Keystone Pipeline: Who Owns the Oil, and Why?

Less than three percent of shares in 173 publicly-traded, U.S.-based oil and natural gas companies are owned by corporate management - - Almost 3% is concentrated between a very few, while the other 97% is watered downed between millions of people.

An analysis released by the economic advisory firm Sonecon (that doesn't state who actually commissioned the study) says that corporate management owns 2.8 percent of shares in gas and oil companies, while almost half – 48.9 percent – are owned by individuals, either through pension funds (31.2 percent) or Individual Retirement Accounts (17.7 percent). The remaining shares are owned by "asset management companies" or mutual funds – which account for 20.6 percent, and by institutional investors (e.g. Goldman Sachs, Bank of America, etc.) (6.6 percent).

The study doesn't mention that the mangers of all these other funds, asset management companies, and institutional investors could also be added to the 3% of corporate management that out-right owns stocks and stock-options in oil and gas companies, because they also own shares and/or stock-options in their own hedge-fund companies or banks that hold large blocks of shares in gas and oil companies.

A bank like Bank of America could borrow $5 billion from the Fed at almost zero percent interest, have their bank's portfolio manager buy $5 billion in ExxonMobil stock, sell it for a profit one year later, pay the Fed back, and the bank's CEO pay 15% capital gains tax on his stock-options. A very sweet deal for a lot of easy money.

If you went to Canada and bought a barrel of crude oil, and then brought it back to the U.S., would a large oil company automatically become the legal owner of that barrel of oil after you've "imported" it into the country? Or could you refine it yourself and then sell it for a profit to China? And if you could, then so too couldn't our government? If an oil company leases federal land to drill for oil (a natural resource on publicly owned land), do they become the legal owner of the oil just by pumping it out of the ground?

Oil and Gas Leases on Federal Lands

Since 1982, the federal government has leased or offered for oil and gas drilling 229 million acres of public and private land in 12 western states. About 570 million acres of federal land in the continental U.S. and Alaska are open for oil and gas leasing.

Under federal law, any adult U.S. citizen may obtain and hold a lease to explore, drill, extract, remove, and dispose of oil and gas deposits on federal land. Corporations organized under U.S. law and municipalities may also obtain and hold oil and gas leases.

The lease provides the right to use as much of the leased land as is necessary to develop oil and gas resources. The lessee and their operator cannot build a house on the land, farm the land, or remove minerals from the leased land other than oil and gas.

On auction day, or at a time specified by an authorized officer, winning bidders pay an administrative fee of $75 per lease, the first year's rent of $1.50 per acre, and at least $2 per acre of their "bonus bid."

Canada

Foreign corporations, some controlled by national governments, have been using their economic clout to buy into Alberta's oil sands and take control of their natural resources by way of TransCanada via the proposed Keystone XL Pipeline through the U.S. to oil refineries on the Gulf of Mexico.

U.S., French, British, Chinese, Thai, Korean and Norwegian interests (oil companies) have all bought stakes in oil-sands projects. According to the Canadian Association of Petroleum Producers (CAPP), international companies have invested nearly $20 billion in the last three years through mergers, partnerships and outright purchases of projects.

Who Owns the Oil?

This increased foreign investment raises questions. Who has the right to develop Canada's natural resources? Who sets the rules for how these resources are developed? Who controls where the resources are processed and sold?

The struggles over the ownership of the two most important political liquids of this era, petroleum and water, have had different fates. Though water has been claimed to be either private, state or common property throughout history, the novel feature of this period has been the move by corporations to totally privatize it.

The powerful struggles against this corporate privatization of water in South Africa have focused world attention on this question: Who owns water? The consequent efforts to keep water as a common property on a local and global level are now some of the most important initiatives of the anti-globalization movement.

Petroleum, on the other hand, has in the last hundred and fifty years been considered exclusively as either private or state property. The pages of the history books on the petroleum industry have been filled with "magnates" like John D. Rockefeller (the founder of Standard Oil in 1870) or government "leaders" like Saddam Hussein and Winston Churchill. Thus the "struggle over oil" has been largely seen as a struggle between oil companies and governments, since its beginnings in the mid-nineteenth century.

