Opinion: Biden’s decision to cancel Keystone is one that the US will eventually regret

Opinion: Biden’s decision to cancel Keystone is one that the US will eventually regret

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First, Biden’s reversal of cross-border authorizations for the pipeline initiates a regulatory onslaught in the oil industry’s value chain, with unprecedented breadth, assertiveness and tangible investment impacts. While this reversal will not do much harm to the oil industry and is not absolutely essential for American oil now, this decision has long-term consequences.

When oil prices rise (and believe me, they will), investors will resume interest in pipeline projects and whoever is in the White House can regret the cancellation of Keystone XL because the United States will have to depend more of less stable trading partners for oil.

The aggressive and widespread regulatory attack initiated by the cancellation of Biden’s Keystone XL will prove that he is not kidding when it comes to climate policy. The president is recruiting an extensive, experienced and motivated team of environmental policy officials, skilled in exercising the executive’s regulatory power. The well-planned campaign will feature conventional steps like federal leasing and permit bans, including a temporary moratorium on Arctic oil and gas leasing, stricter methane regulations and more expensive and time-consuming environmental analyzes. Since almost all require federal licenses, the pipelines are especially in the crosshairs, with the Dakota access pipeline being the next potential target if the courts do not close it first.
The Biden government will also open other new fronts against the oil sector. He will implement environmental justice policies to give disadvantaged communities or indigenous groups located close to energy projects a virtual veto power over projects close to their land, such as the Standing Rock Sioux opposition to the controversial Dakota Access Pipeline. It will mobilize comprehensive financial regulatory authorities to increase the capital costs of the oil industry and involve trade negotiations with the climate fight.

In short, Keystone XL is the beginning of something big. A survey by my company Rapidan Energy Group found that the next Biden administration regulations will reduce U.S. oil production by 1 million barrels a day by 2023 over Trump’s second term in office.

Keystone XL is widely seen as uneconomical because Canada currently enjoys more pipeline capacity than it needs and, with oil demand peaking soon, expensive resources from places like Canada will not be needed. But complacency will only last until the next inevitable boom in oil prices.

Contrary to popular belief, reduced demand for oil will not keep oil prices low forever. And even if demand starts to rise soon, supply outside the Middle East is likely to fall faster than demand decreases. This is likely to make the United States more dependent on low-cost producers in the Middle East. With the increase in oil production in the Middle East, the reserve that these producers maintain – called idle capacity – will decrease. The lower its idle capacity, the greater the peak in oil prices when geopolitical disruptions occur.

The next oil price boom will muddle political and industrial priorities. The price and security of oil supply will go to the top. After all, oil is the lifeblood of modern civilization. As President Jimmy Carter and President George HW Bush learned the hard way, rising oil prices contribute to recessions and lost elections. Around the world, the sharp rise in oil prices has contributed to a major social unrest, as it did in the UK in 2012.
And our dependence on oil is not going anywhere fast, no matter how fast electric vehicles arrive. The International Energy Agency’s sustainable development scenario presupposes very aggressive climate policies. Still, he projects that the share of oil in total energy production will drop just eight percentage points over the next 20 years, from 31% to 23% by 2040. Therefore, future price increases, like the previous ones, will frustrate consumers, terrorize elected officials and change the economy’s growth and import dependence at the top of the list of priorities.
As oil prices soar, interest in Canadian oil resources, the third largest in the world, will also increase. But they have no coastline, far from refining centers and have expensive transportation. Pipelines are cheaper and safer than rail, so projects like Keystone XL are essential.
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Alberta’s heavy and sulphurous oil is appreciated by complex refiners on the United States Gulf Coast and Indo-Pacific. After the cancellation of Keystone XL, Canada will ship more heavy oil to Asia, where it obtains a higher price, as it is far from heavy oil suppliers, and less to US refiners, who will buy more from Mexico, Venezuela and Middle East East. This does not matter much economically, but it is a major national security concern, as Canada is a much more stable and friendly partner than the others.

Obviously, energy experts know that oil is widely traded and priced globally, so no country is protected from price volatility. But history repeatedly shows that Washington goes into crisis mode and anxiety goes out the window quickly when prices at the pump go up. Therefore, when the cost of oil returns to $ 100 amid growing Persian Gulf dependence, the cancellation on Biden’s first day of a significant pipeline to our largest source of energy imports will be seen as a far more controversial step than is today.

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