Keystone pipeline rejection a product of crony capitalism?

Posted by: Phineas on January 24, 2012 at 12:01 pm

**Posted by Phineas

As they say, Hmmm…

Warren Buffett’s Burlington Northern Santa Fe LLC is among U.S. and Canadian railroads that stand to benefit from the Obama administration’s decision to reject TransCanada Corp.’s Keystone XL oil pipeline permit.

With modest expansion, railroads can handle all new oil produced in western Canada through 2030, according to an analysis of the Keystone proposal by the U.S. State Department.

“Whatever people bring to us, we’re ready to haul,” Krista York-Wooley, a spokeswoman for Burlington Northern, a unit of Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc., said in an interview. If Keystone XL “doesn’t happen, we’re here to haul.”

The State Department denied TransCanada a permit on Jan. 18, saying there was not enough time to study the proposal by Feb. 21, a deadline Congress imposed on President Barack Obama. Calgary-based TransCanada has said it intends to re-apply with a route that avoids an environmentally sensitive region of Nebraska, something the Obama administration encouraged.

Buffett, aside from being a master investor (1), is also a big supporter of Barack Obama and famously demanded to be taxed at a higher rate, even though a) he can voluntarily pay as much as he wants, and b) his company owed a billion in back taxes as late as last year. (2)

Now, I’m more inclined to think Obama killed Keystone to pander to the enviro-whacko Left, but he’s also shown no restraint about using the power of the federal government to help his buddies. (Solyndra? LightSquared? The UAW?)

As Artie Johnson would say, “Verrryyy interesting!”

Footnotes:
(1) Seriously. If you invest for yourself, his letters to shareholders are must-reading.
(2) Economist Daniel J. Mitchell has called Buffett “innumerate” for his opinions on taxes.

(Crossposted at Public Secrets)

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12 Responses to “Keystone pipeline rejection a product of crony capitalism?”

Comments

  1. Kermit says:

    Is someone trying to tell me that it is possible to load over 1100 tank cars at a time and that the freight rate is competitive to pipelines?

    Only in Ayn Rand’s 1950’s imagination.

    Yes, Buffett’s railroads might get some of that, but it will not compete with similar type of crude coming by ship from Venezuela. Canadian Syncrude is heavy crude and will require steam heat at destination to unload the rail cars.

    BTW, did you know that a tag team of California Dockworker Unions and Warren Buffett campaigned heavily against Texas’ Trans Texas Corridor? Only because of a widening of the Panama Canal and a new Super Container Port to be built at Brownsville, TX. Lots of fake ranchers came out of the woodwork.

  2. Tex says:

    It might not be so instantly noticeable but you can bet the farm that somehow, someway, Buffett will be richly rewarded for his unwavering support of Obama, and especially for his unwavering attack against the Republican Party.

    I’m also betting that if the Republicans were in total control of at least 2 of the 3 branches of government, Buffett would be richly rewarded for his unwavering attacks against the Democratic Party.

    This guy didn’t become one of the richest guys in the world by attacking whoever was in power during the past nearly 50 years.

  3. Carlos says:

    Remind me again who the party standing square against the mega-ultra-rich is?

    That’s what I thought – Neither!

    But the jackasses seem to rake in tons more than the Repubs from those mega-ultra-rich and Walls Street evil capitalists…

  4. H Hazell says:

    One way or another, rail transport is still viable. Life cycle costs will eventually favor a new pipeline, but rail (and barges on our inland rivers) still move stuff for low unit costs.

  5. Kermit says:

    Look, here is the deal on Canadian Syncrude. it can only go to refineries configured with the proper process units to refine heavy crude like Venezuelan. There are only 11 refineries on the Gulf Coast configured to and refining such crude oil. Most of that capacity is in Louisiana (Lake Charles) and closer to the terminus (Nederland) of Keystone XL than Houston were only one refinery is presently receiving such crude.

    11+ unit trains of crude will have to be filled daily with each train (carrying only 60,000 bbls) headed to a single refinery. We are not in pre WWII days where refineries are set up to take lots of tank cars of crude. We are in modern days where pipelines, barges and ships are used.

    There is also the case that 1100 cars will be loaded daily and take a 10 days trip to a refinery where each car will have to receive steam heat to make this black wax shoe polish like crude flow. Then there is the trip back north which will cost more money. Even if no car is held up (LMAO) that means that an additional 22000 rail cars will be needed if not several times this quantity.

    Let’s not buy all the phony stories like those published during the Macondo Spill in 2010 where EVERY “conservative” or “patriot” website was awash with bunkum reporting. We do not want to look like a bunch of Alex Jones folks now do we.

