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

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First, Biden’s reversal of cross-border pipeline permits is launching a regulatory attack on the oil industry’s value chain, with unprecedented breadth, assertiveness and tangible investment impacts. Although this reversal will not greatly affect the oil industry and is not absolutely essential for US oil at this time, there are long-term consequences of this decision.

As oil prices rise (and believe me, they will), investors will resume interest in pipeline projects, and anyone in the White House may regret canceling the Keystone XL because the United States will have to rely more on less stable trading partners for oil.

The aggressive and widespread regulatory attack triggered by the cancellation of Biden’s Keystone XL will prove to be no joke when it comes to climate policy. The President recruits an extensive team, experienced and motivated by environmental policy officials, skilled in exercising the regulatory power of the executive. The well-planned campaign will include conventional steps, such as federal leasing and licensing bans, including a temporary moratorium on Arctic oil and gas leasing, stricter methane regulations, and more costly and time-consuming environmental analyzes. Since almost all require federal permits, the pipelines are mostly in the centerline, with the Dakota access pipeline being the next potential target if the courts do not close it first.
The Biden administration will open new fronts against the oil sector. It will implement environmental justice policies to give disadvantaged communities or indigenous groups near energy projects a virtual veto power over projects near their land, such as the Standing Rock Sioux opposition to the controversial Dakota Access Pipeline. It will mobilize extended financial regulators to increase the capital costs of the oil industry and engage in trade negotiations on climate change.

In short, the Keystone XL is the beginning of something big. Research by my company Rapidan Energy Group has found that future regulations of the Biden administration will reduce US oil production by 1 million barrels per day by 2023 compared to a second Trump trajectory.

Keystone XL is widely considered uneconomical because Canada currently has more pipeline capacity than it needs and, given that oil demand is about to peak soon, there will be no costly resources needed from places like Canada. But satisfaction will only last until the next inevitable cycle of rising oil prices.

Contrary to popular belief, declining oil demand will not keep oil prices down forever. And even if demand starts to peak soon, supply outside the Middle East is likely to decline faster than demand slows. This is likely to make the United States more dependent on lower-cost Middle Eastern producers. As oil production in the Middle East increases, the buffer that these producers retain – called reserve capacity – will decrease. The lower their reserve capacity, the higher the oil prices rise when geopolitical disturbances occur.

The next oil price boom will crush industry and political priorities. The price and security of oil supply will go right to the top. Oil is, after all, the blood of modern civilization. As President Jimmy Carter and President George HW Bush have learned the hard way, rising oil prices are contributing to recessions and losing elections. Worldwide, the sharp rise in oil prices has contributed to massive social unrest, as happened in the UK in 2012.
And our dependence on oil is not going anywhere fast, no matter how fast electric vehicles get there. The sustainable development scenario of the International Energy Agency involves very aggressive climate policies. However, it projects that the share of oil in total energy production will decrease by only eight percentage points over the next 20 years, from 31% to 23% by 2040. Therefore, future price increases, like those of the past, will frustrate consumers, terrify elected officials and change the economy. import growth and dependence at the top of the list of priorities.
As oil prices rise, so will interest in Canada’s third-largest oil resources. But they have no access to the sea, far from refining centers and expensive to transport. Pipelines are cheaper and safer than rail, so projects like Keystone XL are essential.
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Alberta’s heavy, sulfurous crude oil quality is appreciated by the complex refineries on the US Gulf Coast and Indo-Pacific. After the cancellation of Keystone XL, Canada will deliver more heavy crude oil to Asia, where it gets a higher price, due to the fact that it is far from heavy crude oil suppliers and less from US refineries, which will buy more from Mexico, Venezuela and the Middle East. This does not matter much from an economic point of view, but it is a major concern for national security, as Canada is a much more stable and friendly partner than others.

Of course, energy shortages know that oil is traded on a large scale and at global prices, so no country is protected from price volatility. But history has repeatedly shown that Washington is entering crisis mode and Winkery is quickly stepping out the window as pump prices rise. So when the cost of oil returns to $ 100 amid rising dependence on the Arabian Gulf, Biden’s early cancellation of a significant pipeline from the largest source of energy imports will be seen as a much more controversial step than it is today.

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