Low oil prices have wiped out the economic rationale for pipeline projects and new tar sands/oil sands development in Canada, economist and author Jeff Rubin argues in a Globe and Mail Report on Business commentary this week.
“Lost in the political fallout from President Barack Obama’s decision to once and for all reject Keystone XL is the fact that there is no longer an economic context for the pipeline,” Rubin writes. “For that matter, the same can be said for any of the other proposed pipelines that would service the planned massive expansion of production from Alberta’s oil sands.”
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With Western Canadian Select, the price benchmark for most tar sands/oil sands crude, hovering around US$30 per barrel, the product has “the dubious distinction of being the lowest-priced oil in the world with one of the highest cost structures,” he notes. And with shale oil shutting diluted bitumen out of global markets, there’s no relief in sight.
“Even if Alberta’s landlocked fuel could get to tidewater, it’s no more needed in foreign markets than it is in the U.S. market,” Rubin writes. Today’s world oil prices “signal the need for contraction,” and that pressure will only intensify as nations begin to pay more attention to the greenhouse gas emissions.
“The real environmental challenge confronting the future of the oil sands is how much global oil demand will be destroyed in the future by the imperatives of stabilizing atmospheric carbon at 450 parts per million (ppm) and avoiding the worst consequences of global climate change,” he notes.