$40 IS THE CEILING, NOT THE FLOOR:

[I]nstead of ending the arguments over Keystone, falling crude prices are stoking the controversy. When oil prices are low, the reduced transport costs provided by a pipeline, as opposed to the alternative of moving the crude by rail, become even more important to the industry. [...]

Despite the high costs of oil sands projects, there are solid reasons why the pipeline could still make economic sense for the industry. A few planned oil sands developments were cancelled in 2014.

Total of France in May shelved its proposed Joslyn mine development, because of rising costs, and Statoil of Norway said in September it would put its Corner oil sands project on indefinite hold, again because of costs and concerns about a shortage of oil transport capacity out of Alberta.

Since oil began its precipitous slide in October, however, there have been no announcements of large oil sands projects being cancelled or delayed.

For projects that are already under way, where the bulk of investment costs have been committed, stopping a development makes no sense. Once upfront money has been spent, mining projects need oil prices of $45 or less to cover the running costs, while in situ projects need just $20, according to researchers IHS.

Planned developments where the money has not been spent could be delayed but what matters is not today's oil price but the expected price over the longer term.

Oil sands projects are very different from the shale wells that have caused the crude production boom in the US. In shale, often known as tight oil, production drops off relatively quickly after the well comes on stream. In oil sands, output can be sustained, with very little decline, for decades.

"Tight oil may be more sensitive to the oil price, because the bulk of production comes in the first couple of years," says Kevin Birn, a director at IHS. "In the oil sands, you are looking over the much longer term."

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