Oil price differentials, not emissions, the key to Keystone

Keystone XL Pipeline

If activists fail to stop Obama from approving the tar sands pipeline, the recession could still kill the project.

James Hansen, NASA’s lead climate scientist, says if TransCanada Pipeline’s Keystone XL mega-project connecting Alberta tar sand producers to Gulf Coast refineries is approved, it is game over for the planet.

It certainly won’t be game over for Alberta’s oil patch or the thousands of North American steel workers who will build the massive pipeline. And I rather doubt it will be game over for the planet. If Hansen is worried about emissions growth, he just has to look at where the global economy is heading these days.

A bear market for carbon

Lest Hansen forget, recessions are good for emission reduction. In fact, they’re the best things for them. The deeper the recession, the better it is for the atmosphere.

When the former Soviet Union crumbled and the Russian economy de-industrialized and shrank, its emissions fell by a staggering 30%. And emission reduction wasn’t even a goal of the Russian government. As well, the emission reduction during the recent US recession was greater than what would have been mandated by the now defunct Waxman-Markey Climate Change Bill.

Considering the vast majority of emissions from gasoline come not with its extraction and processing but when you turn on your car’s ignition and start burning the oil in your engine, maybe we should be more concerned about the number of cars on the road as opposed to the source of their fuel.

Bad news for Detroit, good news for climate

Here there is reason for real optimism.  While there are 240 million oil guzzling vehicles still on the road in America, the number has plateaued and it will soon start to decline. Annual US vehicle sales, once over 17 million units, are now running around 12 million, and they were running below the scrappage rate during the last recession.  When that happens, there will be fewer cars on the road. Fewer cars, in turn, translate into fewer emissions no matter where they are getting their gasoline.

There are still some basic issues about the pipeline project. But the real issues are not so much environmental as they are economic.

Will the pipeline connection to the Gulf Coast simply be a conduit for Canadian oil to be trans-shipped to foreign markets and capture more favorable world pricing? If so, how does that help America?

Or will the flow of 500,000 to 900,000 barrels a day through the Keystone XL pipeline to the Gulf Coast be sufficient to bring down bulging inventories of stranded, land locked oil in Cushing, Oklahoma and eliminate, or at least substantially reduce the huge price spread between Brent and West Texas Intermediate?

If it doesn’t, and the over $25 per barrel spread between US domestic oil prices and world oil prices persists, new pipelines will be built in Canada to provide a more direct connection to global oil markets.

One way or another, it is oil price differentials, not James Hansen’s concerns, which will ultimately determine the flow and direction of oil from Canada’s tar sands.

— Jeff Rubin, Transition Voice

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  1. Daron says

    The problem is that world wide emissions have continued to increase even with the recession. In the long run peak oil should force that to decline, but as Hansen has stated (and others) we need to peak in world wide green house gas emissions by the middle of this decade. Maybe the world wide economy will fall apart that quickly, but its no guarantee and personally I’m still hoping we get smart and make a few changes before that happens.

    Any ways, I think its more likely that the United States and the rest of the western countries will continue to stagnate and decline at an ever increasing rate in the long run. However, I also think that this lack of growth will be offset for a while at least, by other parts of the global economy as has been during this recession.

    Now to return to the pipeline. If demand falls in the west for tar sands, having a pipeline to the gulf will make it easy for the oil to be shipped to where demand is still high. Even if this arrangement only lasted say 5 years, that could still be enough to push us over the limit as the climate scientists have stated. As you stated, Canada may build more pipelines down the road that would better access the global markets. However, that would have to be done in a period of increasing domestic problems, which may make it difficult for Canadian politicians to support future pipelines. Even if it did not, it would take several years at least to complete the new pipelines, which again returns to my earlier point about having to peak in green house gas emissions by the middle of the decade.

    Essentially, we have very little time left to peak in global green house gas emissions and building the Key Stone XL Pipeline just makes it that much harder to address this problem. The same goes for every new coal plant, natural gas plant, ect… As long as we keep building infrastructure that belongs in the past we just lock ourselves in that past. We need to move forward and trying to say its no big deal, economics will kill it, just wait, only creates delay that we can’t afford.

    • Erik Curren says

      I agree that stopping the Keystone XL won’t put a stop to tar sands, but it could slow down the flow enough to buy time for other things to happen as you mention — particularly a worsening of the economy that could slow tar sands even more. And at this point, given the urgency of the climate crisis but the gridlock in North American politics, all the time we can buy to slow the growth of emissions is valuable.

  2. Greg says

    What is the point of this post?

    Or more specifically, was the post worth posting?

    Though he offers a few interesting stats — e.g. scrappage v. production — Jeff simply states what most of us know: that bottom-line economics, no matter how skewed or unjust or dangerous or just plain idiotic, rather than the urgency of climate change, too often drive the debate over major decisions such as keystone.

    Wouldn’t it be more useful to discuss the underlying disease in the U.S. and global economic system? To discuss the short and long-term impacts of, and alternatives to, pursuing tar sands, shale oil, coal liquefaction and other disastrous fuel sources?

    • says

      In all fairness, we cover exactly the issues you mention all the time. What we post on any given day is not an indication of our entire content. Look around, stay a while, you might like what you find! :)



  3. lestin says

    Haha, our choices do not, thankfully, come down to Hansen’s concerns vs oil price differentials making the difference.

    A strong movement willing to make sacrifices is what it will take to halt tar sands development, and thankfully that’s what we’re building.

    I, for one, am glad the good folks who organized the recent tar sands action didn’t buy into economic determinism and throw up their hands.

    • says

      Jeff does seem to pose it as an either or—perhaps just a writer’s device to get a conversation started?

      But I don’t think it has to be one or the other. Perhaps the two will work in tandem to help put the kabosh on the pipeline to Hell.

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