Will Cheap Oil Kill Keystone XL? Probably Not

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Michael Bastasch DCNF Managing Editor
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Crude oil prices have slid more than 45 percent since the summer and already some are predicting the demise of the Keystone XL pipeline. But predictions of the end of Keystone may be premature, according to experts.

Environmentalists and other Keystone XL opponents argue that low oil prices make the project even more of a necessity for oil companies. This means that Canadian oil sands production’s contribution to global warming will hinge on the approval of the pipeline, environmentalists argue.

“Oil prices going low gives the president a landing place to reject the pipeline because Canada needs cheap and big infrastructure,” Jane Kleeb, who founded the anti-pipeline group Bold Nebraska, told Politico Magazine.

“When oil prices are high, producing the expensive and high-carbon tar sands makes sense. But now that oil is low, the only way tar sands will continue to expand is if Canada gets big pipelines,” Kleeb said.

Oil prices hovered around $61 per barrel on Monday. But the State Department said Canadian oil sands production would face trouble in the $65 to $75 per barrel range. At this point transportation costs would be crucial to keeping oil sands production economically attractive, meaning oil companies would need pipelines to bring down costs.

Environmentalists see this as their chance to effectively argue that Keystone XL would be to blame for higher carbon dioxide emissions from oil sands — without the pipeline, oil sands production would fall.

“It is now impossible to credibly argue that Keystone XL won’t enable significant expansion of the tar sands and associated climate emissions,” Anthony Swift, attorney with the Natural Resources Defense Council told Politico in an email. “Plummeting global oil prices have highlighted the fact that tar sands only work in a world of expensive crude — and without cheap pipeline infrastructure, many carbon-intensive tar sands projects simply will not be built.”

But Keystone opponents may be jumping the gun. Canadian oil producers aren’t just looking to cash in on short-term production levels, they make investments that look at what oil prices will be in decades to come.

The Royal Bank of Canada reports that Canadian oil production likely won’t be slowed down, at least in the short run. RBC says Canadian oil producers will continue to produce oil and may even pump more out of the ground. The dollar value of exported oil will less, RBC notes, but Canada’s economy will make up the difference with increasing non-energy exports.

ExxonMobil’s energy outlook to 2040 says global oil sands production will grow to nine million barrels per day, driven mostly by production in Canada and Venezuela. Not only that, but oil sands will make a North America a net liquid fuels exporter by 2020.

“From now through 2040, the Middle East and Russia/Caspian are expected to remain the dominant oil exporting regions,” according to Exxon. “But a significant shift is foreseen in North America, which is poised to emerge as a net liquids exporter due to projected strong growth in tight oil, oil sands and [natural gas liquids].”

“North America had been a significant oil importer for decades, but growth in unconventional oil and natural gas in the U.S., plus oil sands in Canada, are expected to enable net exports from the region by about 2020,” according to Exxon.

Oil giant BP also began a new oil sands operation in Alberta, Canada last week. The BP project is expected to have a lifespan of 50 years and initial production capacity of 60,000 barrels per day. Eventually production capacity will grow to 200,000 barrels per day.

TransCanada, the company looking to build Keystone XL told Politico that even a year of low oil prices will not likely dampen oil sands production.

“Keystone XL is not the driver for increased oil production out of the oil sands,” TransCanada’s Corey Goulet told Politico. “It’s really the long-term price of oil, and even one year is a short time in the types of 20- or 30-year investments these folks are considering.”

Canadian oil sands production averaged 104,000 barrels per day last month. November’s production levels were slightly below January 2014’s at 112,000 barrels per day, but up from June 2014 levels of 74,400 barrels per day — when oil prices were about 45 percent higher.

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