On Monday, capital markets guru Dennis Gartman sounded the death knell for Big Oil, saying that its price per barrel will decline over the next few years as the supply overtakes the demand and new technologies supplant its energy dominance. High U.S. production, low international demand and higher fuel efficiency have also contributed to the WTI’s current valuation of $80 per barrel, and Goldman Sachs has predicted it will hit $75/bbl in 2015.
So what does this mean for Canada’s controversial Keystone XL pipeline?
In January, the State Department released an environmental impact report for the KXL, writing that it could add up to 27 million tons of carbon to the atmosphere per year. A subsequent study by the Stockholm Environmental Institute challenged that figure, arguing that the State Department did not take into account the lowered price of oil that the KXL’s completion would create. Yearly CO2 emissions could increase by as much as 110 million tons, according to the Institute.
Part of the reason TransCanada is ostensibly hoping to complete the KXL is because it will make its tarsands oil cheaper to transport and, thus, cheaper for the consumer to purchase. Consistently high oil prices made the KXL’s completion irrelevant to consumers because the price of shipping it by truck or rail was affordable for the oil industry. However, now that oil prices have dropped, shipping oil by truck or rail is burning a hole in TransCanada’s pocket. It now has greater incentive to finish the KXL, which has been delayed for years.
According to the State Department’s market analysis of the KXL, if oil prices were to drop to $75 per barrel, “higher transportation costs could have a substantial impact on oil sands production levels — possibly in excess of the capacity of the proposed Project— because many in situ projects are estimated to break even around these levels. Prices below this range would challenge the supply costs of many projects, regardless of pipeline constraints, but higher transport costs could further curtail production.”
“Tar sands only makes sense in a world of high oil prices,” Anthony Swift, of the Natural Resources Defense Council, told InsideClimateNews. “We’re in a world where cheap transportation by pipeline makes or breaks even the cheapest tar sands project.”
Last year, President Obama confused both proponents and critics of the Keystone pipeline when he said that “[a]llowing the Keystone pipeline to be built requires a finding that doing so would be in our nation’s interest.”
This interest, said Obama, “will be served only if this project does not significantly exacerbate the problem of carbon pollution. The net effects of the pipeline’s impact on our climate will be absolutely critical to determining whether this project is allowed to go forward. It’s relevant.”
If the KXL is completed, tarsands production will naturally increase, which will generate an uptick in greenhouse gas emissions.
As InsideClimateNews points out, Obama’s language in that speech has “been parsed by media outlets and pundits across the globe. It was the first time Obama linked the Keystone XL decision to global warming. Because of that, some observers said the president seemed to be considering rejection of the pipeline—a claim that puts a stake through the heart of a common narrative that has Obama trading a Keystone XL approval for carbon cuts at existing power plants. Others saw the speech as a pipeline greenlight.”
So which will it be? Now that oil is low and TransCanada needs its pipeline and is all but certain to increase its emissions, will Obama definitively shut it down? Or will he continue to let us wait and wonder?