  6. david foster says:

    Kermit,

    Canadian National and Canadian Pacific both seem to feel that they have significant business potential in this market:

    http://m.theglobeandmail.com/globe-investor/cn-cp-push-for-a-pipeline-on-rails/article1898062/?service=mobile

  7. david foster says:

    I haven’t worked through it yet, but here’s a detailed report on the logistical alternatives, including rail and barge:

    http://cdn.theatlantic.com/static/mt/assets/business/Ensys_August_Report.pdf

  8. Glenn Bergen says:

    Thank you, Kermit. You tied the loose ends of this Keystone pipeline together. The refineries in Houston were configured to process Venezuelan crude. The crude oil from Venezuela was heavy, and high sulphur content, and, oh by the way, Hugo Chavez directed his petroleum company re-structure their contracts and offer Ven. crude to the Chinese. So, our facilities in Houston are at minimal production; this where the Canadian oil tar sands come into play. They put American oil refineries back online. The irony regarding the Chinese contracts is the PRC doesn’t have the processing facilities to refine Ven. crude, so they ship it to Vietnam. The Vietnamese have American technical assistance to modify their refineries. Hugo, you are such a schlub……

  9. Kermt says:

    Houston refineries? There is only one, Lyondell, there which processes heavy crude.

    Lake Charles is the largest center of heavy crude.

    Remember that the terminus for Keystone XL is the former terminus of Texoma Pipeline (when crude was shipped to the East Coast via ship from Texas) then originator for foreign crude shipped up north. t is located at Nederland, TX. There is a smaller leg which goes to Houston.

    Heavy crude is refined at Corpus Christi, Sweeney, Port Arthur, Lake Charles, Norco & Chalmette.

    Presently, Borger and Wood River received crude via original Keystone. There is another pipeline which sends Canadian Syncrude to Minneapolis, Detroit and Lemont, IL

  10. Kermt says:

    Configuring refineries (east of the rockies) for heavy crude was in full swing in the early 1980’s and in particular was Citgo and Conoco both in Lake Charles, LA. It was about that time that petroleum coke began to be more than the after thought residual solids after the last of higher ends were squeeze out of the bottom of the barrel. Otto Wolff, a small German steel and trading company really developed a market for petcoke in Europe. They ended up with over 50% of the Citgo production and much was sent to Livorno Italy to be pulverized and used as fuel for lime kilns to make cement.

    With that one contract Otto Wolff captured 25% of the U.S. production. It was around that same time that Citgo and Conoco began to import Venezuelan crude for its properties. PDVSA began to invest in funding of delayed coker unit expansions in both refineries.

    Southern California refineries (not all) were pretty big in heavy crude from Bakersfield and produced a lot of petcoke themselves.

    As far as sulfur content, it was when Alaskan crude began being sent to the Gulf Coast that refineries there had to get used to sour crude. Remember that Canadian bitumen is also very high in sulfur but a good bit of that sulfur is removed in the upgrading process via high pressure hydrotreaters.

  11. Kermt says:

    David, yes rail will get some transport, but we cannot make enough railcars to haul such required quantities for some time to come.

    That seem to be merely hyping for stock sales more than reality. Just think about the difference in 700,000 bpd as opposed to 550 bbls for a single railcar. Show me which refinery TODAY is like the old Standard Oil Refineries of pre-WWII and is set up with enough miles of track and unloading racks to handle anything but a trickle. Then there is the labor required. 400,000 bbls per ship at one dock unloads in 24 hrs.

    Seriously, even in the 1950’s a 50,000 bpd refinery was fairly standard. Today that is 5x that capacity as a standard.

  12. Kermit says:

    The big storyline which all pundits and comments seem to be completely ignorant of is that the type of crude which is Canadian Syncrude would REPLACE is Venezuelan crude. Only of refineries add additional process units will they be able to economically refine such heavy crude.

    Not all refineries are for making gasoline and diesel. Some are centered around a profit center of producing petroleum coke, some for lube oil base, and others for feedstock to ethylene units. True that all refineries will produce raw gasoline and diesel. Take for instance the former Sun Refinery which later was sold to and now shutdown by Shell Chemical Company, in Yabucoa Puerto Rico. Shell CHEMICL, not OIL or REFINING, purchased it to for two reasons, to make lube oil base and to make feedstock (naphtha) to ship to Shell Chemical’s Olefins (ethylene cracker) in Norco, LA. Shell Chemical also owned a small refinery just downriver from Norco in St. Rose for the sole purpose of providing naphtha for the same olefins unit.