Could Keystone XL Become the Next Casualty of Falling Oil Prices?

"Many analysts say falling U.S. gas prices boost the argument of Keystone opponents that Canadian oil isn’t necessary amid the current global oversupply," writes Amy Harder who reports on energy policy for The Wall Street Journal.

“Generally, the public is typically more sympathetic to pro-oil-production policies when gasoline prices are high,” said Michael Levi, a senior fellow at the Council on Foreign Relations. “And when gasoline prices are low, that can create room for policies that impede production.”

The other development that clouds the controversial pipeline's future are recent statements made by President Obama showing that "he doesn't think Keystone is in the nation's interest, writes Harder.

“It’s very good for Canadian oil companies, and it’s good for the Canadian oil industry, but it’s not going to be a huge benefit to U.S. consumers,” Mr. Obama said.

In addition to Obama's comments on the economic aspect of transporting Canadian crude to Gulf area refineries, Harder writes that "Keystone has become bound up with his goal of making climate-change action a legacy of his presidency."

Environmentalists have long opposed Keystone XL pipeline largely because they believe it will greatly exacerbate climate change due to the carbon intensity of the oil sands crude. Climate scientist James Hansen claimed in this May, 2012 New York Times op-ed that if the pipeline is built, it's "game over for climate."

Zack Colman of the Washington Examiner explains the politics in the Republican-dominated 114th Congress that may determine the authorization of the pipeline should Obama oppose it, also available in this video.

A bill to approve the pipeline failed by one vote in November, one of the last orders of business for the Democratic-held Senate. GOP lawmakers think that, with support from centrist Democrats, they could get the 67 Senate votes needed to override a veto from Obama.

As for falling oil prices affecting drilling decisions in Alberta's oil sands as it had for Chevron in Arctic waters in the Northwest Territories, Politico's energy reporter Elana Schor looked at this aspect of pipeline politics in an insightful Dec. 15 piece.

The oil price is crucial to the Keystone debate because the latest State Department environmental study [subscription only] on the project says prices in the $65-to-$75 range are a potential danger zone for oil production in western Canada — the point where transportation costs driven higher by failing to build the pipeline could “have a substantial impact on” the industry’s growth.

Because crude-by-rail transport is more expensive than pipeline, the State Department's previous claim that the crude would find it's way to market via rails may not longer be applicable.

"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,” said Jane Kleeb, founder of the anti-Keystone group Bold Nebraska.

Evan Halper of the Los Angeles Times goes a step further—even if Obama should oppose the pipeline and the Senate overrides the veto, the economics may not justify TransCanada building the pipeline during a time of oil prices in the $50 per barrel range. A post here discussed just that aspect of the debate last month when oil prices were about $20 higher.

However, pipeline backers insist that it will be built, regardless of oil prices and the higher price to produce oil sands crude.

The prospect of abandoning the pipeline is something its Canadian builders and their supporters in Congress say they won't even entertain. Keystone is a decades-long investment that backers of the project say will not be changed by what they portray as a temporary glut in the oil market.

Correspondent's note: The Wall Street Journal article will be available to non-subscribers for up to seven days after Dec. 24.