A story in The Los Angeles Times asks a pertinent question: With the price of oil low (by recent historical standards) and continuing to fall, do the economics of the proposed Keystone XL pipeline even make sense anymore?
After all, it’s expensive to extract the kind of tar-sands oil in western Canada that would flow through the pipeline, and the price of oil has to be a certain level for the process to be profitable.
That’s why even pro-business people who are in favor of oil production are questioning whether the pipeline extension — which would be built from Canada to Nebraska, linking up with an existing line to the Gulf of Mexico — would reward investors.
With the GOP about to take control of both houses of Congress, backers of the pipeline say they are close to having a veto-proof majority for a bill that would order the Obama administration to give the project the federal permit required for pipelines that cross a U.S. border.
But “the political debate is not paralleled by the realities” in the market, said Sandy Fielden, director of energy analytics at Texas-based RBN Energy. “The economics of this project are becoming increasingly borderline.”
President Obama could use his veto pen to scuttle the legislation, but the State Department will ultimately have the final say on whether the pipeline gets approved. TransCanada Corp. still wants to build it, and GOP leadership still wants to get it done as well, economics or no.
TransCanada says investors still want it, because they’re thinking long-term and aren’t concerned about a short-term glut of oil that has suppressed prices.
“We sign binding, long-term commercial agreements with our customers so they can reserve space to deliver the crude oil they need to their customers,” Mark Cooper, a spokesman for TransCanada Corp., which would own the pipeline, wrote in an email.
The oil shippers investing in the pipeline, Cooper wrote, “have a good understanding of what the market needs over time. They do not make decisions based on short-term views or changes in commodity prices.”