Killing Keystone Softly

Wikipedia:

The Fabian strategy is a military strategy where pitched battles and frontal assaults are avoided in favor of wearing down an opponent through a war of attrition and indirection. While avoiding decisive battles, the side employing this strategy harasses its enemy through skirmishes to cause attrition, disrupt supply and affect morale. Employment of this strategy implies that the side adopting this strategy believes time is on its side, but it may also be adopted when no feasible alternative strategy can be devised.

On tuesday President Obama’s press secretary signaled that the POTUS would veto congressional bills aimed at jumpstarting the blocked Keystone pipeline project.
In  the several years while this  process has ground on, a number of factors critical to the success of the pipeline have been in flux. Public awareness of global climate change is increasing, and although nationally, most polls show approval for the idea of a pipeline, much of that has been related to the idea that a pipeline was needed to lower gasoline prices. Now those prices have come down, for a number of (most likely temporary) reasons.

I’ve argued that the extreme volatility in oil prices is an achilles heel of the fossil fuel industry.  The uncertainty around fuel prices, in an era when alternatives are increasingly available, hastens the adoption of those renewable alternatives.  The hapless boobs who are running out to buy SUVs during this hiatus will make good cautionary examples when the whipsaw of prices catches up in 18 months or so.
But for investors expected to pony up billions for this supposedly indispensable energy lifeline, uncertainty is poisonous.

Toronto Globe and Mail:

The first thing Canadians should recognize about the new world order for oil prices is that – contrary to what we’re being told by our federal government – the economy is no longer in dire need of any new pipelines. For that matter, it can live without the new rail terminals being built to move oil as well. Yesterday’s transportation bottlenecks aren’t relevant in today’s marketplace.

At current prices there won’t be any massive expansion of oil sands production because those projects, which would produce some of the world’s most expensive crude, no longer make economic sense.

The recent spate of project cancellations by global oil giants – Total’s Joslyn mine, Shell’s at Pierre River, and Statoil’s Corner oil sands venture – is only the beginning. As oil prices grind lower, we can expect to hear about tens of billions of dollars of proposed spending that will be cancelled or indefinitely postponed.

Not long ago, the grand vision for the oil sands saw production doubling over the next 20 years. Now that dream is in the rear-view mirror. Rather than expanding production, the industry’s new economic imperative will be attempting to cut costs in a bid to maintain current output.

 Carbon Brief:

It’s not just renewables that are potentially threatened by low oil prices, however. Falling prices also threaten some fossil fuel industry investments.

Energy companies have turned to harder-to-reach sources of oil, such as the Arctic or the Canadian tar sands, as conventional wells dry up. The Carbon Tracker Initiative, a thinktank, suggests the oil price needs to be around $95 a barrel to make such risky investments worthwhile. That’s much higher than the current price of around $50 a barrel.

A low oil price could also disrupt the fracking industry. The North American shale boom led to a glut of new oil on the market, driving down prices. Saudi Arabia, OPEC’s leading player, could potentially cut its production to reduce supply and help the price rebound. But it’s not keen on doing this, as it would mean helping out its new and traditional economic rivals, such as the US, Russia and Iran.

Climate policies

One of the major drivers of renewables’ growth in recent decades has been policymakers’ recognition that countries need to curb emissions to tackle climate change. While the prospect of major climate action may not be enough to encourage continued investment on its own, it could help to secure the renewable industry’s long-term future.

The oil price slump presents an opportunity for countries to implement policies that bolster the world’s efforts to decarbonise, the IEA says. Now is the time to cut fossil fuel subsidies and implement a carbon tax, it argues, as the low oil price reduces the policies’ effect on consumers. Both policies would help cut emissions and keep renewables competitive in the long-run.

Renewable generators also argue that because sunlight and wind are free, they can help insulate countries from the kind of economic shocks the oil price shift has caused.

So while falling oil prices may threaten renewables in the short-term, climate policies have the potential to act as a counterweight, encouraging long-term, low carbon, investment.

Barrons:

The price of oil is plunging–and the shares of producers with it–after Opec decided not to cut production yesterday. Wolfe Research’s Paul Sankey and team think this is the beginning of the end for oil:

This is going to be volatile, and we can’t understand how that helps the Saudis. Volatility sells Teslas (TSLA). There seemed to be a clear degree of irritation in Saudi oil minister Al-Naimi’s comments to the crush of journalists; as ever, he had front run his position: no real cut because as he said, he expects the market “to stabilise itself eventually“. He is wrong…

We don’t think that global oil demand will significantly react to lower oil prices, and thus we think the market will clear at the point of US supply growth destruction. That will take six months to work through, at which point we will likely hit a significant slowdown in US oil production growth, falling Russian production, deteriorating OPEC member stability – notably in Venezuela, Nigeria, and of course Libya – and rising global demand. So we go low, to storage economics (likely $50/bbl WTI) in Q1 2015 and then squeeze supply. And then we squeeze radically higher. As a result, the world accelerates its move away from oil. The conclusion will be, OPEC, like Rockefeller, ultimately damned itself.

NASDAQ-December 22:

In its weekly release, Houston-based oilfield services company Baker Hughes Inc. (BHI) reported a heavy fall in the U.S. rig count (number of rigs searching for oil and gas in the country) – the second such decline in succession.
This can be attributed to cutbacks in the tally of both oil and gas-directed rigs. In particular, oil rig count dropped to the lowest level since May, as crude prices remained below $60 per barrel on plentiful supplies and lackluster demand expectations.