Earlier this week president Donald Trump reopened a door the Obama administration hastily shut on its way out of the office. More accurately, Trump opened two doors when he signed memoranda that will get the ball rolling on two controversial pipeline projects—the Keystone XL pipeline and its younger cousin, the Dakota Access pipeline.
But while the United States is once again open to Keystone’s construction, it’s not a given that the long languishing pipeline will come to fruition. As the New York Times reminds us, a lot has changed in global oil markets in the decade since Keystone was first conceived:
[E]ven with an opening for the pipeline to go forward, the energy markets are starkly different from what they were eight years ago, when the Obama administration began considering the pipeline.
When the project was conceived, the United States was struggling to lift domestic oil supplies and push down prices. The Keystone XL project was meant to supplement existing pipelines and increase Canada’s export potential. Since then, production has rebounded in the United States, and international oil markets are dealing with oversupply. Gasoline at the pump is cheap.
TransCanada, the company behind Keystone XL, said this week that it hasn’t yet discussed the project’s revival with the companies that would ostensibly be using the pipeline to transport their Albertan oil sands crude down to refineries along the Gulf Coast. And if and when TransCanada does secure assurances from shippers that they’d be willing to use Keystone, the company will still have to reapply for permits that the State Department would then need to review before the final section of the pipeline would be constructed. It’s not, in other words, a done deal.
That said, even with oil trading at around roughly half of what it was two and a half years ago, the Keystone XL pipeline still makes a lot of sense for Canadian oil sands producers. The type of crude they’re drilling is “heavy”—high in sulfur—and is particularly well suited for refineries along America’s Gulf Coast. Much of that crude is already making its way south to those refineries by truck or rail, two options that are generally speaking less safe and more expensive than a pipeline.
Moreover, these oil sands projects have been less sensitive to falling oil prices than, say, American shale operations have been because the production process in Alberta requires a lot more upfront investment. In fact, Canadian oil sands production is projected to grow 42 percent by 2025. Canada has been producing so much crude lately that they’re facing some significant bottlenecks in getting all of those hydrocarbons to market, which would suggest that yes, even with oil trading between $50 and $60 per barrel, there’s still a use for the Keystone XL pipeline.
If Canada bites, environmentalists will be tearing their hair out. For years, Keystone was the marquee issue for American greens, and Obama’s eventual opposition to it was hailed as a great victory. Similarly, the revival of its prospects is now being interpreted as a great defeat.
But is this really an environmental disaster? Only if you believe that Keystone’s construction would make or break the oil sands industry. We’ve long pointed out that the pipeline’s construction was a sufficient but never a necessary condition for that oil production (though it would provide operators in Canada’s oil sands a more efficient means by which to transport their crude to refineries). Environmentalists convinced themselves that it somehow was, and that by targeting Keystone they could effectively halt proceedings in the admittedly dirty oil drilling region of Alberta. They must’ve been shocked, then, to see those oil sands still pumping crude, even after Obama nixed Keystone.
That pipeline was never the bottleneck its proponents or opponents seemed to believe it to be, and the fact that it’s now back on the table shouldn’t disillusion greens. And while its proponents shouldn’t start waving victory flags now that Trump is president, there’s every reason to believe we could soon—finally!—be seeing a conclusive and sensible end to this saga.