WASHINGTON, January 5, 2015 — As Republicans take full control of the Legislative Branch, one of their first priorities is to force a showdown with President Obama over the Keystone XL Pipeline. Certainly, the issues of affordable energy and energy security in general are just as important as environmental concerns, landowner rights and States rights. But the Keystone Pipeline issue is no longer about crafting sound public policy.
That said, any debate over the Keystone Pipeline is thoroughly irrelevant when the project becomes economically unfeasible. Within the last decade, the US has reclaimed the title of world’s number one oil producer. It has also reduced its consumption of energy through improved efficiency. Consequently, the need for the Keystone Pipeline is not as pressing as it was in 2008 when supply and demand where headed in opposite directions.
Furthermore, the reality that the price of oil is near $50 a barrel and expected to stay there for some time, or fall even more, means the pipeline issue now rests on the willingness of investors to continue investing. Given the pipeline is intended to ship heavy crude, which is more expensive to produce and process, the reality that oil is now below the production cost of heavy crude makes investment in the Keystone Pipeline far less sound.
Recognizing recent policy shifts that will help the oil industry export and import greater amounts of crude, the need for the Keystone Pipeline may no longer exist, even if heavy crude becomes profitable again. Although producers will be able to take advantage of higher foreign prices, the greatest windfall to the United States is the ability of producers to use existing pipeline to transport Canadian oil. In other words, the Keystone Pipeline may not be needed.
In fact, this policy shift helps address concerns about falling oil prices and future decreases in oil production. Current excess oil production is seen as a positive since it lowers energy prices, yet it discourages new investment and undermines future production. By paving the way for Canadian oil to enter the US through existing means, producers will be able to tap already existing oil fields and increase their exploitation of oil sources they have already developed at lower production costs.
Considering the Obama Administration is seeking to promote the growth of “cleaner” energy sources and Republicans are concerned with energy security, the changes in the economics put both sides on the same page. Consequently, the policy debate between Republicans and President Obama should shift toward preserving existing pipeline and improving the transportation of all energy sources, i.e., nature gas and electricity as well as oil.
Unfortunately, the real struggle over the Keystone pipeline is not over sound policy and the interests of the American people. It is about satisfying a grudge the Republicans have with the Obama Administration. It is also about a political Left unwilling to recognize the need for robust oil production to provide for the energy needs of the American People in the near-term and, more importantly, supply a cheap source of hydrocarbons in the future.
Moreover, both sides needs work together to development better energy policies for America’s present and future energy security.