Keystone: The Republican Congress’s First Priority May No Longer Make Sense

Editor’s note: this column was published on Wednesday by Bloomberg View

By David Knowles

Senator Mitch McConnell has long waited for this moment. When he assumes his new position as Majority Leader in January, McConnell will waste little time in bringing up the Keystone XL pipeline project for a vote.

“The first item up in the new Senate will be the Keystone XL pipeline.” McConnell told reporters in the nation’s capitol Tuesday, adding that the project is “a job creating bill that enjoys significant bipartisan support.”

While Keystone has long been a top priority for Republicans who argue that the pipeline linking tar sands oil fields in Alberta, Canada, and an existing network in Steele City, Nebraska, is a no brainer, the economic dynamics that have bolstered the GOP’s rationale for building it have changed considerably.

In short, plummeting gas prices have thrown a wrench in the works.

“The economics of this project are becoming increasingly borderline,” Sandy Fielden, director of energy analytics at Texas-based RBN Energy, told the Los Angeles Times.

The problem is that extracting oil from tar sands fields is not a cheap proposition. In fact, it is so costly that the price of oil needs to be much closer to its former highs for ventures like Keystone XL to have a chance at making money.

“I’m for cheap, abundant, reliable energy. Period,” Robert Bryce, a senior fellow at the conservative think-tank Manhattan Institute, told the Times. “This is not ideological. This is about what the economics say.… The project is clearly very challenged right now.”

While the Senate failed to muster 60 votes to pass the Keystone bill in November, with 14 Democrats voting along with Republicans, President Obama has, citing the environmental impact of the project, vowed to veto the pipeline bill that the GOP-controlled Congress will likely put on his desk.

“Oil prices going low gives the president a landing place to reject the pipeline because Canada needs cheap and big infrastructure,” Jane Kleeb, founder of the anti-Keystone group Bold Nebraska, told Politico. “When oil prices are high, producing the expensive and high-carbon tar sands makes sense. But now that oil is low, the only way tar sands will continue to expand is if Canada gets big pipelines.”

As Bloomberg News reported in November, thanks to alternate distribution channels and increased U.S. oil production, Keystone has become something of an afterthought in the business world.

“Whether it’s needed or not needed, that’s not going to stop people from handling this as a political issue,” Amy Myers Jaffe, executive director of energy and sustainability at the University of California at Davis, told Bloomberg. “At this point in time, we have left the subject of the commercial value of the Keystone pipeline. That is no longer what is at stake.”

With gas prices continuing to fall, however, the argument for building the pipeline in the U.S. is proving more difficult to make.

David Knowles is a homepage editor and writer for Bloomberg Politics.