Last month, the contentious debate over the Keystone XL Pipeline resurfaced as the U.S. State Department concluded its final environmental impact analysis, finding the construction of the pipeline will have no significant impact on U.S. greenhouse gas emissions. The assumption underlying the analysis is that the oil, derived from Athabasca oil sands in Canada, is going to be consumed regardless of development of the pipeline. Opponents of the Keystone project decried the decision, but they are overlooking a key lever for slowing production from the oil sands: just use less oil in the United States.
Canada is determined to develop the resource, which has been slowly ramping production since 2003. As such, advocates of the pipeline point out that if not transported via pipeline to the United States, it will be transported via rail (as is the current method) or via a combination of rail and tanker. An additional scenario involves exporting the oil across the Pacific to meet growing demand in China. While this is not a near-term prospect, its realization would increase global carbon emissions, not to mention the potential for oil spills because of increased oil tanker transport. And, oil demand in the United States that would be met from a stable partner, and the largest source of U.S. petroleum imports, would have to be sourced from unstable supply lines from the Middle East.
Opponents argue that oil sands development is not yet a done deal, since alternative transport options besides the pipeline also face opposition. Opponents take particular exception to the oil sands, as their development is far more carbon-intense than other forms of oil production. However, if it is true that the pipeline itself is irrelevant to oil sands development, then opposition efforts should shift to confronting consumption in end-use markets – specifically the U.S. road transportation sector.
In 2012, the United States accounted for almost 20% of global oil consumption, the majority of which is consumed by vehicles on the roads. Government programs and policies designed to blunt U.S. demand for oil, such as the Renewable Fuel Standard, can be highly influential on global oil prices, since the United States is the world’s largest consumer. An increase in global oil supply, due to either increased domestic production of non-oil sand liquid fuels or a significant fall in U.S. demand, would lower the global price of oil. A price dive in oil would dampen interest in costly oil sands development.
Although the existence of the oil sands has been known for almost a century, widespread development has not been economically viable until the last decade. The cost of oil production from the oil sands is higher than production from more accessible reserves elsewhere. Past oil price spikes have sparked interest in tar sands development, but those spikes have been short-lived and interest has faded with falling prices. The steadily increasing price of oil over the last decade has sustained interest in the oil sands, leading to the development now taking place. However, oil sands development is still a risky gamble, as shown by the losses incurred by Total and China Investment Corporation in 2013.
Increasing oil supply and cutting demand through increased domestic production of shale gas, rising biofuels penetration in the fuel supply chain, improved fuel economy of conventional gasoline- and diesel-powered vehicles, and spreading adoption of electric and other alternative fuel vehicles could effectively slow, if not halt, further development in Canada’s tar sands. Oil consumption in the United States has declined since its peak in 2005; accelerating that decline, to more than offset increasing consumption in China and other growing economies, could displace much of the economic rationale for tapping Canada’s oil sands. That would be more effective than asking the federal government to cancel a pipeline.
Tags: Clean Transportation, Fossil Fuels, Policy & Regulation, Smart Transportation Program, Unconventional Oil & Gas
| No Comments »