President Obama announced today to much fanfare (and to much angst on the right) that he is killing the proposed KeystoneXL pipeline, which would transport Canadian tar sands oil through the United States. But as much as he would like to claim the mantle of environmentalism (this is the man who promised to slow the rise of the oceans, after all) the president is giving himself a little too much credit here. For President Obama is not killing Keystone; the economics of oil are.
Tar sands oil is remarkably expensive to cultivate; according to State Department figures, energy companies require oil prices of somewhere between $65 and $75 a barrel to break even on tar sands mining. Oil is currently trading at less than $50 a barrel and there’s increasing speculation that the stuff will remain cheap for a long time to come. The plunge in oil prices is already affecting tar sands production: Earlier this year, Shell cancelled plans for a major investment in the tar sands. Nor are they the only ones calling off future development.
The plunge in oil prices and fall-off in investment means that Keystone simply no longer makes economic sense.
As Pete Howard of the Canadian Energy Research Institute told the MIT Technology Review early this year, of oil prices remain around $50 a barrel, “the necessity for Keystone XL may disappear . . . We’ve got rail [transportation] right now as a safety valve, and if we build up rail capacity to carry three-quarters of a million barrels, that pretty much takes up all the projects that are under construction right now.”
The president may as well take credit for the sun rising in the east this morning.
