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Susan Casey-Lefkowitz’s Blog

Keystone XL will significantly increase oil industry investment in the tar sands

Susan Casey-Lefkowitz

Posted February 11, 2014 in Curbing Pollution, Moving Beyond Oil, Saving Wildlife and Wild Places, Solving Global Warming

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A major issue in the decision around the proposed Keystone XL tar sands pipeline is the extent to which this project will drive expansion of tar sands extraction and the associated climate change. This dirty energy project will make climate change worse, threaten our communities and is not in our national interest. Yet, we often hear Keystone XL dismissed as insignificant. This misses the point that a decision on Keystone XL is a decision about whether the tar sands production will more than triple over its 2010 levels by 2030. It is a decision that is significant for our climate

Tar sands crude is already considered a risky investment as “marginal oil” and it’s become apparent that uncertainty over the Keystone XL project has started to slow investment. Weak cash flows tend to make oil companies vulnerable to the Keystone XL decision as they face lower tar sands prices and higher costs transportation alternatives. Financial analysts have clearly said that Keystone XL is important to tar sands expansion. The oil industry has clearly said that Keystone XL is important to tar sands expansion. The President’s decision whether to build Keystone XL is critical to an industry which is considering whether to greenlight over 6.5 million bpd worth of new tar sands expansion projects – many of which have already been approved by Albertan regulators. That’s why the CEO of tar sands producer Cenovus recently told reporters that “if there were no more pipeline expansions, I would have to slow down” his company’s tar sands expansion plans. It is why the Canadian Minister of Natural Resources has tried to make the “dire consequences” of not having enough pipeline capacity clear. The International Energy Agency agrees on the importance of Keystone XL to the oil industry. Bottom line: the tar sands expansion envisioned by the oil industry and the Canadian government requires not just Keystone XL but all the major pipeline and rail proposals in order to move forward. This is not a choice among pipelines or between pipeline and rail. Keystone XL is a critical part of the oil industry’s plan to expand tar sands production.

NRDC has pulled together key investment numbers that tell the story of how Keystone XL would significantly increase investment in tar sands extraction, driving increased production and carbon emissions.

Uncertainty over Keystone XL has started to slow investment.

A lack of progress on Keystone XL and a glut of new US production has pushed prices for tar sands (WCS) oil down to $57/barrel for delivery in December 2018, well below the average breakeven price for a new project of $77/barrel. Tar sands capital spending dropped from $28bln in 2012 to $17bln in 2013 and is forecast to remain largely flat thru 2015 as lower prices and lack of export capacity has delayed new investments in green-field projects.

 Average breakeven price.jpg 

 tar sands capital spending.jpg 

 

Weak cash flows make tar sand companies vulnerable to the KXL decision.

If Keystone XL is not approved, tar sands companies will not have the positive free cash flows needed to invest in new projects until the 2016-19 timeframe, giving far less certainty to the amount of production that will ultimately come online. If Keystone XL is approved, investors are expected to re-emerge in the tar sands space.  

 cumulative free cash.jpg 

tar sands project summary.jpg 

 

New pipelines will drive new investment.

Tar sands output is not constrained by supply but by access to refineries. If all proposed pipelines are built, analysts expect the discount for tar sands oil to stabilize around $14/barrel and provide the long-term certainty needed for companies to invest in new projects.  This means that to achieve its planned expansion of more than tripling tar sands production from 2010 levels by 2030, the tar sands oil industry  needs all of its proposed pipelines and more.

 

Existing Tar Sands Takeaway Capacity 2013

 (source Company report, Goldman Sachs Research estimates)

US Midwest via Enbridge

810 Mb/d

South via Express & Western Corridor

210 Mb/d

South via Keystone Phase 1

375 Mb/d

West Coast via Trans Mountain

60 Mb/d

Total Dedicated Heavy Oil Export Capacity

1,455 Mb/d

 

Proposed Tar Sands Takeaway Capacity  2014-2017

(source Company reports, Goldman Sachs Research estimates)

 

Alberta Clipper Expansion I and II

350 Mb/d

Keystone XL Northern Leg

660 Mb/d

Northern Gateway

265 Mb/d

Trans Mountain Expansion

475 Mb/d

Total Proposed Heavy Oil Export Capacity

1,750 Mb/d

 

Join NRDC in our efforts to stop tar sands expansion and take action to stop the Keystone XL tar sands pipeline at: www.stoptar.org

 

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Comments

Curtis MuffleyFeb 12 2014 09:24 AM

We do not need this pipe line. It will not give jobs to American. The jobs will go to people who plans on building the pipe line. That was all ready proven in Texas and that area of the country. This pipe line is for major corporation to make more money. The oil will not be used here in the United States but shipped overseas. So what good is it than for the the American people?