The exploration, extraction, and distribution of petroleum for the consumption of humanity and for use by the economy, and as for the benefit and commonality of THE PEOPLE, has been usurped by corporate interest solely for profits.

The current debate has been full of false Republican claims, one being that the Keystone pipeline was to be made with U.S. steel -- but as it turns out, not one ounce of steel was designated from the U.S., but was coming from India. America has four pipe manufacturers that make the needed 36-inch steel pipes for the pipeline and uses U.S. steel, but the decision was made to use a pipe maker in Arkansas that uses steel from India.

I proposed an idea about the Keystone pipeline, funding a massive non-profit public works program to build an oil company that's operated and owned by our government (the people, the taxpayers).

Waxman/Markey ‘Fix’ for Keystone XL (Arguments for and against the Keystone pipeline)

The House Energy and Commerce Committee has been debating H.R. 3548, the North American Energy Access Act, Rep. Lee Terry’s (R-Neb.) bill to nullify President Obama’s rejection of the Keystone XL Pipeline. The bill requires the Federal Energy Regulatory Commission (FERC) to issue a permit for the pipeline within 30 days of receiving an application. If FERC fails to act on the application within the 30-day period, the bill deems the permit to have been granted.

Committee Democrats lack the votes to defeat the bill, but they hope to use the markup to turn the rhetorical tables on Republicans, who claim the Keystone XL Pipeline will enhance U.S. energy security by reducing our dependence on Middle East oil.

Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) will offer an amendment barring exports from the U.S. of any Canadian oil shipped via the pipeline and requiring all petroleum products made from Keystone crude to be sold in U.S. domestic markets.

Waxman and Markey may believe that such restrictions would impair the profitability and competitiveness of U.S. refiners, potentially causing them to back out of the long-term sales contracts they negotiated with pipeline builder-operator TransCanada Corp - - and that the amendment could scuttle the Keystone XL project and, therefore, that Republicans will vote against it.

But that’s the point. By forcing Republicans to vote no, Waxman and Markey hope to expose Keystone XL as an “export pipeline” and thus, as an energy security scam. The question they’re likely to pose again and again: If you Republicans really believe the pipeline will reduce U.S. oil imports from unstable, undemocratic, or unfriendly countries, then why won’t you guarantee in law what you say is going to happen anyway?

Sounds like a reasonable question to this blogger.

Keystone crude won’t back out any oil from OPEC, Waxman and Markey contend, because Gulf Coast refiners will simply turn it into products for export. What’s more, they assert, because the oil won’t be used to increase the supply and lower the price of gasoline and other finished products here at home, U.S. consumers won’t get any benefit from it. This line of argument is now the chief talking point against the pipeline (see here, here, here, and here).

