The so-called “cancellation” of the Keystone XL pipeline, designed to bring heavy oil from the tar sands of Alberta, Canada to the Midwestern United States, is being trumpeted as a major victory for U.S. environmentalists as well as a controversial move by President Obama that will provide ammunition for his Republican opponents in the November election.  The latter is almost certainly true; the former is more questionable.

Briefly, Obama declined to issue a permit for the expansion of the Keystone pipeline, owned by TransCanada, which would increase imports from carbon-intensive oil sands into the U.S. by up to 830,000 barrels a day.  Mined (not pumped) from deep deposits found below the boreal forests of Alberta, oil sands comprise a gluey mixture of sand, clay, and bitumen.  Studies indicate that on a “well-to-tank” basis, fuel from oil sands release 82 percent more greenhouse gases than light crude from, say, Saudi Arabia.  In both North America and Europe, opponents are trying to label oil sands “dirty” and make their products too expensive to transport and sell.  In an ideal world, this would lead to more use of alternative fuels, solar power, electric vehicles, and so on.  Unfortunately we don’t live in an ideal world, and there are many misconceptions around the Keystone XL dust-up.

1. Less oil imported from oil sands does not lead directly to more use of renewables.  This is not a zero-sum game.  Total U.S. imports of fossil fuels are not going to go down because one pipeline doesn’t get built, or expanded, nor is investment in solar power, wind, hydrogen infrastructure, or any other cleantech energy source going to rise as a direct result.
2. Keystone is only one front in a wider war.  Texas oil company Kinder Morgan, for example, has proposed an expansion that would more than double the capacity of its Trans Mountain pipeline carrying Canadian oil to Vancouver, to 700,000 barrels per day.  “The expanded capacity would likely enable more tankers to ship Albertan crude to refineries along California’s coast,” writes Maria Gallucci on InsideClimate News.
3. The Keystone XL project, and the oil it’s designed to carry, are not going away. “As for the oil sands, the initial new volumes will reach the United States aboard trucks and railroad tankers, providing time for Obama or his successor to approve the pipeline in the beginning of 2013, and for Keystone to be finished just in time for the bulk of the bitumen in 2015,” observes Steve LeVine, on his blog The Oil and The Glory.

Environmentalists who want to limit the imports of nasty oil from Canada’s oil sands are fighting the wrong battle, argues Lisa Margonelli, on TheAtlantic.com:  “We need to stop fighting oil development project by project — and instead focus on passing a Low Carbon Fuel Standard (which could make the Keystone XL economically unviable), and on reducing oil consumption overall.”  Opponents of the Keystone project are like drug warriors trying to interdict cocaine shipments along America’s borders: they need to lower demand at the point of consumption rather than trying to block the supply.  As long as Americans want to drive gas-guzzling vehicles, the market will operate to supply them with the fuel, no matter how unclean or expensive or distasteful the stuff is.

“Once the oil’s flowing, it has to go somewhere,” Tony Clark, chairman of the North Dakota Public Service Commission, told CBS News in a nice summary of economic doctrine.

In fact, economic forces alone may eventually stop big, dirty oil projects like Keystone XL.  Oil sands become unprofitable when the price of oil on the world market drops below a certain level – perhaps as high as $80 a barrel, certainly anything lower than $50 a barrel. I predicted more than a year ago that oil prices were going to drop; right now they are being propped up by Iran’s threats of gunboat diplomacy in the Strait of Hormuz.  Nick Butler, the chair of King’s Policy Institutes at King’s College London, agrees with me: “On balance, … the main worry for the world’s oil producers is that prices will fall. Three factors support this view – supply, demand and politics. … The reality is that oil demand is peaking.”

In 2007, Butler notes, the International Energy Agency forecast that demand would rise to more than 116 million barrels a day over the next two decades.  The most recent IEA forecasts see demand barely reaching 100m b/d.  Like a weak-willed cokehead, the world is slowly, reluctantly overcoming its addition to fossil fuels.  Regardless of political maneuvering, that makes the future of the oil sands dubious.  One delay of one pipeline, though, is nothing to shout about.