1. POLITICS:
Cushing's oil crossroads sets a dusty stage for Obama's counteroffensive
Published:
CUSHING, Okla. -- A thin road that intersects Main Street here stretches south, past the front porches of clapboard houses and the Church of Christ, to where the wind and wheels pick up dirt and the world's largest oil storage hub emerges on the horizon.
People in Cushing call it the energy crossroads, and it is. The capacity to stockpile more than 50 million barrels of crude oil produced in Texas, North Dakota and Canada rests in the rows of tanks on the Oklahoma plains. Many are emblazoned with the names of companies in the business of storing and shipping oil: Magellan Midstream Partners, Enbridge or Plains All American Pipeline. Only a number identifies oil stored in other tanks: "3361."
With little notice and a lot of scraped-together local fanfare, Cushing and its neighboring towns were thrust into the center of a national slugfest yesterday over high gasoline prices. President Obama surrounded himself with 36-inch-diameter pipelines piled four high in preparation for construction of a $2.3 billion southern leg of the Keystone XL pipeline to ship oil from Cushing to refineries along the Gulf Coast.
"The problem in a place like Cushing is that we're actually producing so much oil and gas in places like North Dakota and Colorado that we don't have enough pipeline capacity to transport all of it to where it needs to go," Obama said.
"There's a bottleneck right here because we can't get enough of the oil to our refineries fast enough," he said.
Obama's speech before a small crowd in the deep-red state was a counteroffensive, taking GOP claims that he is antagonistic toward oil and gas drilling to a place where the industry is an immutable economic and political force. Oklahoma City is headquarters to natural gas giant Chesapeake Energy and Continental Resources Inc., the largest unconventional driller in booming North Dakota oil fields. Continental's chairman and CEO, Harold Hamm, is Republican presidential contender Mitt Romney's chief energy adviser.
"It's an appropriate place for a speech on oil policy, but an otherwise odd choice for a campaign stop," said Kevin Book, an analyst at ClearView Energy Partners LLC. Obama won 34 percent of the Oklahoma vote in 2008, Book noted, adding that the state has not supported a Democratic candidate for president since 1964.
Book's analysis, among others, suggests the president's two-day tour through Nevada, New Mexico, Oklahoma and Ohio is part of a "rebranding" effort to beat back Republican critics pounding at the idea that Obama is hostile toward oil and gas production and, in turn, not interested in easing the price of gasoline and diesel for Americans.
He noted that Obama's speech included "notable nods" to independent voters in states like Colorado, Ohio and Pennsylvania, states becoming bigger oil and gas producers and seeing industrial sectors such as steel-making take off as a result.
Obama's trip to Cushing might be seen as an inflection point in the early stages of the re-election campaign, effectively neutering critics on his right and left. He rolled out an executive order designed to speed federal permitting of the southern portion of the Keystone XL pipeline, attracting light-handed praise from the American Petroleum Institute. Yet in his speeches this week, Obama still emphasized alternatives to oil and continued to explain that producing more domestic oil is not an easy fix for gasoline prices.
Obama also stuck by his decision to delay permitting the contentious Canada-to-U.S. northern section of Keystone XL until the pipeline changes its route through environmentally sensitive areas of Nebraska.
The word from Cushing
For the people in and around Cushing, Keystone is just the tip of the iceberg. The oil depot has expanded rapidly, and according to the International Energy Agency, storage capacity at Cushing is expected to increase by another 7 million or 8 million barrels in 2012.
In this largely agricultural region, where cows and horses share land with pipelines and oil tanks, the price of gasoline is every bit as stifling at nearly $4 a gallon. Diesel is well over that.
"Oklahoma's really in need of a bunch of jobs," said George Roberts, a farmer near the town of Ripley, Okla. "Farmers need the diesel to come down some. If you try to plow 1,000 acres, you'll be broke by the time you're done."
Stephen Spears, Cushing's city manager, pointed to a line running north and south along the map in his office. "They'll keep building," he said, referring to the midstream oil companies and pipelines.
The population of Cushing has held steady over the years at about 8,000 residents, he said, but hotels are going up to accommodate greater influxes of short-term residents in town to build and expand the infrastructure. "If the president was sincere in supporting the oil and gas industry, then for us it's a great thing," he said.
For many, he said, the jury's still out about Obama, because of his decision to turn down the northern segment of the Keystone XL that would have brought at least another 500,000 barrels of Canadian oil to Cushing.
"What we're all hopeful for is that it's substantive and the follow-through will be in the form of policies," said David Lopez, Oklahoma's secretary of commerce and tourism. "Sometimes it's been seen as hostility toward the industry."
The southern portion of the pipeline does not require the same "national interest" finding from the federal government as the northern segment that crosses the United States' northern border. Obama's executive order could potentially expedite a Fish and Wildlife Service permit, analysts said. The Army Corps of Engineers has permitting responsibilities under the Clean Water Act, but it tends to work closely with companies to mitigate environmental impacts before denying a permit. Pipeline safety requirements enforced by the U.S. Transportation Department's Pipeline and Hazardous Materials Safety Administration could also be sped up.
TransCanada Vice President Robert Jones said the nearly 500-mile southern pipeline from Cushing to the Gulf Coast could be completed by the end of next year if its permits are in hand this summer.
"We're seeing recognition of how important this energy is to the economy," he said. When asked whether Obama's speech suggested he was a friend of the pipeline project, Jones said: "That's certainly what I heard today."
Oil that used to flow in and out of Cushing with little delay is staying longer. As the trading point for West Texas Intermediate (WTI) crude oil contracts bought and sold in New York, oil building up at Cushing is an issue for petroleum producers and consumers. Some oil from Alberta's oil sands goes there, and with oil fields such as the Bakken Shale formation in North Dakota chugging toward producing 1 million barrels a day, the United States is producing more oil than it has in eight years.
But not enough pipeline steel is in the ground to ship the oil south and east, where it can be refined into gasoline and diesel. Even so, East Coast refineries are not running at full capacity or they are shutting down, creating greater incentives to simply store oil for now. Further, the price of WTI oil, at more than $100 a barrel, is a bargain compared to the global benchmark Brent price topping $125, opening the door to the hoarding of cheaper oil to sell later at a higher price.
"The U.S. consumes over 15 million barrels every day and imports about 11 million barrels. That's 70 percent of their needs," Jones said. "Our decision to proceed will help move this oil in Cushing to the U.S. refineries."