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Page added on September 3, 2015
Will oil’s collapse kill the Keystone pipeline?
While some Wall Street analysts now think the probability of the U.S. economy going into recession are nearly 50 percent, Canada is already there. That bad news comes as Canada gears up for a general election in October and at a time when the slide in global oil prices could spell continuing trouble for Canada’s energy-dependent economy. And that extends to the controversial Keystone pipeline to the U.S.
America’s neighbor to the north is the planet’s 11th-largest economy and the U.S.’s biggest trading partner. Last year the U.S. did $634 billion dollars in trade with Canada, booking a $31 billion dollar trade deficit in the process.
Canada is a natural resources and commodities exporter, which makes it particularly vulnerable to China’s slowdown. Canada sells China nickel, copper, wood, paper and fish products while importing appliances and consumer goods. In 2014, Canada shipped out close to $20 billion in exports but took in close to $60 billion in Chinese goods.
Back in 2012 Prime Minister Stephen Harper worked hard to close a trade deal with China in hopes of narrowing that lopsided deficit. Key to Harper’s strategy was getting China on board to buy Canadian oil, which had historically been shipped almost exclusively to the U.S.
Harper’s play to the East was also meant to pressure President Obama into approving the 1,179-mile Keystone pipeline that would run from Alberta, Canada, down to Nebraska and would tie into existing pipelines to Illinois and the Gulf Coast. The Obama administration has been deliberating on the contentious $8 billion dollar project for several years.
Environmentalists, who have made rejecting the pipeline a top priority, say oil’s drop from $100 a barrel in 2008 down to the mid-$40s this week undermines the economic viability of the Keystone project.
Anthony Swift with the Natural Resources Defense Council (NRDC) said the latest drop in oil prices is the result of permanent reductions in the entire world’s oil consumption, aimed at shrinking the planet’s carbon footprint in hopes of slowing climate change.
“Look at the U.S. when back in 2003 the Energy Information Agency predicted that in 2014 the U.S. would use 30 million barrels a day and we ended up only using 19 million,” said Swift, who’s director of the NRDC’s Canada Project. “A climate-safe world is a world with low oil prices.”
“Our producers look at the project in the long term, so fluctuations in oil are much less important,” countered Mark Cooper, a spokesman for TransCanada (TRP), which wants to build the Keystone pipeline. “The reality remains shipping oil by pipeline saves producers $10 a barrel and generates less greenhouse gases than shipping by rail.”
Despite the market upheaval caused by China’s slowdown and the hit Canada is feeling from the collapse in oil prices, A. Michael Spence, a Nobel laureate and fellow with the Council on Foreign Relations, remains sanguine. “China and the markets really overestimated on the demand side, and what China was doing was just not sustainable economically or environmentally,” Spence told CBS MoneyWatch. “The export markets (China was) selling into just were no longer growing at the rates they once were.”
Spence said in his view China has been relatively “surefooted” in its pivot from an export economy to one led by domestic consumption. “There will be a difficult adjustment period,” he acknowledged. Spence also suggested that the slide in oil prices isn’t entirely due to a broader economic weakening. “We are going to a more energy-efficient global economy for lots of reasons,” he said.
26 Comments on "Will oil’s collapse kill the Keystone pipeline?"
BC on Thu, 3rd Sep 2015 3:47 pm
The pipeline exhibits many aspects of a kind of Japan-like bridge or road to nowhere (or down the oil depletion curve).
Makati1 on Thu, 3rd Sep 2015 7:42 pm
Who cares? Not I.
Any multi-year project is not likely to ever be completed. The world is one big, sick, joke today.
I asked about a huge condo tower going up in Manila and why construction stopped about 40 floors up. It appears that it is directly behind one of the major parks with an important monument and it lines up directly in the center for photo taking, ruining the skyline. The building permits were ‘approved’ but no one caught the ‘problem’ until now, when the public complained.
I found that as just one example of the joke on humanity. All of the towers in Manila are owned by big banks. I hope this one is required to be torn down. It has sat unfinished for over 6 months now. Only the tower crane on top has lights at night and it hasn’t moved at all.
