Rail Dispute Over Keystone Pipeline Follows a Long Tradition of Cronyism

Thursday, 10 Jul 2014 08:12 AM

By Neal Asbury

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Our nation's railroad system has always been a source of pride. It helped America expand from coast to coast, and by 1860, nearly every major city was linked by rail. In addition, most farms were within five miles of a rail line so they could ship produce and livestock.

Yet, with this growth has come a long history of cronyism connected to the nation's rail system.

We usually recall fondly the golden spike that marked the First Transcontinental Railroad across the United States, which connected the Central Pacific and Union Pacific railroads.

What gets glossed over is that railroad companies were given taxpayer-funded government bonds and enormous tracts of land with which to build. Then, much like today, they hired lobbyists to ensure that in exchange for votes, politicians would continue to provide government subsidies for their railroads.

In one brazen move, Union Pacific leader Thomas Durant bought land in Nebraska, plotting that the rail line would one day run through the state. It was a gamble until Abraham Lincoln, his lawyer and chief lobbyist, was elected president. Remembering the largess of his sponsor, Lincoln had Council Bluffs, Iowa, selected as the eastern end of the Union Pacific line so that it ran through Nebraska.

Today, another billionaire with a Nebraska heritage is leveraging his political ties in connection with the Keystone XL Pipeline. Warren Buffett, often referred to as The Oracle of Omaha, through his company, Berkshire Hathaway, purchased Burlington Northern Santa Fe railway for $34 billion four years ago. Forbes estimates its value has doubled since then. Part of the reason: hauling oil out of the Bakken formation of North Dakota.

In fact, this is so profitable that Buffett has fought tooth and nail to prevent the construction of the Keystone XL Pipeline, which would directly compete against his rail lines.

And he has many allies in Washington who are fighting alongside him, lured by the donations he made to the Democratic Party and to President Obama. With his money and the pressure from a small group of vocal environmentalists, he has managed to stall the Keystone XL Pipeline indefinitely.

Buffett has proposed that rail is a better and safer way to go, despite the fact that there have been an increasing number of large rail accidents. His contention is that rail would outperform a pipeline.

However, the facts don't support it. It is estimated that the Keystone XL pipeline could move approximately 830,000 barrels per day of heavy crude oil from western Canada to refineries in the Gulf Coast and Midwest.

On the other hand, Canada's National Energy Board estimates that rails last year moved just 57,000 barrels per day to the Gulf Coast. At that rate, rails can't be considered a viable alternative for the Keystone XL Pipeline.

Just as people looked the other way in the 1800s when railroad tycoons used their clout to do what they wanted, a modern-day rail tycoon has been able to leverage his political ties for enormous profit.

Sadly, cronyism and neglect have left the nation's railroad system in shambles. Crops, fertilizer and even coal are stuck in a national logjam. Farmers can't ship products, energy companies can't get coal and crops are rotting in the fields.

There isn't enough rail capacity to handle the demand. Railroads would rather ship shale oil than help out the nation's breadbasket.

So the question is: wouldn't it make sense to alleviate the rail logjam by shipping shale oil in pipelines that are much safer and cheaper? That would free up the railroads to get products to the average consumer — expanding their choices and bringing down costs.

Cronyism isn't going away any time soon, but should we allow it to interfere in bringing down energy costs and creating jobs? Let's get the Keystone XL pipeline built.

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