In a sharp-edged review of energy and pipeline economics, Rocky Mountain Institute (RMI) Chief Scientist Amory Lovins says low oil prices and the plummeting cost of energy efficiency and renewable energy will make the Keystone XL pipeline obsolete, even if it’s ever built.
“The Congressional KXL Circus will open anyway,” Lovins wrote in Forbes January 16. “A bill may pass. The promised veto may stand. If it doesn’t, and if investors’ doubts don’t scuttle the project, KXL might even get built.”
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But “be careful what you wish for. Wouldn’t it be ironic if TransCanada built its pipeline just in time for tar sands companies to be too weakened and uncompetitive to fill it?”
KXL’s biggest challenge is the economics of the tar sands/oil sands projects whose product it would carry: They break even at an average of $80 to $100 per barrel. “At today’s halved oil prices, many mostly-built projects may be completed despite dismal or no returns on capital,” Lovins says.
“But producers also say that by around 2017, when KXL could come online if approved this year, old projects’ output will be starting to dwindle and growth will increasingly require new projects now in discovery stage. Roughly 99% of those projects need $100-$130/barrel oil prices. And all this assumes no future federal or Alberta government will ever make the operators thoroughly clean up their mess.”
As far back as 2011, RMI’s Reinventing Fire estimated it would only cost the U.S. $18 to $25 per barrel to get cars completely off oil. That figure has fallen since, meaning that “costly tar sands oil may never find a durable market,” Lovins now writes. “It’ll be obsolete before it can be extracted and sold.” (h/t to Energy Mix subscriber Ralph Torrie for pointing us to this story)