Otherwise, it’s a beautiful day in Manila. As always.
Boat on Thu, 3rd Sep 2015 8:43 pm
Meanwhile,
In drive to boost drilling technology, Schlumberger acquires synthetic diamond maker.
Yes it takes money to make money. Oil has money.
Davy on Thu, 3rd Sep 2015 9:02 pm
Oil has money? I was worried but now I am replete.
BobInget on Thu, 3rd Sep 2015 9:59 pm
China’s economy is slowing, not collapsing.
China’s foreign exchange reserves are over 1.5 trillion dollars. China is not engaged in any wasteful wars.
Keystone can remain redundant as long as railroad tankers stay upright. Canada’s oil sands are hardly scratched. It’s totally worth it to build Keystone, given Syria, Iraq, and Yemen, With Venezuelan exports off the table, where else but Canada>
James Tipper on Thu, 3rd Sep 2015 10:18 pm
1) The anti-Keystone pipeline crowd is funded by popular liberal billionaire Warren Buffet. Why? Well because he has major share in railroad companies that ship the oil. A pipeline would make the need for the obsolete. Don’t believe for a minute this was a case of people “fighting” the billionaires when it was more like billionaires fighting other billionaires.
2)Yes it will collapse it, I don’t see why any company would undergo such an expensive project even risking abysmal results.
Bloomer on Thu, 3rd Sep 2015 10:27 pm
The Keystone pipeline was Stephen Harpers’ pipe dream.
Truth Has A Liberal Bias on Thu, 3rd Sep 2015 10:57 pm
There is a lot of unused refinery capacity on the gulf coast and product is needed to satisfy it. The pipeline will happen. Give it time.
rockman on Thu, 3rd Sep 2015 11:07 pm
And oncs again I’m forced to point out how the border crossing permit of KXL remains unimportant. And it has little to do with rail transport. A number of other pipelines bave been built or expanded to move every bbl of oil sands production into the US. Not one bbl of production has been stranded: Canadian oil exports to the US are currently at record levels. If low prices delay future projects there will soon be significant excess capacity degrading much of the incentive to complete the northern leg of KXL
electrorail on Thu, 3rd Sep 2015 11:32 pm
I agree rockman, railman here…
The bitumen isn’t stranded but it is severely discounted due to lack of low cost tidewater access
Imagine when the trains start rolling to Alaska and into TAPS…
10-12 trainsets a day leaving AB…
2 days later at Delta Junction, another day in the TAPS…and onto a supertanker and 8 days to most Asian refineries…2-4 days faster than Prince Rupert and Vancouver (which can’t happen)…
but we’ll see. more yet to do.
Davy on Fri, 4th Sep 2015 5:04 am
I suspect it will be built if a crisis develops from the bumpy descent of demand and supply destruction. That is if the crisis is shallow enough and slow in development. A quick fall will not allow the resources to be mustered. Desperation will drive whatever plans are on the table. It does not matter if this unconventional can’t drive an economy.
I have often mentioned dysfunction and the irrational as part of the descent meme transition from the growth meme. You can’t approach descent with the same mindset that you approached growth. It is inevitable that this will happen it always does. People or nations get habituated. They know no other way.
Davy on Fri, 4th Sep 2015 5:08 am
Bob said “China’s economy is slowing, not collapsing.” Hot dog! the Chinaphilia Corn admitted that China is slowing. That a step in the right direction Bob. Now consider China’s situation and what slowing means. Slowing for China is very dangerous and disruptive. They got habituated to rapid growth and now they are slowing. China is a dead man walking as is the rest of Asia that is just a rump.
Makati1 on Fri, 4th Sep 2015 6:48 am
BobInget, sure China is slowing, but slowing from ~7% not Zero like the Us. And slowing is relative when you are not deep in debt to the rest of the world and to your citizens. China can chug along at 4-5% and do fine. Meanwhile, the US has to suck up all of those IOUs called USTs that are coming home to roost. Didn’t Japan try to do that not too many years ago? And did it work? LOL
Davy on Fri, 4th Sep 2015 7:53 am
Mak, Google the numbers of what is official and what is talked about around the campfire. China is in a dangerous descent with inept leadership trying to command control an out of control deflating market bubble. It is a sham of an economy with a generation of kicking the can of malinvestment and bad debt down the road.
