Keystone XL meets supply and demand

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.