Key­stone XL meets sup­ply and de­mand

The Hamilton Spectator - - OPINION -

This ed­i­to­rial ap­peared in the St. Louis Post-Dis­patch: The com­pany that is build­ing the con­tro­ver­sial Key­stone XL pipe­line no doubt wishes En­ergy Sec­re­tary Rick Perry had been right last week when he ex­plained the law of sup­ply and de­mand. At a coal-fired power plant in West Vir­ginia, Perry dis­missed wor­ries about the fu­ture of coal by say­ing, “Here’s a lit­tle eco­nom­ics les­son: sup­ply and de­mand. You put the sup­ply out there and the de­mand will fol­low.”

In fact, as any first-year eco­nom­ics stu­dent learns, sup­ply fol­lows de­mand. Perry could call Tran­sCanada Corp. of Cal­gary for ver­i­fi­ca­tion. The com­pany has spent $3 bil­lion to date on what’s planned to be a 1,400kilo­me­tre, $8-bil­lion pipe­line from Al­berta’s oil­sands to Steele City, Neb. There it would link up with ex­ist­ing pipe­lines that would carry tarsands oil to re­finer­ies on the Gulf Coast.

Pres­i­dent Don­ald Trump green-lighted it in March. But now, The Wall Street Jour­nal re­ports the law of sup­ply and de­mand has raised its ugly head. There’s an over­sup­ply of oil. The bench­mark price is about 38 per cent of the $130-a-bar­rel price in 2008, when the Key­stone project was pro­posed.

Fur­ther, Western Canada Se­lect oil is more ex­pen­sive to re­cover and re­fine than the bench­mark Brent Crude “light sweet” oil. Amer­i­can shale oil, plus fall­ing prices for so­lar and wind en­ergy, have caused an­a­lysts to pre­dict that oil prices won’t re­cover any time soon.

If Perry wants to out­line a “lit­tle eco­nom­ics les­son,” he could point to a com­pany that bought 1,400 kms of pipe for oil no­body wants that’s still fac­ing op­po­si­tion from farm­ers. The in­vest­ment must be amor­tized over 50 years, by which time global warm­ing will be im­pos­si­ble to ig­nore. Just like the law of sup­ply and de­mand.

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