Four reasons why Keystone is a goner

Climate change? Treaty rights? Sure, but the real killer is The Market.

 

The new Republican Congress has promised to expedite legislation to promote the Keystone XL Pipeline. North Dakota Sen. John Hoeven is expected to unveil his bill as soon as Jan. 6. The House will quickly follow with a similar proposal.

So do the supporters of the Keystone XL Pipeline have a deal? Or is the pipeline done, dead?

Here are four reasons why the pipeline might never be built.

Four: Politics. The new Congress, the Republicans, have always been in favor of this massive construction project. But the Obama administration has been timid, neither saying outright that they're opposed nor jumping on the "this creates jobs" bandwagon. That changes when the Republican Congress passes a bill. Any bill. My bet is that the President will veto the legislation. 

And if that happens, there are not enough votes for an override, according to New York Democrat Sen. Chuck Schumer.

Three: Climate change. The fact is that there is no way any politician can justify Keystone and still say it's time to take stronger action on global warming. As Bill McKibben's 350.org puts it: "President Obama says that he will reject the pipeline if it poses a risk to the climate. That makes his decision simple: building a 800,000 barrel-per-day pipeline of the world's dirtiest oil will mean more tar sands dug up and burned, and more carbon pollution."

This issue is becoming a scorecard for both parties, Republicans for and Democrats against. As we near an election year, that becomes even more important as groups rate candidates based on their votes.

Two: The opposition remains firm. Tribes, environmental groups, ranchers and other opponents are continuing to press their case in a variety of forums.

As Indian Country Today Media Network reported this week a coalition of tribes continue to press their case against the project that would include Treaty lands. The Yankton Sioux Tribe promised "opposition and victory of unification which will not concede lands to a foreign entity or compromise the climate for generations to come."

What's interesting is the technical nature of the challenges. In addition to conventional protests and prayer circles, the opposition is striking out against the permit process saying, among other things, that it's taken so long that the original permit is no longer relevant. (You got to love that one.)

And the most important reason: The price of oil. In the State Department's assessment of the Keystone project there is a chapter on market conditions. 

"Over the long term, lower-than-expected oil prices could affect the outlook for oil sands production, and in certain scenarios higher transportation costs resulting from pipeline constraints could exacerbate the impacts of low prices," the report said. "The primary assumptions required to create conditions under which production growth would slow due to transportation constraints include: that prices persist below current or most projected levels in the long run; and all new and expanded Canadian and cross-border pipeline capacity, beyond just the proposed Project, is not constructed. Above approximately $75 per barrel (West Texas Intermediate (WTI)-equivalent), revenues to oil sands producers are likely to remain above the long-run supply costs of most projects responsible for expected levels of oil sands production growth."

That was then, when even $75 dollar a barrel oil seemed crazy. Yet this week the market price dropped below $50 per barrel. The problem from the point of view of oil companies is that demand for oil is slowing at the same time that there is too much oil for sale. So there is a glut of oil, making a costly project like Keystone XL one that could be easily delayed for years.

Already Canadian oil producers are debating canceling major projects  in the Tar Sands region because the companies no longer have enough capital to pay for them. The National Post reports that Canadian producers are canceling some $60 billion worth of projects and that the oil decline is seen along the lines of "the dark days of 1999."

The price of oil is a game changer. Is it a sure thing? Of course not. But the first thing that large oil companies cut during oil price declines is capital projects. It's much easier to wait until the price climbs again and the math works in the company's favor.  Republicans are hellbent on constructing this pipeline, except there might not be customers wanting to buy expensive tar sands oil.

Mark Trahant holds the Atwood Chair at the University of Alaska Anchorage. He is an independent journalist and a member of The Shoshone-Bannock Tribes. For up-to-the-minute posts, download the free Trahant Reports app for your smart phone or tablet.

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