The Keystone XL Pipeline project is almost certainly dead.
No, not because a bill that would have finally given the go-ahead to begin construction fell one vote short in the lame duck Senate last month. Sure, that halted the legislative approval process in its tracks, but only until January, when a new Congress arrives and is sworn in.
A lot has changed since TransCanada Pipelines first proposed building the nearly 1,200 mile-long extension to its existing pipeline network delivering Canadian crude oil to refineries in the Gulf Coast of Texas. The oil in question would come from the so-called oil sands projects in northern Alberta, ventures that high oil prices have made economically viable.
The extensive delays — prompted by the requirement that the U.S. government sign off on the project, since it crosses an international border, and the fierce battle waged by environmentalists to stop that from happening — have driven up the project’s costs. TransCanada says building the Keystone link across Montana, South Dakota, and Nebraska would now cost some $8 billion, up from the originally estimated $5.4 billion, with shippers covering much of the additional charges.
Meanwhile, oil prices are plunging, with Saudi Arabia clearly taking aim directly at Canada’s oil sands projects as one of the chief threats to its global market dominance. The so-called sour crude that the Saudis are selling to the U.S., doesn’t compete head-to-head with the light, sweet crude oil produced in Texas and Oklahoma.
Rather, Saudi Arabia has taken aim at making Canadian oil sands output too costly in the American marketplace. That’s why Saudi Arabia has initiated a price war, slashing prices to the U.S. and pressing OPEC to keep production at its current levels.
To the extent that shippers now would have to cover higher pipeline construction costs as well, that is going to make the Keystone project an increasingly unattractive venture from a purely economic perspective. Alberta oil sands producers — already operating the world’s costliest wells — are bracing themselves for a drop in cash flow and earnings and may be preparing to cut their capital spending plans.
Read more at the Business Insider
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