Many news outlets are uncritically touting the State Department's conclusion that building the Keystone XL pipeline would not significantly worsen climate change without noting that this determination was based on an expectation of high oil prices. Some media outlets, however, have reported the significance of the recent plunge in oil prices, such as the Associated Press, which noted that "[l]ow oil prices could make the pipeline more important to the development of new oil sands projects in Canada than anticipated by the State Department ... and therefore is more likely to increase emissions of carbon dioxide and other gases linked to global warming."
State Dept. Report Said Keystone XL Could Have A Substantial Climate Impact If Oil Prices Fell Below $75 Per Barrel
State Department: If Oil Prices Drop Below $75 Per Barrel, Keystone XL Could Allow For More Tar Sands Production -- And Therefore More Carbon Pollution. The U.S. State Department released its Final Supplemental Environmental Impact Statement (FSEIS) on Keystone XL in January 2014. The report concluded that the pipeline is “unlikely to significantly affect the rate of extraction in oil sands areas,” and therefore would not significantly increase carbon pollution or worsen climate change. However, the oft-cited report included the important caveat that if oil prices fell below $75 per barrel, the difference in cost between Keystone XL and more expensive transportation methods such as rail “could have a substantial impact on oil sands production levels,” meaning that building Keystone XL could increase carbon pollution and worsen climate change. From the report:
The updated market analysis in this Supplemental EIS -- similar to the market analysis sections in the 2011 Final EIS and 2013 Draft Supplemental EIS -- concludes that the proposed Project is unlikely to significantly affect the rate of extraction in oil sands areas (based on expected oil prices, oil-sands supply costs, transport costs, and supply-demand scenarios).
Oil sands production is expected to be most sensitive to increased transport costs in a range of prices around $65 to $75 per barrel. Assuming prices fell in this range, higher transportation costs could have a substantial impact on oil sands production levels -- possibly in excess of the capacity of the proposed Project -- because many in situ projects are estimated to break even around these levels. Prices below this range would challenge the supply costs of many projects, regardless of pipeline constraints, but higher transport costs could further curtail production. [State.gov, January 2014]
Oil Prices Have Already Dropped Far Below $75 Per Barrel And Are Projected To Remain Below That Threshold For Years
EIA: Oil Prices Fell Below $75 Per Barrel In November And Have Continued To Fall To Below $50 Per Barrel. According to the U.S. Energy Information Administration, the price of both Brent crude and West Texas Intermediate -- both typically used as benchmark oil price indicators -- each fell below $75 per barrel in November 2014, and they each recently dropped to below $50 per barrel. [EIA.gov, accessed 1/15/15; accessed 1/15/15]
Goldman Sachs: Oil Prices Are Projected To Remain Well Below $75 Per Barrel At Least Through 2016. On January 12, Reuters reported that Goldman Sachs, which it called “one of the most influential U.S. banks in commodities markets,” forecast that oil prices “needed to stay low for much longer in order to curb production and end a global supply glut”:
U.S. bank Goldman Sachs slashed it oil forecasts on Monday, saying fuel prices needed to stay low for much longer in order to curb production and end a global supply glut.
The bank said on Monday it had cut its 2015 forecast for Brent to $50.40 a barrel from $83.75 and reduced its 2015 WTI price forecast to $47.15 per barrel from $73.75.
For 2016, Goldman Sachs sees Brent at $70 and WTI at $65, down from $90 and $80 respectively.
