Progressives (and some conservatives) have largely stymied President Donald Trump on getting his wall across the U.S. southern border built. Ironically, those same progressives have given the president another wall – encompassing Canada and thwarting oil exports to countries other than the United States.
The latest slab in the wall is a ruling by a Montana district court judge who called for a halt in construction of the Keystone XL pipeline pending additional analysis of potential environmental and economic impacts. Keystone XL was assumed by many to be a done deal when Trump approved the project in March 2017.
Apparently done deals aren’t that done if you run into an activist judge.
Alberta’s economy, while nearly back to pre-recession levels in some ways, continues to plod along compared to previous economic boom times. World oil prices plummeted in 2014. But limited pipeline capacity, which leads to Canadian oil producers getting a depressed price for Canadian oil, exacerbated Alberta’s economic woes.
In fact, several metrics indicate that oil and gas investment in Alberta is in steep decline. According to a report by the Canadian Association of Petroleum Producers, capital investment in Canada’s oil and natural gas in 2017 was $45 billion, down 44 percent since 2014, before oil prices collapsed.
The latest Keystone XL decision can only make things worse. Investors were banking on the Keystone XL’s 830,000 barrels of new capacity coming online to relieve some of the pipeline bottlenecks facing Canada. Those bottlenecks each year rob Canadians of billions of dollars because we must sell our oil into the glutted U.S. market at severely discounted prices compared with the world oil price.
Two things stand out in reporting of the Montana judge’s decision. First, he ruled that the U.S. State Department (under then-president Barack Obama) did not conduct a sufficient review of potential environmental damages, including potential long-term harms caused by climate change. Yet in 2014, the State Department reported that Keystone XL would produce fewer greenhouse gas emissions than transporting that same oil by rail to the Gulf of Mexico.
Moreover, according to Reuters, the judge said the State Department’s analysis “failed to fully review the effects of the current oil price on the pipeline’s viability, nor fully model potential spills and offer mitigation measures.” The first part of this statement is somewhat absurd. As a timeline of the Keystone XL process shows, the State Department was conducting its review in 2010 when it could not conceivably predict the fluctuations in world oil prices in 2018.
Crucially, this ruling suggests that when one proposes a project, one must maintain a running economic and environmental analysis, no matter how long a project is delayed by obstructionists. The cost of that, added onto everything else that pipeline obstructionists can muster, may be the last slab in the wall.
The delay of Keystone XL, likely by at least a year, is another blow to Canada and a particularly sharp blow to Alberta.
But perhaps one good thing will come from the judge’s ruling. It may well be the last nail in the coffin of ‘social licence,’ which is now, quite clearly, unobtainable at any price – anywhere – to build any major oil project.
Prime Minister Justin Trudeau is no fan of Trump’s border wall. Perhaps he should pick up an axe and tear down the activist wall fencing in Canada’s energy economy.
Kenneth Green is an analyst at the Fraser Institute.