3 Arguments For the Keystone XL Pipeline by Marlo Lewis 1) Amendment Violates GATT A ban on exports of petroleum products made from Keystone crude would violate one of the basic principles of the international trading system: “National Treatment” – treating foreigners and locals equally. The World Trade Organization (WTO) provides a succinct explanation: Imported and locally-produced goods should be treated equally — at least after the foreign goods have entered the market. The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents. . . .National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax. Under the National Treatment principle, once Canadian oil has entered the U.S. market via Keystone XL, it must be treated the same as oil produced from U.S. wells. Only if Congress were also to ban exports of petroleum products sourced from domestic crude would the amendment pass muster under the General Agreement on Tariffs and Trade (GATT). If Congress chose to ignore GATT and enacted the amendment, the restriction would put U.S. refiners at a competitive disadvantage. They could not export products made from increased supplies of Canadian crude, but foreign refiners would be under no such restriction. This kind of reverse protectionism makes no economic sense, especially for folks like Markey, who view trade deficits with alarm. 2) Anti-Export Is Anti-Consumer Indeed, one reason Markey wants to end America’s (mythical) oil addiction is because crude oil imports account for such a big chunk of our annual trade deficit. But in 2011, petroleum products — gasoline, diesel, and jet fuel — became America’s top export. U.S. refiners exported about $88 billion worth of fuel last year. If Keystone XL would boost America’s leading export, then shouldn’t Markey the trade hawk switch sides and oppose his own amendment? Markey claims that without an export ban, Keystone crude will bypass, rather than supply, the domestic U.S. motor fuels market. That is implausible. Of the 1.2 billion barrels of finished petroleum products refined in the Gulf Coast region (PADD III) from January through October 2011, approximately half was sold in domestic markets. New supplies of Canadian oil will undoubtedly increase exports, but much of it will be used to offset declining PADD III imports of Mexican and Venezuelan crude. DOE analyst Carmen Difiglio observes: Taken together, U.S. imports of crude oil from Mexico and Venezuela are about 1 million barrels/day lower than their previous peak levels. With an expected decline of Mexican crude oil production of 500,000 barrels per day and the likelihood of increased exports of Venezuelan crude to Asia, current heavy imports to PADD III are likely to decrease by a significant amount within the next five years. Keystone XL opponents note that PADD III exports of finished petroleum products have increased rapidly in recent years. No dispute there. According to the U.S. Energy Information Administration (EIA), total U.S. exports of finished petroleum products “increased more than 60% since 2007 as markets have become more globally integrated,” and most of those exports came from PADD III. But to view this as a market failure is deeply weird. Can you think of another U.S. industry that is castigated for becoming more competitive in the global marketplace? Waxman and Markey profess to believe that banning exports made from Keystone crude will benefit consumers. But why stop there? Why not force refiners to sell all their products exclusively in the U.S. domestic market? Such a policy would produce a glut, gasoline prices would plummet. Great idea, right? No, it would be just as dumb as banning exports of food, automobiles, computers or any other product on the grounds that decreased sales abroad means a more abundant market here at home. Any benefit consumers might derive from a ban on petroleum product exports would be exceedingly short-lived. Capacity would be idled and thousands of employees would be laid off. Oil company stock prices would crash. Billions of dollars in capital would flee to countries that don’t persecute oil companies. Those effects would have two further consequences. U.S. imports of foreign-made petroleum products would increase. The price of petroleum products would increase because we’d have to pay higher shipping costs and because foreign suppliers would face less (or no) competition from U.S. domestic refiners. Although ostensibly pro-consumer, forcing an industry to produce for the home market only is emphatically anti-consumer. Such a policy differs from Waxman and Markey’s proposal only in degree, not in kind. 3) Keystone XL Would Displace OPEC Oil* The fact that U.S. petroleum product exports are growing is actually a reason why Keystone XL would displace oil imports from unfriendly and unstable countries. EIA’s International Energy Outlook 2011 projects that world demand for liquid fuels will increase from 85.7 million bpd in 2008 to 112.2 million bpd 2035. U.S. exports of finished products will also increase to help meet that demand, and refiners will source increasing amounts of crude from domestic producers. Nonetheless, to keep up with world demand while supplying the U.S. domestic market, U.S. refiners will also import millions of barrels daily from foreign producers. So the question for Waxman and Markey is: Which foreign countries do you want the imports to be sourced from? Every barrel that U.S. refiners import from Canada is a barrel they do not have to import from OPEC. Keystone XL opponents argue that reliable access to expanding supplies of Canadian oil would not enhance our self-reliance on North American energy, and that undermining the competitiveness of America’s leading export industry would help consumers and the economy. * Jerry Taylor and Peter Van Doren make a strong case that the national security risks of reliance on OPEC oil are overblown. Nonetheless, both sides in the congressional debate on the Keystone XL pipeline assume that, all else equal, it is better to buy oil from friends rather than enemies, democracies rather than tyrannies, stable rather than unstable suppliers.

Again, who owns the oil?

You can agree or disagree with one or more of Marlo Lewis' arguments...such as being beholden to trade agreements that hurt U.S. consumers, or believe that the World Trade Organization is in the best interests of the U.S., or whether U.S. citizens should be concerned about oil refiners being "at a competitive disadvantage" to making corporate profits, or if cheap domestic oil for domestic consumption is better or worse than worrying about "reverse protectionism". Marlo Lewis' statements are very telling:

• "Billions of dollars in capital would flee to countries that don’t persecute oil companies."
• "Can you think of another U.S. industry that is castigated for becoming more competitive in the global marketplace?"
• "Capacity would be idled and thousands of employees would be laid off."