In the short term, Goldman Sachs was even more bearish:
“To accommodate the substantial expected first half inventory build and using the storage arbitrage to the one-year ahead swap, we are revising down our 3-, 6- and 12-month price forecasts for Brent to $42, $43 and $70 respectively, from $80, $85 and $90,” the bank said in a report to clients. WTI 3-, 6- and 12-month price forecasts have been cut to $41, $39 and $65 from $70, $75 and $80 a barrel. [Reuters, 1/12/15]
Despite Dropping Oil Prices, Media Continue To Cite State Dept. Finding Based On High Oil Prices
Wash. Post Reported That The State Dept. Has Said “Keystone XL Is Irrelevant” To Global Warming Concerns. In a January 10 article,The Washington Post reported: “As for concerns about global warming, the State Department has said construction of the Keystone XL is irrelevant: Without the pipeline, oil producers would simply keep using rail, which emits more greenhouse gases.” [The Washington Post, 1/9/15]
Wash. Post Editorial: State Dept. Experts Said Approving Keystone XL “Wouldn't Be A Big Deal” For The Environment. In a January 11 editorial titled “Return the Keystone XL issue to reality,” The Washington Post editorial board wrote that “State Department experts” said approving Keystone XL would not “be a big deal” for the environment:
Despite what you might have heard, the pipeline wouldn't kill the planet, nor would it supercharge the economy. You don't have to take our word for either assertion: The State Department has said so; nonpartisan energy experts have said so; The Post's Fact Checker has said so.
President Obama was caught between State Department experts saying approval wouldn't be a big deal and his environmentalist base insisting that he take a stand. Rather than settling the issue years ago, he chose to delay. Meanwhile, Canadian oil production expanded, much of it moving around on trains. [The Washington Post, 1/11/15]
NY Times: State Dept. Concluded That Building Keystone XL “Would Not Significantly Increase The Rate Of Carbon Pollution In The Atmosphere.” In a January 8 article, The New York Times reported: “Environmentalists who have been arrested outside the White House protesting Keystone say that extracting petroleum from the Canadian oil sands produces more carbon emissions than conventional oil production and that the pipeline will provide a conduit to market for the oil. But a State Department review of the project last year concluded that building the pipeline would not significantly increase the rate of carbon pollution in the atmosphere because the oil is already making its way to market by existing pipelines and rail.” [The New York Times, 1/8/15]
LA Times: Keystone Opponents' Warnings About Global Warming Have “Shortcomings” Because State Dept. Found Pipeline “Would Have Little Effect On Carbon Emissions.” In a January 9 article, the Los Angeles Times reported that while "[o]pponents warn" that building Keystone XL will “worsen global warming,” the State Department found that “the 830,000 barrels of oil expected to flow through the pipeline daily would have little effect on carbon emissions”:
Opponents warn that building more capacity for the oil industry will continue dependence on fossil fuels and worsen global warming. But supporters argue that development of the pipeline will wean the country from foreign oil suppliers and create needed domestic jobs.
“With the stroke of a pen, the president can create thousands of jobs by approving KXL,” said Jack Gerard, president of the American Petroleum Institute.
Both views have shortcomings. According to estimates, the project would initially create more than 42,000 jobs, including about 3,900 for construction, but permanent jobs would be far fewer: Just 35 full-time positions are anticipated for operating the line, according to the State Department's assessment.
At the same time, the 830,000 barrels of oil expected to flow through the pipeline daily would have little effect on carbon emissions, according to the State Department review. [Los Angeles Times, 1/9/15]
Houston Chronicle: State Dept. Has Already Concluded That Keystone XL “Would Have Little Effect On Climate Change.” In a January 12 article, the Houston Chronicle reported: “The State Department has already conducted environmental studies concluding that the $8 billion border-crossing pipeline would have little effect on climate change and the amount of bitumen harvested from Alberta's oil sands.” [Houston Chronicle, 1/12/15]
Christian Science Monitor: State Dept. Has “Echoed [The] Sentiment” That Keystone XL Will Not Be “A Climate And Environmental Disaster.” In a January 12 article, The Christian Science Monitor reported: “Privately, Obama is skeptical of environmentalists' claim that Keystone XL would be a climate and environmental disaster, [The New Yorker's Ryan] Lizza writes, and the State Department's environmental impact studies have echoed that sentiment.” [Christian Science Monitor, 1/12/15]
Columbus Dispatch Editorial: State Dept. Determined That Keystone XL “Would Have A Negligible Impact On The Environment.” In a January 12 editorial, The Columbus Dispatch wrote: “Obama's opposition to a project that would boost energy production and jobs also comes after a U.S. State Department report last year determined the project would have a negligible impact on the environment.” [Columbus Dispatch, 1/12/15]
Star-Ledger Editorial: Keystone XL “Would Have Virtually No Impact On Climate Change.” In a January 8 editorial, The Star-Ledger of New Jersey wrote that Keystone XL “would have virtually no impact on climate change” because “the oil can travel to market with or without Keystone”:
To understand why the debate over the Keystone XL Pipeline is wildly overrated, begin with two conclusions from last year's exhaustive report from of the State Department, echoed by several independent analysts:
One, building the pipeline would have virtually no impact on climate change. True, this oil is 17 percent dirtier than average, and its extraction would leave an ugly scar on Canada's pristine wilderness.