Bill GehringFeb 12 2014 09:28 AM

Invest in alternative fuels that do not affect our climate. Fossil fuels is a short term fix.

William BucyFeb 12 2014 09:41 AM

It has been known for years that the tar sands would cost way more to clean up than what it is worth. It is a total waste of money!

Mary Barbara WaltersFeb 12 2014 09:59 AM

Tar Sand Oil itself is dirty and the extraction process is dirty and destructive.
Piping it is another dirty process and were we to use it here in the USA, it is a pollutant.

Why would we do this when it takes us in the wrong direction when we want to reduce pollutants? .

I also understand that i is to be an export for Canada !!!

Renee MurrayFeb 12 2014 10:02 AM

I cannot see any value to the U.S. for sending this oil across our country. This is Canada's oil, so let them ship it ACROSS Canada. But the Canadians won't allow it, so that should tell us all we need to know. NO to the KXL, Please Mr. President, do not allow this disaster in America.

Margaret BurleyFeb 12 2014 10:12 AM

building alternative energy projects here in the U.S. could produce many American jobs, while reducig carbon output. Exporting such dirty oil is not economically or environmentally reasonable.

caroline themmFeb 12 2014 10:15 AM

Why would we gamble our water tables across the US and polution of our land from pipeline leaks when we can push for alternative fuels.
We forget that fresh water is limited!!

Elizabeth Gates SandersFeb 12 2014 10:28 AM

Seriously?????? 35 to 50 jobs; untold harm to the environment; likely significant national "security" risk; furthering reliance upon DIRTY fossil fuel; and finally, NONE of this "bounty" in additional energy supply redounds to the PEOPLE of the United States???? Crackpot scheme upon crackpot scheme and the only beneficiaries of these ill-advised, ill-conceived boondoggles: THE OIL INDUSTRY, which is already the biggest "WELFARE QUEEN" in the history of the United States!

Ken Spreng Feb 12 2014 10:33 AM

It is time to move away from fossil fuels. This pipeline will not bring permanent jobs, only permanent damage to our envronment. It is also time to listen to citizens' responses instead of giving in to corporate wishes.

anne wilsonFeb 12 2014 10:47 AM

Our water supplies are precious, should be & MUST be protected.

gabriele hollandFeb 12 2014 10:49 AM

I guess we never learn from our mistakes. But now we have a chance to change that. Our planet has been damaged beyond repair therefore whatever is left we MUST STOP BIG COMPANY'S FROM DESTROYING WHAT IS LEFT AND DO GOOD FOR IT. THIS PLANET WAS WORKING FROM THE SMALLEST BUG TO MAN KIND,,,ONCE YOU DISRUPT IT THINGS START FALLING APART.
We need to work together on this.

Lila GarrettFeb 12 2014 11:17 AM

you dont have to continue thiis assault on our planet to bring jobs back here. you just need to reverse the tax breaks you give environmentally friendly industries for taking those jobs off shore. Then those industries will return and so will the jobs. Surely you know that. Is your love affair with big oil that much fun? isn't your legacy more important? It's getting more negative every day. Say NO to the Keystone Pipeline!

Ann OnymousFeb 12 2014 11:40 AM

It seems that as long as politicians receive money from the oil companies, they will go along with whatever the oil companies tell them to. Make it a felony to accept their money. Start thinking about our grandchildren's future. We still have the right to vote in this country, and we (as voters) should probably start replacing those that don't care about our world, climate, children's education, healthcare, seniors, and veterans. Replace as necessary...

Barbara LangworthyFeb 12 2014 11:46 AM

Please, no more oil spills and dirty oil! Let's instead accelerate our investment in clean energy.

Please stand up to the big money interests!

Elsa DuelFeb 12 2014 12:10 PM

No doubt this pipeline should be stopped! We have got to turn our efforts to solar, wind power--and perhaps start thinking small, and using less energy.

