Keystone XL Is Dead. Will the Tar Sands Industry Die with It?

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.
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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.
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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.
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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.

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