But killing the pipeline won't stop any of that because the oil can travel to market with or without Keystone. Canada can send it by pipeline to either coast, where willing customers are waiting in Europe and Asia. Or it can send the oil to America by rail, increasing the risk of a spill. [The Star-Ledger, 1/8/15]
By Contrast, Some Media Outlets Have Put The State Dept. Report In The Proper Context
Associated Press: State Dept. “Found The Pipeline Was Not Likely To Exacerbate Global Warming, But It Based That Conclusion On Higher Oil Prices.” In a January 12 article, the Associated Press reported that "[l]ow oil prices could make the pipeline more important to the development of new oil sands projects in Canada than anticipated by the State Department" and that the State Department's conclusion that Keystone XL was unlikely to worsen climate change was based on “higher oil prices”:
Low oil prices could make the pipeline more important to the development of new oil sands projects in Canada than anticipated by the State Department, which is conducting the environmental review, and therefore is more likely to increase emissions of carbon dioxide and other gases linked to global warming.
The review found the pipeline was not likely to exacerbate global warming, but it based that conclusion on higher oil prices. At such prices, producers can afford the higher cost of transporting oil by rail or other means and still make a profit. At low oil prices, they might decide only to expand drilling if they have an inexpensive way of getting the oil to market.
The price of oil closed at $48 a barrel on Friday. [Associated Press, 1/12/15]
The Globe And Mail: In State Dept.'s “Low-Oil-Price Scenario,” Keystone XL Would Help Maintain Production From Tar Sands. In a January 11 article, The Globe and Mail reported that the State Department's analysis was “conducted at a time of high crude prices” and that under the State Department's “low-oil-price scenario ... cheaper transportation costs associated with Keystone XL would help maintain production-- and therefore emissions -- in the oil sands”:
TransCanada -- as well as the Alberta and federal governments -- have taken comfort in the State Department's own review that concluded the construction of the Keystone XL pipeline won't increase GHGs. Alberta Premier Jim Prentice pointed to that conclusion again Friday in commenting on the Nebraska court ruling.
But that analysis was conducted at a time of high crude prices. The State Department also considered a low-oil-price scenario and, in that case, the cheaper transportation costs associated with Keystone XL would help maintain production -- and therefore emissions -- in the oil sands. Critics have now seized on that scenario to argue that the government's own review shows the project fails Mr. Obama's emissions test. [The Globe and Mail, 1/11/15]
PolitiFact: State Dept. Analysis “Included The Caveat That The Pipeline Would Have A Minimal Impact On Tar Sands Extraction Only If Oil Prices Remained Above $75 Per Barrel.” In a January 4 article, PolitiFact quoted a Calgary University professor who noted that the State Department's analysis “was predicated on its assumption that West Texas Intermediate would not fall under $75 per barrel”:
The State Department found that with high oil prices, the tar sands would be mined for oil, pipeline or no.
[Calgary University law and business professor James] Coleman told PolitiFact that finding is now in question.
“The State Department's analysis was predicated on its assumption that West Texas Intermediate would not fall under $75 per barrel and it is now under $55. At that level, State said things could change,” Coleman said.
The State Department concluded that with prices between $65 and $75 per barrel “higher transportation costs could have a substantial impact on oil sands production levels, possibly in excess of the capacity of the proposed Project.” But with the pipeline, transportation costs drop and production would be higher. That would affect greenhouse gas emissions.
The State Department's final analysis also included the caveat that the pipeline would have a minimal impact on tar sands extraction only if oil prices remained above $75 per barrel.
Since then, oil prices have fallen well below that point. [PolitiFact, 1/4/15]