Falling Oil Prices Doom Keystone XL?

by Deacon Blues

One of the ironic byproducts of declining worldwide oil prices is that the economic sense behind the Keystone XL pipeline has evaporated. Extracting oil from Canadian tar sands and then shipping that oil thousands of miles across the American midwest to Gulf refineries not only does nothing to reduce the price of American energy and gasoline, but also requires a certain oil price-point to make economic sense. With oil now trading in the mid-fifties per barrel, and likely to go lower, that price-point is now well above the market.

According to some conservatives, this does not matter. Incoming Senate committee chairman Jim Inhofe of Oklahoma has already demonstrated that he doesn't care about scientific evidence when it comes to global warming; he only cares about political ideology. Inhofe is at least consistent: he's now demonstrating that he doesn't care about economics either.

Republicans say they will push for approval of the pipeline when they take full control of Congress in January, regardless of market conditions. Sen. Jim Inhofe (R-Okla.), a longtime crusader for the project, said the pipeline's diminishing potential in the energy marketplace is beside the point.

"Oil prices and prices at the pump should have no bearing on support for an approval of the Keystone XL pipeline," he said.

The Obama administration, Inhofe said, has used the permitting process "as a political game and is simultaneously preventing American businesses from pursuing a project that would aid economic opportunity."

That's right; Inhofe is clearly saying that when it comes to this project, gas prices for everyday Americans are irrelevant whereas profits for oil companies getting an "economic opportunity" are all that matters. So if the GOP's own incoming committee chairman has undercut the gas-price argument behind the pipeline, and if the project has no significant amount of permanent jobs tied to it, then why are we even talking about this project any more if the economic rationale has evaporated?

In fact, principled conservatives in some quarters are quite clear about what they care about:

Even at the Manhattan Institute, a free market-oriented think tank with little patience for the arguments made by pipeline opponents, questions are emerging about whether Keystone still deserves star billing in the energy debate.

"I'm for cheap, abundant, reliable energy. Period," said Robert Bryce, a senior fellow at the conservative group. "This is not ideological. This is about what the economics say.… The project is clearly very challenged right now."

So if these conservatives care about "cheap, abundant, reliable energy", they they should be open-minded to solar and wind, right?

One last thing: If oil prices keep falling over the coming months, and knowing how much of the fracking boom was built on risky financing provided by funds and regional banks, how likely is it that we'll see an "oil patch recession" in time for the 2016 election? How quickly will GOP and Tea Party politicians tell us we need to bail out the energy industry and their banks?