Is the Keystone XL Pipeline a Huge Gamble?


The average, or not-so-average, investor couldn’t be blamed for being confused about the outlook for oil prices. No commodity is linked as tightly to politics as oil. The outlook for 2017 appears to be for slow oil price increases but, to most Americans, any increase in energy costs is bad news. What impact would the completion of the Keystone XL Pipeline have?

Will the Keystone XL Pipeline Raise or Lower Oil Prices?

Keystone has been a lightning rod for activists and a source of intense political debate both in congress and at kitchen tables. Activists are threatening vigorous protests at every step of the way. There’s no reason to doubt their determination.

There are reports that oil will need to be at least $85 per barrel before the Keystone is cost-effective. This is due to the investment required to develop new oil sand projects that will be needed to fill the pipeline. That would be an increase of 2.5 times last year’s $33 oil price. Is the political cost of $85 oil too high a price or will jobs and related economic benefits outweigh higher oil prices? What government incentives could be involved?

Financial Benefits From the Pipeline

TransCanada, Keystone’s builder, recently submitted another permit application to the U.S. State Department—another chapter in the up-and-down Keystone story. The latest application was submitted two days after President Trump’s executive orders to speed up approvals for both the Keystone and Dakota Pipelines. Trump’s add-on of only using U.S. steel pipes was reportedly not welcome news to TransCanada.

One of Trump’s campaign promises was to give the American people a portion of the profits, but that’s constitutionally and politically impractical. However, TransCanada says those states and counties crossed by the pipelines will receive property taxes of tens of millions of dollars and the pipelines will bring $3.4 billion into the U.S. economy.

Analysts’ projections on the Keystone’s impact on future oil prices seem closely linked to their political views. Fast-tracking Keystone will undoubtedly be slowed whenever possible by opponents. One bad leak in a politically sensitive location could dramatically alter support for Keystone. Keystone is a gamble. Will it pay off?

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