Keystone XL Is Dead. Will The Tar Sands Industry Die With It?

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After six years of environmental reviews, permitting battles, and vocal opposition from climate activists, the Keystone XL pipeline is officially dead.

In an announcement Friday morning, President Obama finally rejected TransCanada’s request to build a pipeline that would have carried more than 800,000 barrels of tar sands crude from Canada down to the Gulf Coast. The pipeline, Obama said, would not create meaningful job growth, nor would it increase American energy security — two primary arguments championed by proponents of the project.

Environmentalists — who have protested the Keystone XL proposal for years and have largely succeeded in raising public awareness about the issue — cheered Friday’s decision as a turning point in America’s fight against climate change and fossil fuels.

“Today marks the beginning of the end for dirty tar sands, as well as dirty fossil fuel projects around our continent and the world,” Michael Brune, executive director of the Sierra Club, said on a press call following the president’s announcement.

But does Keystone XL’s rejection really mean the death of the Canadian tar sands — one of the dirtiest fossil fuels on the planet?

In the moments before and after the president’s announcement, shares of TransCanada’s stock took a serious nosedive, dropping nearly 6 percent Friday morning. Year-to-date, shares in TransCanada have fallen 34 percent, according to Business Insider.

Shares of TransCanada, as of 12:30 pm EST on Friday, November 5, 2015.

Shares of TransCanada, as of 12:30 pm EST on Friday, November 5, 2015.

CREDIT: Google

Still, the denial of a single infrastructure project might not be enough to bring down the entire tar sands economy. In the years that Keystone has been languishing in courts and environmental reviews, the Canadian tar sands industry has been quietly expanding its ability to ship oil via train or other pipelines, like the Alberta Clipper, which actually carries more oil than Keystone would have. In the third quarter of 2014, Canadian export of crude by train increased by 22 percent. And with more and more terminals being built in Canada, experts expect that by the end of 2015, uploading capacity for crude in Western Canada could exceed 1 million barrels per day.

But shipping oil by rail is dangerous, as numerous explosions over the last few years have demonstrated. It’s also expensive, requiring companies to purchase insurance should derailments result in damage or fires.

“When oil is at such a low value, it’s very unlikely that investors are going to put their product onto a more expensive shipping option,” Lena Moffitt, Director of Sierra Club’s Stop Dirty Fuels campaign, told ThinkProgress, noting that the export of tar sands crude by rail hasn’t increased as much over the past few years as many thought it would.

Realistically, it’s less Keystone XL as an individual project, and more the universally low price of oil, that will continue to damage the tar sands industry. Tar sands crude is an extremely labor and time intensive material to extract, making it some of the most expensive oil on the planet. Meanwhile, U.S. domestic oil production, which has increased rapidly in recent years, has made tar sands extraction seem less and less economically appealing for investors.

“The price of oil is too low,” Brune said. “There’s no profit in building new tar sands extraction projects, and there’s no support for deepening our dependence on dirty fuels.”

As Brad Plumer at Vox pointed out in January, tar sands extraction projects are different from the types of oil extraction that happens domestically. In places like North Dakota or Texas, fracking wells tend to become depleted quickly, meaning that investors can easily scale back on production if oil prices drop. Tar sands extraction, by contrast, is a hugely time and labor intensive undertaking that requires a lot of commitment upfront, but can operate fairly cheaply for years after that. That means that, even with low oil prices, existing tar sands extraction projects can continue to operate, but future extraction or expansion projects are less economically appealing.

Even with Keystone off the table, there are still a number of tar sands pipelines in various points of construction. Energy East, Northern Gateway, and the Trans Mountain Expansion are all proposed pipeline projects that would run through Canada. In the Midwest of the United States, Enbridge — another Canadian energy company — also has a number of pipeline expansion projects in the works. These new projects or expansions are crucial for the tar sands industry, according to a recent report from the pro-clean energy group Oil Change International, because existing pipeline infrastructure has reached 89 percent of its crude-carrying capacity. If no new pipelines are built, or expanded, Oil Change International estimates that tar sands producers will run out of capacity by the end of 2017.

“We’ve seen tar sands companies consistently cite lack of pipeline capacity for many of the mines we’ve seen shelved or delayed,” Moffitt said.

The rejection of Keystone XL is certainly a blow to the already struggling Canadian tar sands industry. Whether or not it’s a mortal blow, however, remains to be seen.