Warren Buffett vs. Keystone XL: The Battle of U.S. Energy Security

September 25, 2012 07:22

We told you last year about the Warren Buffet – Obama schmooze connection blocking the Keystone XL pipeline. Here is a more detailed look from EconMatters.



By Bob van der Valk  at EconMatters




The players:


The Burlington Northern and Santa Fe Railroad (BNSF) Railway Company


TransCanada’s Keystone XL (KXL) pipeline.


The winner or loser will be US energy security in the immediate future.


The BNSF, which is owned by Berkshire Hathaway (which Warren Buffett controls), has over 32,000 miles of track and right-of-way in the US. They run from the West Coast and through the agricultural heartland of America.


BNSF has been hauling Bakken crude out of the Williston Basin area for over five years. “In that time, we have seen the volume increase nearly 7,000 percent, from 1.3 million barrels in 2008 to 88.9 million in 2012,” said Dave Garin, BNSF group vice president Industrial Products. “We see this trend continuing and we are committed to serving this growing market now and in the future.” This statement was included in a news release issued by BNSF on September 5, 2012.


The BNSF also hauls coal from the mines in Montana and Wyoming and is the railroad of choice for hauling crude oil with the best North-South infrastructure. This also just happens to be precisely the task for which TransCanada has proposed to construct and operate the Keystone XL (KXL) pipeline.


The pipeline will transport bitumen from the oil sands of Alberta, Canada to Cushing, OK, which is a vital US crude oil terminal, then unto the refineries and ports along the Gulf Coast. It will also have a ramp up in Baker, Montana for shipping crude oil from the Bakken oil shale formation in Eastern Montana and North Dakota.


Prairie County, Montana will be dissected by this pipeline. Terry, Montana is already being affected by workers trying to re-locate for both the oil boom area in the Bakken as well as the building of the power station to support the pump stations required along the route of this pipeline. This pipeline will also cross the Missouri and Yellowstone Rivers and wind its way through Native American Indian lands and reservations in Montana.


In Nebraska politicians are being held hostage by environmental groups from giving their support required to construct the KXL pipeline project through their state. The opposition groups, including Bold Nebraska led by Jane Kleeb, have been issuing press releases warning of a catastrophic risk of contamination to the Ogallala aquifer should the pipeline break and spill crude oil. This vital aquifer underlies virtually all of Nebraska, and several other states, and supplies drinking water and irrigation to millions of people.


I received the following response from Jane Kleeb after she was contacted about Bold Nebraska’s still opposing KXL pipeline’s new suggested route through Nebraska: “We are waiting for all the conservative politicians who say they care about property rights and family farmers and ranchers to actually give a damn and stand up against this pipeline. We welcome pipeline infrastructure (not in the Sandhills or that crosses the Aquifer) to ensure ND and MT oil is getting to US markets.”


Montana Governor Brian Schweitzer, (D) on the other hand kept his promise to support the Keystone XL pipeline despite all odds being placed against it ever being completed when he first became involved. The US State Department has been delaying its final report until after the Presidential election on the re-route through Nebraska. Their recommendation will be required in order to have President Obama give the project his final approval and go ahead for the permit to build and operate this much needed pipeline to make the US energy secure.


The leg from Cushing, OK to the Gulf Coast refineries has already been approved by the states through which it being laid as it did not require Presidential approval and does not run through Nebraska. Even though, President Obama on March 12, 2022, personally announced his approval of “fast tracking” the southern leg of the KXL pipeline to relieve pressure on the WTI crude oil inventories for shipment to the Gulf Coast. Construction has started and is expected to be completed sometime in late 2013.


Connecting the dots:


  • The main contributor to Bold Nebraska is Dick Holland, who has financially helped this progressive political movement in its opposition to the KXL pipeline. Bold Nebraska’s NIMBY approach will only cause further delays in completing the KXL.


  • Mr. Holland is a good friend of Warren Buffett, the CEO of Berkshire Hathaway, and one of the world’s most successful investors.


  •  Mr. Buffett in turn is “friendly” with President Obama and without his final approval the KXL pipeline will not be build. The additional costs incurred to ship crude oils from Saskatchewan, Canada, Eastern Montana and Western North Dakota are passed along the price of crude oil delivered to the refineries.


  •  Berkshire Hathaway is the owner of the BNSF Railway Company. They are currently the main shipper of Bakken shale oil and Canadian oil sands crude oil by rail cars to US refineries.


  •  Any delay, in the process by the US State Department, in recommending approval for the completion of the full route of the KXL by the President of the United States, will solely benefit the BNSF.


The winner in this battle of the titans will determine the future price of gasoline since the Bakken produces a higher quality synthetic type crude oil. It maximizes refineries to be able to produce additional yield of gasoline out of a barrel of crude.

Shale crude oil yields significantly less diesel and jet fuel than traditional light domestic and foreign crude oils including oil sands crude oil. Instead they have higher gasoline and naphtha yields.


Consequently, US diesel supplies and exports will decline replaced by increasing gasoline supplies and exports and US gasoline consumers could be the eventual winners by having more plentiful gasoline supply and economical prices at the pump.


About The Author – Bob van der Valk is a Petroleum Industry Analyst and regular contributor to the Bakken Oil Business Journal working and living in Terry, Montana. He can be contacted at (406) 853-4251 or e-mail: tridemoil@aol.com (EconMatters author archive HERE)


The views and opinions expressed herein are the author’s own, and do not necessarily reflect those of EconMatters.


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