At least the U.S. which is likewise near zero “real” growth has made some effort to realize bad debt and adjust to a descent. The U.S. markets being the exception. China has created the greatest malinvestment in human history. The U.S. Being a distant second.
The sad part of it is this malinvestment has been at the expense of the global ecosystem. China has killed the earth and we still have Chinaphilia rampant in the world today. Yes, anti-Americans the U.S. Has done its part and was part of the China project but that does not let China off the hook. Mak, being the king of Chinaphilia is the best example of a distorted agenda.
Kenz300 on Fri, 4th Sep 2015 9:13 am
The Keystone pipeline supports the highest cost producers……
The highest cost producers are the ones going broke…. and the banks will not lend to them…..
It is time to end our dependence on fossil fuels…..
Electric vehicles and bicycles are the future.
BobInget on Fri, 4th Sep 2015 9:20 am
Oil bottomed last week.
Prices for Canada’s tar sands crude rose Thursday after penalties imposed by Canadian regulators led to the shutdown of the Nexen tar sands oil plant that China’s CNOOC (NYSE:CEO) acquired for $15 billion in 2013.
That production loss compounded the shutdown of a Canada Oil Sands plant after a fire last weekend, which culled 200,000 barrels per day of oil sands output.
The result narrowed by about 5% so far this week the spread between WCS (West Canada Select) and the U.S. West Texas intermediate benchmark. WCS traded $14.10 per barrel below WTI at midday Thursday. It helped stocks in the Canadian Exploration and Production group top Thursday’s early gains among industries.
But Canadian oil prices, already under pressure alongside other international grades, fell 50% between the start of July and mid-August. A combination of factors — including refinery outages and pipeline constraints — started the downturn.
The backdrop driving prices lower is the ongoing market-share standoff among Saudi Arabia, Russia and the U.S.
Defense of market share has been the primary reason leading the Saudis to maintain record-high production levels.
That output, joined by also record-breaking production by shale oil producers in the U.S. and by tepid demand in China and the eurozone, has beaten back the global price of oil to Great Recession lows.
A three-day price rally and an innocuous comment in an Organization of the Petroleum Exporting Countries publication this week prompted news reports asserting that the Saudis were backing down and that shale producers had prevailed in their price war.
Those reports may or may not be true.
The Saudis claim production costs of $4 to $5 a barrel. Some experts have said that the country could survive a multiyear dip to $20 oil. That is far below the cost to produce more stubborn and technically challenging shale oil.
But Saudi Arabia sees 90% of its entire revenue from oil sales, so production costs aren’t the only factor to consider.
A July report from Deutsche Bank put Saudi Arabia’s breakeven oil price at $105 per barrel, after factoring in the government’s cost to run the country and maintain ambitious current development levels. Every day that oil prices are below $105, Saudi must pull from its considerable cash coffers to cover their costs.
Even at that, current projections say that Saudi’s cash reserves can carry them to 2018 on sub-$40 oil prices. Those reserves give the kingdom lots of room to maneuver, so long as it is prepared to drain the royal vault.
Read More At Investor’s Business Daily: http://news.investors.com/investing-international-leaders/090315-769571-canada-tar-sands-prices-rise.htm#ixzz3kmNlwPb9
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BC on Fri, 4th Sep 2015 11:37 am
Mak, China is not growing even 4%.
China’s labor force has been contracting for the years running. Real productivity given wages, money supply, and investment/production is no faster than ~1%. Population is growing ~0.5%.
This implies by definition that China’s potential real GDP per capita is close to 0%, which is the average trend rate for the US, EZ, and Japan since 2007-08.
China has created the largest credit and fixed investment bubble as a share of GDP in world history.
