Keystone XL Pipeline?

By: Ian Campbell | Wed, Dec 21, 2011
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As you may know, the Keystone XL Pipeline project is back in the news, with new pressure being put on the Obama Administration to approve what is more properly referred to as the Keystone Gulf Coast Expansion Pipeline. This commentary briefly summarizes what are said to be the costs and benefits of completing this pipeline project. As, I am sure you know, the majority of the oil that would be shipped through that proposed pipeline to the U.S. Gulf of Mexico refineries would be sourced from the Canadian Oil Sands. As I understand it, the principal issues raised by the pipelines detractors (effectively the 'cost side') are:

As I see things, the 'benefit side' of the Keystone XL Pipeline equation from an American point of view is as simple as this. In all probability, America will need conventional oil going forward that it can't itself produce - and barring American interference, if America doesn't want or is unable to access Canadian Oil Sands output, that output will go to China or elsewhere via physically shorter pipeline transportation systems that will take future Oil Sands production to Canada's west coast. That said, as a practical matter I think the U.S. eventually will have to face up to, what I see as, its prospective need for the Oil Sands production - and if it doesn't act now, or even if it does, it will or may end up sharing that production with Asia in any event. If I am right in this, if the Keystone XL Pipeline is not built now, it (or some alternative direct or indirect pipeline from the Oil Sands to the U.S.) almost certainly will be built at a future date - and at that time will prove to be far more difficult to approve and be more expensive than the current Keystone XL Pipeline as now proposed.

Rightly or wrongly, I see what is going on in the U.S. (and the Obama Administration) as procrastination in the face of a comparatively small minority of vocal environmentalists. Continuous ceding by governments, whether they be Federal, State, Provincial or Municipal, to the 'vocal minority' typically, in my view, in the end results in unwarranted delays, inefficiencies and excessive costs.

If you are not well versed in matters pertaining to the Canadian Oil Sands, you might want to visit Wikipedia's write-up on what is thought to be about one-third of the world's known oil resources. I think the Wikipedia write-up is a good primer on the Canadian Oil Sands, and one can use it as a 'takeoff point' for further research.

I, for one, have very little doubt that the Canadian Oil Sands will - in one way or another - play a very important part in how the world unfolds economically over the next decades. If you invest or trade in the financial markets I believe you should make it your business to learn as much as you can about the Oil Sands. I suggest you ask your Investment Advisor(s) to provide you with whatever written information they have at their disposal now, and on an ongoing basis, so as to keep you up to date with Oil Sands development.

For an article dealing with the Keystone XL Pipeline that includes a map and charts, see 'Costs and benefits of the Keystone XL pipeline' - reading time 5 minutes - published yesterday on the Econbrowser Blog.

You might also want to read 'The GOP could accidentally delay the Keystone XL Pipeline' - reading time 3 minutes. This article suggests that if House of Congress Republicans attempt now expedite that pipeline, that could result in the pipeline being deferred longer than it might be if they simply let the Obama Administration deal with it. I do not have an opinion on whether or not that makes sense.

 


 

Ian Campbell

Author: Ian Campbell

Ian R. Campbell, FCA, FCBV
Economic Straight Talk

Through the Economic Straight Talk Newsletter Ian R. Campbell shares his perspective on the world economy, the financial markets, and natural resources. A recognized business valuation authority, he founded Toronto based Campbell Valuation Partners (1976), Stock Research Portal (2007) a source of resource companies market data and analytic tools, and Economic Straight Talk (2012). The CICBV* annually funds business valuation research in his name**. Contact him at icampbell@srddi.com.
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** through The Ian R. Campbell Research Initiative

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