GERALD MINESFeb 12 2014 12:48 PM

NO CONTROL!!!. CANANDAN OIL IN THEIR PIPE LINE.N TAX OR PROFIT. IF IT BRAKES, DEASTER. Not good on the envirement. Send by rail if must, More jobs ans profits for American companys

Brian MurrayFeb 12 2014 01:05 PM

We who live in industrialized states are all guilty of using fossil fuels to better our lives. Lowering our energy usage will be necessary if we want to save some part of our planet for our children and future generations.

To begin, we first must stop this XL pipeline project so that the carbon bomb in Alberta is eventually defused. Defusing the Tar Sands bomb begins by blocking access to foreign markets and raising the cost of this "oil".

Billionaire investors will go elsewhere, and without a continuous infusion of capital, the project will slowly die. And, of course, fewer communities in the U.S. will be put at risk from contamination. The on-going hellhole that residents of West Virginia, North Dakota, Michigan, and now N. Carolina find themselves in tells us that the fossil fuel industry will do anything to maximize their profits.

To better understand the predicament we are all in, a good place to start is to read Andrew Nikiforuk's book "The Energy of Slaves - Oil and the New Servitude" [2012]

Gary NiklasonFeb 12 2014 03:03 PM

Please stop this dangerous initiative and start funneling our efforts into SAFE renewable wind and solar energy.

Karen NiklasonFeb 12 2014 03:05 PM

Stop the XL Pipeline. No more hazardous energy projects. Put my Tax Dollars into SAFE, clean, renewable projects like wind and solar power please.

Shirley SobieFeb 12 2014 03:19 PM

I only want my tax dollars to be spent on clean and safe energy. Not dangerous energy projects like the Keystone XL project.

GAIL CONNERSFeb 12 2014 10:32 PM

tHE COSTS AND risks ARE GREATER THAN THE BENEFITS.

Peg CadiganFeb 12 2014 11:02 PM

Please recognize the the time has come for alternatives to this destructive practice.

richardprofumoFeb 13 2014 12:32 AM

Stop the Keystone XL at all costs.

Betty KellyFeb 13 2014 02:31 AM

NO KEYSTONE XL

Eve MoeranFeb 13 2014 03:34 AM

The time & energy should be spent on services of value" to the people," of the United States.

Tom CooperFeb 13 2014 09:27 AM

this could be a tipping point

Susan Casey-LefkowitzFeb 13 2014 10:50 AM

Thanks so much for these great comments opposing Keystone XL. It is voices like yours that will make the difference in the end. Keystone XL is not in the national interest and we need to stay strong in urging the President to reject it. I've added an action link to the blog if you want to send a message to the Administration. You can go to www.stoptar.org.

m. KuenzigFeb 13 2014 03:17 PM

This pipeline will put millions of residents water supply in jeopardy. If this oil is so great then why won't Canada allow it to be refined there. This is bad for America.

Jay PowellFeb 13 2014 05:07 PM

I have just been informed that hydrogen fusion power is close thanks to a breakthrough.
This non-polluting source of energy needs the investment moneys instead.

Patricia BoutilierFeb 13 2014 08:49 PM

Check out the mess made in Alberta by the extraction of oil from tar sands on Google Maps. And there is the potential for pollution of the river that runs through the area. I would rather see our investments go into cleaner energy projects.

Carolynne CullertonFeb 13 2014 08:50 PM

Stop this insanity. Forget the pipeline. Put the money into renewable energy. Save our planet.

Deirdre dullahanFeb 14 2014 11:05 AM

Let's not take anymore dangerous risks to our population
Keystone XL is not in our national interest
Renewable and cleaner energy is being largely overlooked
Use wind, sun water, etc. or risk more contamination and death.

Judy NickersonFeb 14 2014 12:01 PM

This pipeline ix not in the interest of anyone except the oil company & is a detriment to the people & our environment. When are we going to start to to say no to the oil companies & start to get cleaner air & better weather. This is just the opposite. Say no to the pipeline!!!!!!!

Mary SchaeferFeb 14 2014 06:51 PM

Adding another voice to the increasingly loud roar against
the Keystone XL pipeline is the least I can do to help our environment. The building of the pipeline is helping only big oil companies, not our fragile water supply, not the threatened land, not the people through which the pipeline will (hopefully NOT) travel, not even the production of oil for our country. The whole project is not good.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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