Is Lewis attempting to invoke sympathy for the most profitable corporations in human history? Using scare tactics to sway public opinion by saying innocent hard-working Americans will lose their jobs? Are the Republicans and oil companies really so concerned about the economic well-being of unemployed Americans? I think not. The jobless are having their benefits cut as I write.

Lewis even admits, "Such a policy would produce a glut, and gasoline prices would plummet" -- and then makes arguments against this, as though it would be a "bad" thing. If scientists discovered an unlimited supply of energy from nuclear fusion, would that also be a "bad" thing? Yes, for BIG OIL companies that would be bad, because it's all about profits for the oil industry, not "energy independence" for America.

They say "Drill, baby, drill!" -- but that won't lower your prices at the gas pump while oil speculators and traders do all they can to keep the oil prices as high as they can for more increased profits. They would hold the entire world hostage to oil prices for profits.

When people heard about the big profits made recently by large companies like ExxonMobil (and who pays so little in taxes) many envied those companies with their large oil reserves. But N.C. State University economist Mike Walden says private oil companies aren't the biggest beneficiaries of high oil prices. "Certainly they benefit, but they don’t nearly benefit as much … as other owners –- and we are talking about countries that own the oil," says Dr. Walden, a professor in the College of Agriculture and Life Sciences.

"In fact, country-owned oil companies account for 90 percent of the ownership of the known oil and gas reserves. And we have examples like the countries of Saudi Arabia, Iran, Kuwait, Venezuela and Russia.

"These are countries that actually own the oil companies in their countries. So they are obviously getting rich. In fact, Exxon -- which is one of the biggest private owned oil companies -- they ranked only 14th in the world in the value of oil companies," Walden adds. "So when we see the price of oil rising, it’s really those nationalized companies and countries where there are big oil reserves –- they’re the ones that really benefit the most."

So if Americans owned their own oil, we might even be able to use it at cost. Who says domestically produced oil and oil from Canada has to be exported for profit? The oil companies? The Republicans, who work for the oil companies? No one would lose their job, they'd just be working for a different employer, the "people" (the government), instead of ExxonMobil.

Alaskan Pipeline

The people of Alaska receive oil royalties from the Trans-Alaskan pipeline, which was built between 1974 and 1977 because the 1973 oil crisis caused a sharp rise in oil prices in the United States. Afterward, Alaska moved from the most heavily taxed state to the most tax-free state. Under the latest taxation system, introduced by former governor and Tea Party favorite Sarah Palin in 2007, then it was passed by the Alaska Legislature that year, and the maximum tax rate on oil profits is now 50 percent.

What are the foreign and domestic "interests" and the oil companies offering the American people in exchange for building the Keystone XL Pipeline across the nation? A few thousand temporary jobs while building the pipeline, using steel from India? No guarantees of cheap and abundant gas ("energy independence")? No oil royalties? No 50% tax rate? Continued oil subsidies? Continued tax breaks? WTF?!?!?

Conclusion

ConocoPhillips' CEO James Mulva (a Republican) said that ending the tax breaks for the big oil companies would be "un-American", then refused to apologize to the American people. This blogger suggest we nationalize ConocoPhillips and fire that a-hole. Or at least end all oil entitlements. But the Republicans won't end oil subsidies (currently at $37 billion a year).

If taxpayers are going to subsidize a privately owned oil company, why not subsidize a government-owned oil company? So I'll ask again...who owns the oil? I proposed an idea about the Keystone Pipeline, funding a massive non-profit public works program to build an oil company that's operated and owned by our government (the people).

Otherwise, will we get oil royalties for the oil coming from TransCanada's Keystone XL Pipeline? Who will own THAT oil? ExxonMobil?

FULL DISCLOSURE: This blogger fully supported the Republican Party and once believed in "trickle down economics" for the past 30 years until recently, when I've come to realize that the GOP always favors corporate interests over the interests of "the people". And that scares me, because just like the little boy who cried "Wolf!", one of these days the Republicans might back a proposition that really was good for the American people, but by then, no one will believe them anymore. But the Canadian Keystone XL Pipeline is NOT one of those propositions.