March 3, 2020 Read More →

Controversial Keystone XL pipeline project still faces serious economic questions

Omaha World-Herald:

The Keystone XL pipeline has faced bureaucratic hurdles, court challenges and the determined opposition of environmental groups. But the biggest challenge to the project at this point could come from basic economics.

Weak oil demand and cheap alternative sources mean pipeline developer TC Energy should consider putting construction plans on pause — perhaps forever, said Charles Mason, chair in petroleum and natural gas economics at the University of Wyoming. “I don’t know if it’s dead,” Mason said of the pipeline. “It’s absolutely on life support.”

The Keystone XL would transport up to 830,000 barrels a day from the oil sands of western Canada to a terminal in Steele City, Nebraska. It would ultimately supply oil refineries on the Gulf Coast.

TC Energy has pushed back on skeptics who suggest that the pipeline is obsolete. While it has yet to make a “final investment decision,” the company says it is planning for construction to start this year.

Major pipelines require a huge upfront investment that is based on a future stream of supply and the revenue that comes with it. Those contemplating new oil sands projects face similar arithmetic. Spending more than $60 to extract a barrel of oil that’s worth less than $50 is a tough way to make money, after all. The uncertain future of oil sands development was illustrated when Teck Resources recently announced that it is abandoning a major project.

“The Canadian oil sands aren’t the only game in town, and I think their time has sort of come and gone,” Mason said. “It’s a remote deposit that’s hard to get to market in a world in which there are increasingly more attractive and more accessible sources of supply. The economics just don’t really stack up for the oil sands right now.”

[Joseph Morton]

More: Will simple economics deal fatal blow to long-delayed Keystone XL pipeline?

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