China is facing a demographic down cycle into the mid-2020s as the US has experienced since 2007-08 and Japan since the mid- to late 1990s.
China in recent years reached the real GDP per capita of the US in 1930, the UK in the 1950s, Germany and France in the early to mid-1960s, and Japan in the late 1960s. China has reached the so-called “middle-income trap” with the 5- and 10-year average price of oil at $100 vs. $20 or below when the US, Europe, and Japan reached the similar level of real GDP per capita.
China is facing increasing imports as a share of GDP for energy, food, and materials with increasing desertification, loss of arable land, water shortages, dystopian pollution, and loss of export markets as growth of global trade stalls or contracts.
China has been for years a four-letter word: “SELL”.
Bloomer on Fri, 4th Sep 2015 11:58 am
Folks out in western British Columbia don’t want any part of a tide water oil port or pipeline. The last thing we need is a virtually unregulated pipeline shipping bitumen to our shores. We aren’t even equipped to response to a small bunker C spill let alone a bitumen release. Its not worth the risk.
apneaman on Fri, 4th Sep 2015 12:16 pm
James Tipper, I tried to tell some environmental people about Buffett at a barbeque and they got angry at me, just like deniers. Everyone hates doomers – we fuck up the story lines. Apes need stories.
Davy on Fri, 4th Sep 2015 1:21 pm
Ape Man, someday we will be vindicated. We will be looked upon as prophets and sages. Now we are freaks.
apneaman on Fri, 4th Sep 2015 1:51 pm
Davy, I’m working on my shaman/collapse priest outfit as we speak. It will be less work than farming or soldiering and I’m totally looking forward to the virgin ination ceremonies.
Davy on Fri, 4th Sep 2015 4:07 pm
Actually Ape Man, I am a member of The Foundation for Shamanic Studies. I have been through their training program. I have my sacred medicine box.
On a less serious note I considered putting some bad mojo on Mak but part of my Shamanic Wisdom is to do no harm and natural powers are not for personal uses. One must follow Natures path not one’s own.
Your lucky Mak because there is some bad shit I found in the Bahamas called poison bark I was going to put on the avatar of you I have. It causes a severe burning rash.
Makati1 on Fri, 4th Sep 2015 7:23 pm
BC, do you know the real numbers in China? No, and neither do I. But, I see what is happening there, where they are operating in the world, what they are accomplishing, (BRICS, New Silk Road, Asian Infrastructure Investment Bank, etc) and I do not see the doom and gloom some Westerner’s want to see. I don’t think the Empire would be shifting to the East if China was not a real threat to their plans. There is a financial war going on between them and China is winning.
No? Look at the “Made In” labels on the stuff you buy. What actually comes from the US? Not much that you will need. China makes what you need. The US does not anymore and never will. It comes from Asia or the ME. And, China’s trade with the US is only ~12-17% of their total exports. They are shifting that trade out of the US, into other countries and their domestic consumption.
I would not worry about China. It has 20 times the history of the US and a culture that has endured many changes in that time. America, not so much.
US trade with China in the first seven months of 2015 = ~$267,000,000,000.– in Chinese made imports, or ~12% of China’s total exports for those same seven months. The US had a $202 Billion trade deficit with China at the end of those seven months. The Chinese thank all Americans for adding to it’s wealth all of these years, giving it the powerful ammunition (USTs) for today’s financial war.
Davy on Fri, 4th Sep 2015 10:00 pm
The numbers on China and the rest of the Brics are obvious and I have been explaining this for a year now all the while many here have been trumpeting the Brics false greatness. I feel satisfaction that these individuals have been proven wrong and I right.
This is not about winning or losing as many of these individuals would like it is about the truth. The fact that the Brics are doing bad is not going to help the U.S. quite the contrary.
rockman on Sat, 5th Sep 2015 12:25 pm
Tepid Chinese oil consumption??? China is the second largest oil consumer on the planet. Half of what the US consumed but twice as much as #3.
Kenz300 on Sun, 6th Sep 2015 8:44 am
Buy a bicycle….use less oil.