If the Keystone XL pipeline proposed by Calgary-based TransCanada Corp. isn’t dead already, after U.S. President Barack Obama’s pledge this week to veto any Congressional approval of the controversial project, it sooner than later will be.
After six years of debating this megaproject, which would traverse several U.S. states and whose estimated cost has soared from $5.4 billion (all figures in U.S. dollars) when it was first proposed to a current $8 billion, it’s time to move on.
And almost everyone has, except for TransCanada. The company continues its exhaustive Keystone XL marketing and lobbying effort — money down the rathole for TransCanada shareholders. (I am one.)
1. Western Canadian crude-oil producers have found alternatives to Keystone XL. They are getting their product from landlocked Alberta and Saskatchewan to the U.S. and other markets using rail transport and pipelines that have either been expanded or built from scratch during the interminable wait for Keystone XL.
Absent Keystone XL, Canadian oil exports to the U.S. have never been higher than they are today. And Calgary oilpatch analysts expect a further doubling in Canadian heavy oil crude shipments destined for U.S. Gulf Coast refineries, to more than 400,000 barrels a day in 2015 from just over 200,000 barrels last year.
U.S. oil producers that once planned to use Keystone XL — notably shale-oil giants like Oklahoma-based Continental Resources Inc. — have shifted to other pipeline networks.
“We’re supporting other pipelines out there, we’re not waiting on Keystone, nobody is,” Harold Hamm, CEO of Continental, recently told the U.S. political insider journal Politico.
Closer to home, the CEO of Calgary-based Suncor Inc., the largest Canadian oil producer, said last fall that “an individual project like Keystone XL is not critical to our plans to get our products to market.”
2. The current oil glut, which has cut the world price to less than $50 a barrel, is unlikely to disappear anytime soon. Saudi Arabia has spearheaded a campaign to recapture market share lost to the U.S. shale-oil producers by urging fellow OPEC members to keep their production levels high. Mideast producers, especially, have much lower production costs than shale-oil producers. Yet Continental and the other biggest U.S. shale producers have shown no sign of easing up on production. Neither have petro-economies such as Russia and Venezuela, each in desperate need of oil revenues, even at depressed prices, to soften the blow of the economic recession each is enduring. And a continued sluggish global economy in 2015 suggests very little recovery in oil demand.
That being the case, U.S. shale-oil operators would rather not have the glut worsened by still higher output from Western Canadian oil producers. “If we have an oil oversupply looking at us,” Continental’s Hamm says, “do we need more Canadian oil here (in the U.S.)? Probably not.”
3. It’s not just current global supply-and-demand conditions that could hardly be worse for Keystone XL. The politics are also abysmal.
The Republican leaders now in control of both houses of the U.S. legislative branch are intent on a showdown with Obama, and have made approval of Keystone XL their first priority. Obama is obviously obliged to show that while he’s a lame-duck president, he’s not a pushover.
Which means Keystone XL approval will have to wait for the election two years’ hence of a pro-Keystone XL president, plus another two years for construction. That would have Keystone XL in operation in 2019 at the earliest, or almost a dozen years after it was first proposed. Much has changed since then, or specifically since 2008. That was the year oil prices peaked at $147.50, and U.S. pump prices soared above $4 a gallon. It was also well ahead of a shale-oil boom that would make the U.S. self-sufficient in oil.
4. Obama has other reasons to block Keystone XL.
It was on his watch that the U.S. Gulf Coast suffered the world’s biggest oil spill. The Deepwater Horizon catastrophe occurred just months after top executives of BP PLC testified to U.S. legislators that nothing could go wrong with BP’s deep-sea Macondo Project in the Gulf of Mexico.
In the aftermath of the disaster, BP pleaded guilty to, among other things, a felony count of lying in those Congressional hearings. The credibility of the petroleum industry took another hit that year when a pipeline carrying Canadian heavy crude oil operated by TransCanada’s crosstown rival Enbridge Inc. broke in heavily populated south-central Michigan. That accident caused the biggest inland oil spill in U.S. history.
So Obama has reason to be skeptical of safety and competence claims even by long-established energy firms, including those of a TransCanada that has its own track record of breaks, as all pipeline operators do.
Finally, Obama is regarded as a laggard by many if not most environmental activists, who are a core constituency for his Democratic Party. Environmental activists worldwide long ago made opposition to Keystone XL a litmus test of sincere commitment to environmental progress.
Actually, Obama’s imposition of the strictest-ever fuel-efficiency standards on motor vehicles has been among the few major anti-global warming initiatives worldwide. U.S. gasoline consumption actually dropped 6 per cent between the 2007 peak and 2013, despite population and economic growth.
But more is needed for the Democrats to go into the next presidential election as the “pro-environment” party. Dems will want that card after a year that was reported this week to have been the hottest year in recorded history. And with the respected journal Nature warning this week that almost all fossil fuels need to stay in the ground if the world is to succeed in cutting CO2 emissions 45 per cent by 2050, a goal widely agreed upon by advanced economies even if they’ve taken little action to achieve it.
A severe cut in CO2 emissions is the only means of keeping global temperatures within a “safe” rise of no more than 2 degrees Celsius. In that context, there is only political upside to withholding approval of Keystone XL, with its role in abetting greater Athabasca production.
5. The frosty relations between Obama and Canada are rooted in Prime Minister Stephen Harper’s long-ago adoption of Keystone XL as a pet project. Early in his presidential tenure, Obama had become so weary of Harper’s Keystone XL obsession that in a White House press conference by the two men, Obama began by saying Harper had been nagging him yet again about pipelines. Harper is regarded in Washington as just another special pleader with little of interest to say or offer.
Keystone XL’s demise can’t come soon enough for an overdue improvement in Canada-U.S. relations.