November 8, 2015


Low Oil Prices Mean Keystone Pipeline Makes No Sense : New exploration on the bulk of Canada's oil sands reserves can't start unless prices are at least $60 per barrel, economists say. (David Talbot, January 9, 2015, MIT Technology Review)

The recent dramatic plunge in oil prices threatens to make the proposed Keystone XL pipeline something of a white elephant.

The proposed pipeline, which would transport crude oil from these sands to refineries along the U.S. Gulf of Mexico, is a flashpoint in U.S. politics. The Republican-led Congress wants to build it, and the House of Representatives is set to vote on this question. President Obama has pledged a veto.

But if prices stay so low over the coming year, Canada's vast fossil fuel resource, called tar sands or oil sands, wouldn't fetch high enough prices to be mined in the first place.

If prices stay in the low $50 range, "the necessity for Keystone XL may disappear," says Pete Howard, the president emeritus of the Canadian Energy Research Institute in Calgary, Alberta. "We've got rail [transportation] right now as a safety valve, and if we build up rail capacity to carry three-quarters of a million barrels, that pretty much takes up all the projects that are under construction right now."

Shell to Cease Oil Exploration in Alaskan Arctic After Disappointing Drilling Season : Company becomes latest big oil player to abandon region amid low crude prices (SARAH KENT, Sept. 28, 2015, WSJ)

Royal Dutch Shell PLC is quitting its $7 billion Arctic campaign after drilling just one well with disappointing results, becoming the latest big oil company to abandon the riches under the northern seas in the face of stubbornly low crude prices.

The Anglo-Dutch energy giant's decision, announced Monday, caps a yearslong foray off Alaska's shores that once was considered full of promise but was questioned by investors, environmental groups and religious and political figures. [...]

Oil companies have looked longingly at the Arctic for years, but its often icebound seas and treacherous weather make exploring expensive and dangerous. Shell's decision could spell the end of Arctic drilling for some time, although low oil prices and geopolitics--not environmental concerns--are the main reason.

"This is bad for Shell, but also bad for the industry and bad for the U.S.," said Oppenheimer & Co analyst Fadel Gheit, calling it among the most expensive failed ventures ever for the industry. "You have to see higher oil prices in order for companies to be tempted to go back into the Arctic." [...]

[S]ome investors weren't happy about the company's decision to move forward with a big capital expenditure in the Arctic at a time when crude prices were crashing. After the company's announcement on Monday, its stock price moved in line with its competitors.

"Investors don't want Shell to deliver more capex into Alaska," said Bernstein research analyst Oswald Clint. "I imagine investors will be OK with a $1 billion hit versus tens of billions in the future."

Mr. Clint estimated that exiting the Arctic will bring Shell's annual exploration expenses below $3 billion, a move likely to be welcomed by investors more focused on cost-cutting than reserve-building in the current price environment.

Posted by at November 8, 2015 9:31 AM