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Why A Vote on Keystone Would Be A Colossal Waste of Time

President Obama announced on Tuesday a firm commitment to veto any Keystone XL measure passed by the new Republican-led Congress. With the votes in hand to fight off any veto-override, is the continued fight over the Keystone XL nothing more than a waste of time for the 114th Congress?

President Obama is definitely bucking public opinion polls when it comes to the Keystone XL. According to Pew Research, 59 percent of Americans support the Keystone pipeline as of November, with 83 percent of Republicans, 58 percent of independents, and 43 percent of Democrats supporting the project.

A partisan showdown is lining up — but will it matter?

Falling Oil Prices Cripple the Project’s Prospects

The Keystone XL pipeline is a project to transport crude oil from Canada’s rich oil sands deposits to America’s Gulf Coast for refining and shipment.

The production of crude oil from oil sands is one of the most expensive production processes in oil extraction. As oil prices continue to fall, the feasibility and desirability of continued oil sands extraction is in question.

With a break-even price of $75-80 per barrel, the entire project is wholly dependent on a short-lived glut in supply. Compared to Middle Eastern oil, with an average break-even price of $29 per barrel, the Canadian oil fields cannot compete during prolonged lower prices.

The continued regulatory delays on the Keystone XL have taken their toll on TransCanada’s stock price, trending downward since 2013 and trading at almost 20 percent lower than 2013 prices.

TransCanada claims to be fully committed to the project regardless of current oil prices. However, a $5-15 billion investment on a project that would currently lose money seems unlikely.

At some point, TransCanada is going to have to cut its losses, especially if oil prices stay low. Regardless of how Congress votes on Keystone or whether Obama successfully vetoes its approval, the economic feasibility of this project seems in question.

Americans Often Don’t Look at the Big Picture

When oil prices are high, we scramble to increase production at any cost, which is probably the birthing ground of the Keystone XL project.

While there is definitely the issue of who gets the Keystone XL oil, when prices are high there is the presumption (or at least illusion) that we are “doing something” to lower the price of oil — fueling the desirability of the project.

But on the flip side, when prices are low, we scale back domestic production and gorge ourselves on Middle Eastern oil. We tend to forget to develop domestic production in preparation for the return of higher oil prices (regardless of the program).

At least in the short term, Republicans are not going to gain very much ground politically by passing legislation that gets vetoed — the public isn’t going to care as long as oil prices stay low.

The “Jobs Program” has Been a Hard Sell

From the very beginning of the Keystone XL project, promised jobs — both construction and long-term — have been used as a major selling point to get the project approved.

Continued criticism of the project has cast significant doubt on the actual numbers of jobs that will be created — and this has fueled greater opposition to the entire project by Democrats.

Republican lawmakers are still trying to rally support as a jobs program, including U.S. Senator John Barrasso (R-Wyo.):

“It’s going to be a bellwether decision by the president whether to go with jobs and the economy.” — NBC’s “Meet the Press,” January 4, 2015

When even Forbes has trouble backing the projected number of jobs that would be created, the numbers need to be re-evaluated.

Unless Republican lawmakers can do a better job of fighting off criticism and challenges to their job numbers, it’s going to be a hard sell claiming that Obama’s veto will kill potential jobs.

End Game

Unfortunately, it seems that oil prices will be the determining factor in the public opinion battle — especially in the long run.

If oil prices stay down, this entire process of passing a bill to be vetoed will turn out to be an enormous waste of time and money.

But if oil prices come back up, or even come back higher, Obama, and whoever is the 2016 Democratic nominee, could be in significant political trouble.

Regardless of one’s stance on the Keystone XL, Middle Eastern oil production decisions are having a direct impact on the American political process, and we should probably pay more attention to why Saudi Arabia is choosing to glut the market with oil.

Looking At The Big Picture

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Photo Source: AP