Is Keystone Doomed To Be a Historical Footnote?
By Ben Winkley Wall Street Journal
WHO NEEDS KEYSTONE, ANYWAY?
As 2013 rolls on from summer into fall there is still no end in sight to one of the great energy impasses of the year—will the Keystone XL pipeline ever be approved, or is it fated to become a historical footnote?
The pipe, in case you have forgotten, is planned to allow 830,000 barrels a day of heavy crude to move from Canada’s oil sands development all the way to refineries on America’s Gulf Coast.
Keystone needs approval from the State Department because it crosses the Canadian-U.S. border. The debate on whether it is a good idea or not has seemingly been endless and a decision may not now be made until 2014.
U.S. refiners increasingly doubt that Keystone will ever be built, The Wall Street Journal’s Ben Lefebvre reports. Only now, thanks to the expansion of other pipelines, the record amount of oil being produced in the U.S. and the rapid expansion of crude-by-rail, they don’t particularly care.
Which is all well and good for American refiners—and probably for these seven adorable species threatened by Keystone—but potentially ruinous for Canadian drillers.
Extracting Canada’s huge deposits of oil sands in the next few years might not be economically viable without Keystone XL. Oil-sands production capacity is predicted to more than double by 2030, to more than 5 million barrels a day—if Keystone doesn’t happen, output could exceed shipping capacity as soon as 2016.
This will mean that Canadian heavy crude will continue to trade at a steep discount to other grades of oil for the next few years, which could weigh on the economics of developing the oil sands.
So Canada hopes to build some pipes of its own—one all the way from Alberta to the Atlantic coast, and one to the Pacific. The former faces the challenge of scale; the latter of local opposition.
If Canada gets one or both of these off the ground, however, it could mean that Keystone turns out to be a lot of fuss over nothing. A lifeline could be thrown its way, though. The U.S. Federal Railroad Administration has begun an investigation into the business of moving hazardous materials—read: crude oil—on the tracks in light of the fatal accident in Quebec earlier in the year.
Any new safety measures or restrictions (say, on moving crude through residential areas) could increase the cost of moving oil-by-rail, and make that pipeline look a more attractive option once more.
INDIA BETWEEN A ROCK AND A HARD PLACE
India is considering a plan to reduce its ballooning current-account deficit that includes holding its oil imports from Iran steady, potentially putting the country in jeopardy of losing an exemption from U.S. sanctions against countries that do business with Iran.
The subcontinent is stuck between a rock and a hard place. Its currency, the rupee, has recently hit record lows against the U.S. dollar, making crude-oil imports much more expensive.
India imports more than three-quarters of the crude oil it requires, and the depreciating local currency would make those imports more expensive in rupee terms and add to the costs of government fuel subsidies.
India is turning to the Middle East, looking for deals. Oil exporters are eager to boost supplies to India to compensate for shrinking U.S. demand.
India and Iraq are working toward a 10-year oil-supply deal and the former may offer a stake in state-run India Oil Corp.’s planned refinery in the east of the country, the Journal’s Saurabh Chaturvedi and Biman Mukherji report.
Dealing with Iran will prove more contentious. India buys oil from the Islamic Republic by depositing rupees into a bank account, and then Iran imports Indian goods, potentially including food, drugs, consumer products and auto parts, debiting rupee amounts from the same account.
A bizarre ongoing dispute over an Indian oil tanker that was detained by Iran’s navy threatens to stall negotiations, but India may feel its need for fuel is greater than America’s need to squeeze Iran.