New investigate from a Carbon Tracker Initiative reveals capitulation of a argumentative Keystone XL pipeline would usually have a extrinsic certain impact of a economics of a Canadian oil-sands industry, though could trigger a rush of investment into additional unsure high-cost, high-carbon projects, contingent on rising oil prices.
The report, Keystone XL Pipeline: A Potential Mirage for Oil-sands Investors, shows “new Canadian oil-sands growth is increasingly economically controversial but a additional trade ability that pipelines such as Keystone XL would bring,” says Mark Lewis, outmost investigate confidant to Carbon Tracker. “But a prophesy of softened prices it promises could fast be wiped out by augmenting costs, definition investors who believed a imagination of softened oil-sands economics with KXL will be left disappointed.”
“Efforts to stay within a CO budget, boost fuel efficiency, revoke costs and urge atmosphere peculiarity meant that if collateral continues to upsurge into oil sands, a projects risk apropos stranded assets,” says Carbon Tracker’s investigate director, James Leaton.
Questionable Project Economics
Oil sands in situ projects now underneath care need above $65/barrel net-present value to break-even according to Rystad Energy. Given a ignored cost Western Canada Select outlay achieves, these projects will not furnish a profit.
Keystone XL will capacitate oil sands prolongation to grasp aloft prices—perhaps homogeneous to a tide Maya (Mexican complicated crude) cost or WTI cost achieved on a U.S. Gulf Coast, generating a $20/barrel cost uplift.
However, it is not transparent that a domain will urge given a cost increases that will accompany a uplift in price. Production with Keystone XL will catch larger tube transformation and diluent costs shortening this uplift to around $5.5/barrel. This leaves usually a few dollars domain to catch other factors such as intensity CO homogeneous costs, expected acceleration in labor, materials and appetite costs.
This creates it controversial that a margins will urge amply to make even a lowest cost $65/barrel projects yield sufficient earnings for investors. Investment in complicated oil enlightening ability will also need to be factored in if prolongation increases.
The economics of rail are no some-more promising than Keystone XL. It is not transparent that sufficient commitments are in place to implement new ability during a tide cost levels. The volumes that could be brought on tide are also not expected to be homogeneous to a time and scale of a tube such as Keystone XL.
Keystone XL and rail are additional trade routes to a tide singular infrastructure. The trade ability is a tying cause to production—which a attention physique total uncover could implement all mooted tube routes and increasing rail capacity. Keystone XL would meant some-more prolongation sooner, that is evidenced by analysts giving oil sands producers aloft valuations with Keystone XL.
However, as co-advisor Mark Fulton says, “KXL will urge revenues in a short-term that means that it will assistance catalyse new investment, some-more oil-sands prolongation and additional hothouse gas emissions.”
This is reliable by a Canadian supervision charity to homogeneous these emissions, that serve criticise Keystone XL’s mercantile benefit.
Access to More Capital
Keystone XL-enabled prolongation will meant some-more revenues for oil sands producers, that will urge a market’s perspective of a value and creditworthiness of a companies. This will assistance them entrance capital, or revoke a cost, that will promote serve investment in a oil sands, heading to some-more prolongation and therefore some-more emissions. However, this in spin will put ceiling vigour on costs in Alberta, and shortly empty a additional travel ability a tube would provide, serve joyless prices.
Keystone XL constitutes a imagination that might lure investment in larger prolongation in hunt of aloft margins, that are not expected to manifest but continued ceiling transformation in oil prices. Keystone XL could yield some proxy service to oil sands trade constraints, that will kindle a cycle of investment again, that possibly will lead to increasing emissions or stranded resources in a future.
The research follows Carbon Tracker’s recent collaboration with CERES to prepare a organisation of vast investors to rivet with companies on stress-testing their collateral output skeleton opposite a operation of cost and emissions scenarios. With a context of these considerations, Leaton records that, “oil sands are high-cost, high-carbon projects, being due during a time when both costs and emissions are underneath vigour to shrink; as such they should immediately strike an investor’s higher-risk screen.”