Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Election Year Cycles – What to Expect? - 4th Jun 20
Why Solar Stocks Are Rallying Against All Odds - 4th Jun 20
East Asia Will Be a Post-Pandemic Success - 4th Jun 20
Comparing Bitcoin to Other Market Sectors – Risk vs. Value - 4th Jun 20
Covid, Debt and Precious Metals - 3rd Jun 20
Gold-Silver Ratio And Correlation - 3rd Jun 20
The Corona Riots Begin, US Covid-19 Catastrophe Trend Analysis - 3rd Jun 20 -
Stock Market Short-term Top? - 3rd Jun 20
Deflation: Why the "Japanification" of the U.S. Looms Large - 3rd Jun 20
US Stock Market Sets Up Technical Patterns – Pay Attention - 3rd Jun 20
UK Corona Catastrophe Trend Analysis - 2nd Jun 20
US Real Estate Stats Show Big Wave Of Refinancing Is Coming - 2nd Jun 20
Let’s Make Sure This Crisis Doesn’t Go to Waste - 2nd Jun 20
Silver and Gold: Balancing More Than 100 Years Of Debt Abuse - 2nd Jun 20
The importance of effective website design in a business marketing strategy - 2nd Jun 20
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Does the Keystone XL Pipeline Still Matter?

Commodities / Crude Oil Mar 03, 2014 - 06:32 PM GMT

By: Ronan_Keenan

Commodities

Last month it seemed the Keystone XL pipeline was nearing approval, but as with most things surrounding the project, things weren’t as they seemed. A US state department report reviewed the Alberta, Canada–Nebraska pipeline and indicated the project was unlikely to have a significant impact on climate change. This seemed like a significant positive step for pipeline, but within the details of report were critical comments from the Environmental Protection Agency.


Environmental concerns have been the most publicized aspects of the pipeline, with opponents arguing that the project could accelerate climate change by enabling increased production from the oil sands of Alberta, which creates 17% higher greenhouse gas emissions than the average crude used in the US. President Obama will make the final decision on the pipeline and given his campaign to battle climate change, it is difficult to imagine him defying the EPA and his core Democrat base, especially with Midterms later this year. Then again, labor unions will be angered if he blocks the pipeline and the thousands of potential jobs it could create. It is not surprising that he has taken so long to make a decision.

TransCanada first proposed the project seven years ago and a lot has changed since then. Back in 2007 there were still concerns that “peak oil” was imminent and demand for energy was booming in the pre-financial crisis environment. The pipeline was initially viewed by many as a much needed tool to bring down oil from Canada and ease supply concerns. But now the US is apparently nearing energy independence and the Keystone project is seen as an environmentally unsafe method of transferring oil to major refiners in the Texas Gulf (via Nebraska).

But oil companies have not been sitting idly during the prolonged approval process and have been working on other methods of getting the oil from Canada. The refiner Valero signed on to receive oil from the Keystone pipeline early in the project and has spent billions upgrading its equipment to handle the type of heavier crude produced in Canada. So to make good on their investment, the firm has invested in rail terminals at its refineries to help get the oil in. Last month Exxon Mobil announced the construction of a rail facility in Alberta that will be completed early next year.

Oil-by-rail has attracted scrutiny following a series of recent accidents, most notably a crash in Quebec last year that killed 47 people. This might bring additional regulation such as railcar modifications, but such developments will only result in a short-term slowdown in the rail expansion. Companies will continue to aggressively pursue this transportation method as long as the Keystone XL pipeline remains in limbo.

The economic impact of the pipeline has also generated much debate, but despite heated arguments from both sides its effect is unclear. TransCanada claims Keystone XL will support approximately 42,100 direct, indirect and induced jobs in the US and will and provide a substantial increase in tax revenues for local counties along the pipeline route, with 17 of 27 counties expected to see revenues increase by 10% or more. It added that the project will result in “spending $7 billion stimulating the local economy.”

These claims are countered by the Cornell Global Labor Institute which says the project budget that has a direct impact on US employment is between $3 and $4 billion. Moreover, any jobs created would be temporary and between 85-90% of the people hired to do the work would be non-local or from out of state. It also warned of the economic risks from possible pipeline spills, pollution and the rising costs of climate change. But there is no way of quantifying these risks.

Another argument revolves around the possible impact on oil prices. Intuition would say that the more oil that comes into the US, the cheaper prices will become. But the market isn’t so straightforward. Since 2011 refineries in the Midwest have benefitted from a glut of oil produced in the region and Canada which has been easily accessible thanks to an array of pipelines that were granted approval. This has seen US WTI crude oil trade up to $20 less than the global benchmark, Brent over the last year. The spread was about $8 last week.

However, if the Keystone XL pipeline enables the efficient transport of oil from Canada to the Gulf, then more refiners will be bidding for the oil. It is feared that increased competition for the Midwest oil glut will see an increase in prices.

Yet, just like predicting anything in financial markets, there is no certainty about future prices. Nobody knows where how much oil will cost next year but the logical policy is to create the most efficient oil transportation network so that supplies can be maximized, thus lessening the impact of a price shock brought about by unexpected events.

Efficiency involves the full development of the Keystone pipeline. Even if Obama rejects the proposal, companies will pursue other methods of transporting oil from Canada, and as has been evidenced, oil-by-rail is not a risk-free alternative. Rejecting Keystone XL won’t reduce the production of heavy oil in Alberta. That will only happen when better energy alternatives are promoted.

This article also appears on Ronan Keenan’s MacroWatcher blog

© 2014 Copyright Ronan Keenan - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules