Keystone XL: Does it matter anymore?

Debate on the Keystone XL pipeline has resurfaced on Capitol Hill in the last week. But with oil prices falling and alternative routes for oil to get to market, the Keystone XL pipeline is less important to global oil flows than it was six years ago.

Senators furiously debated approval of the long-delayed Keystone XL pipeline Tuesday, after the House passed its ninth pipeline approval bill last week.

With Senate pipeline proponents one vote short, anti-Keystone environmentalists are digging in their heels and urging Democrats to reject the project. Meanwhile, the energy industry is urging moderate Democrats to approve the controversial pipeline, which would ship oil from Canada and North Dakota to refineries in Texas.

But beyond political theatrics, Keystone XL is less relevant to global oil markets today than it was when it was first proposed six years ago. Alberta oil sands and crude from North Dakota and Montana are getting to market even without the pipeline – by rail and other stopgap methods. Booming US oil production has lessened the need for Canadian oil, and plummeting oil prices have undercut the profitability of the oil Keystone XL would transport.

“It’s become this great cause célèbre – and without much cause, if one soberly looks at it,” says Charles Ebinger, director of the Energy Security Initiative at the Brookings Institution, a Washington think tank. “With all the talk about how bad Keystone is for the environment, compared to coal exports – which no one is talking about – it’s a drop in the bucket.”

The Keystone XL pipeline would carry 830,000 barrels of Alberta oil sands a day to the Gulf Coast. Because the route crosses the US-Canada border, Keystone XL requires State Department approval. President Obama is reviewing the pipeline and its effects on the environment and climate change. Congressional action aims to speed up the process and force Obama’s hand.

While Obama mulls pipeline approval, however, the situation around Alberta oil sands has changed almost entirely.

“The current price regime is challenging,” says Stuart Page, chief executive officer at Glori Energy, a Houston-based oil recovery company. In an interview with the Monitor last week Mr. Page added that oil sands “will be one of the early victims of a low-price economy.”

 

Oil sands are among the most expensive oils in the world, Mr. Ebinger says in a telephone interview, adding that studies show oil sands projects need oil prices to be around $60 to $90 a barrel to be profitable. And with oil below $80 and falling, producers are already nervous.

Analysts predict oil prices will rise as demand for oil increases in coming years. That means that eventually expensive oil sands would be profitable on the market again. But even so, six years of delays have forced oil companies to pursue other transit options.

“A lot of work has been done to backfill the capacity that Keystone XL was supposed to represent,” says Patrick Kenny, an analyst at National Bank Financial in Calgary, in an interview with Bloomberg. “Keystone would have been a ‘must-have’ without all the crude-by-rail that has come on in the last couple of years.”

TransCanada, the company applying to build the pipeline, maintains that Keystone XL is still necessary.

“Interest from customers to ship and receive oil through Keystone XL remains strong,” says TransCanada spokesman Shawn Howard in a statement released to the Monitor Tuesday. “Our customers, both US and Canadian producers and refiners, remain solidly behind Keystone XL. Their support has not wavered over the past six years and we have a waiting list if capacity became available.”

In the meantime, the company is building a separate 2,858-mile pipeline from Alberta to refineries in eastern Canada that would serve as a supplement to Keystone XL – or an alternative if the pipeline is not approved.

Keystone XL has also taken on symbolic importance for the Obama administration, as Monitor White House correspondent Linda Feldmann reported this week. If the administration approves the pipeline, Obama would rile environmentalists who view the pipeline as a crucial harbinger of future climate and energy policy.

“It’s become a litmus test on both sides,” Ebinger says – a test of green green credentials on the left, and pro-business credentials on the right.

Debate over the pipeline in the Senate Tuesday tracked those well-worn lines.

“Building the Keystone XL tar sands pipeline is going to make life worse for the people we represent and those in the generations to follow,” Sen. Barbara Boxer (D) of California said on the Senate floor, standing in front of a large poster reading “Misery Follows Tar Sands.”

Meanwhile, Sen. Mary Landrieu (D) of Louisiana said the pipeline would bolster US energy security and create jobs. Senator Landrieu also hopes that championing the pipeline will bolster her chances in a December runoff election against Rep. Bill Cassidy (R) of Louisiana – the congressman who introduced an identical Keystone bill in the House last week. Other supporters say the pipeline would lighten the load on an overburdened rail network that has slowed the delivery of coal, grain, and other commodities.

Even if Landrieu’s bill fails, the GOP has promised to pass pipeline legislation when they take control of the Senate next year.