TO: Canada
FROM: The United States
SUBJECT: Resource development
With regard to your admirably restrained annoyance in relation to the Keystone XL pipeline, please be assured that the protracted delay in approval of the project bears not at all on relations between our two great nations. As this memorandum will show, the inaction is a product of political resistance to the development of natural resources, hydrocarbons in particular. The prejudice works as strongly south or-with more relevance to immediate purposes-west of our shared border as it does to the north.
It is herewith acknowledged that economic conditions have become troublesome in Canada, especially in the premier oil-producing province of Alberta. Insensitive it would be to ignore the 4,500 workers furloughed by oil and gas companies so far this year in Alberta and the 23,000 further job losses expected to result from the slump in drilling activity associated with lowered oil prices. Troubling, too, is the expected drop in payments to the provincial government by the oil and gas industry to $2.9 billion this year from $8.8 billion in 2014. The US government must concede that constraints on southbound pipeline capacity do lower values of Albertan crude oil at the wellhead and therefore aggravate these economic and fiscal difficulties.
Yet economic distress born of diminished oil values is hardly unique to Alberta. Alaska, too, has been hit hard by the decline in crude prices. Of unrestricted spending by the state government, 88% came from oil taxes and royalties in 2014. The fiscal challenges are obvious. Unlike that of Alberta, Alaskan production suffers further from an advanced state of natural decline, having fallen to less than 497,000 b/d last year from a peak of 2 million b/d in 1988.
None of this dissuaded the US federal government from proceeding with an initiative that, if successful, would foreclose a potential source of greatly increased Alaskan oil production and economic benefit. On Apr. 3, the administration recommended that 12.28 million acres in the Arctic National Wildlife Refuge be added to land designated wilderness, precluding oil and gas development. The acreage includes the 1.5-million-acre coastal plain, which overlies large and promising geologic structures.
Permanent withdrawal of the coastal plain from exploration is a controversial proposition. It would require action not likely to be forthcoming by the current Congress and faces strong opposition from Alaska's delegation. The administration issued the proposal nevertheless despite the political headwinds and sacrifice that would be required of the state. It thus has demonstrated even-handedness in the discouragement of resource development, which Canadians should find comforting.
It is fair, of course, to ask why the US government behaves this way. Explanations pertain to a pervasive alliance between the current administration and environmental advocacy groups hostile to oil. Shortly before the ANWR announcement, the administration strained this relationship by affirming a 2008 sale of oil and gas leases in the Chuckchi Sea, essentially allowing drilling to proceed on existing leases because it could conjure no marketable reason not to do so. Environmentalists were incensed. The ANWR announcement, which the administration had prefigured earlier in the year, might make them feel better.
At a deeper level, decisions about Alaskan oil production hinge strongly, like those affecting Albertan production of bitumen, on a pipeline. Throughput of the Trans-Alaskan pipeline is falling toward minimum operating rates. Environmentalists know that by keeping new supply out of the pipeline they hasten the end of Alaska's status as an oil-producing state. They would welcome that as much as they welcome restriction on development of Canada's oil sands. They care nothing about the economic consequences. And they have influential friends in the US government.
We trust this demonstrates you have not been singled out for mistreatment in the matter of the Keystone XL pipeline. The US government nowadays is politically disposed to treat development of hydrocarbon resources anywhere similarly.
Your friend to the south (and west).
