on this Crazy Train with a mad man at the controls, chugging full speed ahead toward certain doom. The train will eventually crash, the only question is, how much irreparable damage will have been done to planet earth and to future humans’ chances of survival by the time it does crash.

  4. rockman on Fri, 28th Feb 2014 3:40 pm 

    And once again a deflection from the reality of the situation” “He is the president of a petro state, a country that ranks as an OPEC nation in all but name. And in a petro state, saying no to Big Oil is never easy.” Saying no to Big Oil is very easy for the POTUS…he doesn’t care about the oil patch. Better said he is the president of an petro consuming state. His decisions, like every other R & D POTUS is based upon the political calculus of dealing with the voters. The POTUS doesn’t care if the US or Canadian oil patches make a penny from the oil sands production. He has to meet the expectations of the American public. If that meant shutting down the energy industry he wouldn’t hesitate. But it’s just the opposite: he and every other politician need us to help satisfy the public thirst for energy.

    And folks need to pay attention to the very well scripted statements. The POTUS didn’t say he wouldn’t block KXL if burning that production damages the climate significantly. He very carefully said if the process of shipping it thru the pipeline has a significant negative impact on the climate he won’t approve it. Which, if one just understand the basic of pipeline transport, understands it is insignificant. In the meantime since they are distracted with KXL no one is talking about the Clipper Pipeline.

    What Clipper Pipeline? Yeah.

  5. Davy, Hermann, MO on Fri, 28th Feb 2014 3:48 pm 

    @Rock – agreed 100% another example of one lobby or another squawking and ranting. Meanwhile the ship is sinking

  6. bobinget on Fri, 28th Feb 2014 3:54 pm 

    The current administration can still use the Keystone extension as a bargaining chip with Republicans who rake in more oil campaign contributions than do Democrats. As XL, if approved and built it won’t be completed for at least four or five years. Why not pass carbon tax bills going into effect when first barrels begin flowing?

    XOM and others are already putting funds aside for carbon taxes. Given that minorities and women, folks Hard Right cannot seem to stop alienating, will be in the majority, chances of any Republican being elected to the White House are slim to none.
    BigOil knows this all too well.

  7. GregT on Fri, 28th Feb 2014 4:00 pm 

    “Meanwhile the ship is sinking”

    The ship IS sinking, and will continue to sink. Nothing will stop that. But seriously, what is the sense in torpedoing the life boats?

  8. ghung on Fri, 28th Feb 2014 6:03 pm 

    “He is the president of a petro state, a country that ranks as an OPEC nation in all but name.”

    Yeah, they keep trying to slip the oil exporting thing in. OPEC (oil producing and exporting countries) don’t import 35% of their oil.

  9. Boat on Fri, 28th Feb 2014 6:14 pm 

    rockman The argument should have always been about the pollution it takes in total to produce products from tar sands. Well at least for some of us. I am aware of Enbridge and the other pipelines and know the Dem’s and Obama know about them also. Anyone who would argue Obama is anti big oil is silly.

  10. shortonoil on Fri, 28th Feb 2014 8:15 pm 

    ERoEI for tar sands – 5.3:1. That is really going to help our economy? That is really going to help our economy go bust a little faster! Mix in a little Louisiana Sweet, burn some NG from Texas to refine it, and sell it to the Muppets. Of course it is a great idea, someone makes money on it; even though we are swirling down an energy drain as the quality of the fuels that power our civilization approaches zero. There are lobbyists in Washington who would be promoting the of burning “buffalo chips”, if SynCrude was making money from it.

  11. Northwest Resident on Fri, 28th Feb 2014 8:29 pm 

    shortonoil — Don’t worry, we’ll be back to burning buffalo chips soon enough, that is, if any can be found. And if any can be found, chances are that the next-generation energy companies will be deploying their lobbyists, trying to get control over the buffalo chip market.

  12. J-Gav on Fri, 28th Feb 2014 10:24 pm 

    Rockman – I thought line 67 (Clipper) got their capacity extension approval a year ago … Is there some ‘new’ news there?

  13. rockman on Fri, 28th Feb 2014 10:41 pm 

    J-gav – I think that’s the point I hot from the article I read: debating KXL while the US is importing record amounts of oil sands production daily and additional transport system being installed for at least 3X the KXL capacity.

    Boat – Exactly the point I’ve raising for at least two years: oil sands production marches on very well without KXL. Yet the focus has been on the border crossing section for a simple reason IMHO: the battle to stop oil sands production/burning was lost before it started. The permit stood only as. A false flag of potential success. Most of the folks fighting it are stupid and, if honest, would agree with what I said.!but folks don’t send in contributions when the leaders admit the battle is lost.

  14. James on Fri, 28th Feb 2014 11:10 pm 

    Doesn’t all that oil (kerogen) actually belong to Canada? In the article, the U.S. seems to indicate that it belongs to the U.S. and is selling it to other countries. Shouldn’t Canada make the U.S. leave it in the ground until it needs it? Someday in the not too far future, we are going to wish we had left it there instead of selling it to other countries.

  15. rockman on Sat, 1st Mar 2014 12:56 am 

    The oil belongs to the provincial govt. They lease the right to produce the oil sands to private companies. Those companies have the right to sell it to the highest bidder. Today almost all is bought by US company. The provinces are free to sit on the reserves as long as they like. Of course if they did they would end up with a huge in their budgets. Having your cake vs. eating it. What would you chose? And if you chose to leave it in the ground would you be prepared to not be re- elected?

  16. Northwest Resident on Sat, 1st Mar 2014 3:20 am 

    “…the battle to stop oil sands production/burning was lost before it started.”

    So it was all a big charade, a diversion. And where were the MSM ace reporters who should have dug into this and reported it to the world? Were they manipulated too, or were they part of the charade? Probably both.

  17. rockman on Sat, 1st Mar 2014 8:31 am 

    NR – And that’s the point my bud Graeme and I have battled over for more than a year: it’s been many environmentalists that relentless pushed the idea that the KXL pipeline was a make or break proposition. And yet Canadian oil imports kept reaching new historic highs almost monthly without KXL. And then add the very well publisized expansion of oil rail transport. And while I may not fully agree with their positions most environmentalists are not ignorant and understood the facts. But as I implied the KXL was the one spot the could garner MSM attention and might have done so for the sake of self promotion.

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