Thursday, June 18, 2009

Senate Committee Quietly Approves Military Purchases of Canadian Tar Sand

The Senate Energy & Natural Resources Committee approved several interesting measures yesterday, by a vote of 15-8. We found the following approved items, which represent only a portion of the overall package, to be particularly interesting:
  • Oil and gas – opens portions of the Eastern Gulf of Mexico, including Destin Dome, to oil and gas leasing, and establishes a one-stop permitting office in Alaska for offshore leasing in the Chukchi and Beaufort seas;
  • Alaska natural gas pipeline – increases federal loan guarantee for the developers of a gas pipeline project from $18 billion to $30 billion, and allows access to the Federal Financing Bank;
  • Modification of Section 526 – allows the government, and in particularly the military, to purchase Canadian tar sand oil.
As recently as one year ago, with oil prices cresting above $140/bbl, the debate over whether to expand Gulf drilling was particularly fracticious in nature, and appeared unlikely to be championed in bi-partisan fashion by a Senate Committee. Introduce an exponentially rising budget deficit and an expensive health care proposal into the mix however, and all of a sudden the idea of Gulf Drilling - and its associated tax revenues - becomes a bit more appealling to the folks in Washington.

The modification of Section 526, and in particular the emphasis on military purchases, is a most interesting twist to the story. Although we haven't researched the Senate's justification for this measure, we are prepared to lob our provocative thoughts on the subject into the world: With the situation in Iran escalating on a daily basis, we have to assume that there have been discussions, at the highest levels of US Government, over the possibility of a disruption of the oil tanker traffic that passes daily through the Straits of Hormuz. Despite the fact that world oil supplies are currently at record highs, a disruption at Hormuz could cause those stockpiles to deplete in rapid fashion, and would launch world oil markets into a panic not seen since the oil embargoes of the 1970's. The modifications to Section 526 would allow for the fueling of the US military, and facilitate a forced re-opening of the Straits. We sure think it makes sense.

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