If Tar Sands Aren’t Sustainable Then Neither is Keystone

The Alberta Tar Sands in Canada that are creating all sorts of controversies in the U.S. over the building of the Keystone Pipeline are not sustainable, but for reasons few people think of. They are not economically sustainable.

Consider this picture of the tar sands:
Tar Pit #3

It is incredibly energy intensive to extract this sticky mass that has to be mixed with diesel fuel just to get it into tanker cars and pipelines. Before the recent OPEC price wars, estimates were a return on energy investment of about 10:1. That means for every dollar spent extracting tar, the gross profit was $10. Compare that to 93:1 for Alyeska – the Alaskan Oil drilling. Since the OPEC price wars, the gross profit for tar sands has dropped to $7 for every dollar spent. If OPEC (an Oligopoly) puts any more downward pressure on the price of oil, the Tar Sands will simply go bankrupt. After all, how far would YOU go to make $7?

That’s not all. That’s GROSS profit. If we use the Douglas-Cobb production equation, $4.90 would have to go back into production of more tar, leaving $2.10 in net profits. How far would YOU go for $2.10? Apparently not stock holders, where the stock prices for Athabasca, the company that owns the tar sands, are very closely mirroring the loss on ROI:

ATH-T (Toronto Exchange) $ 3.10 (as of Nov 21, 2014)

Change: 0.08 (2.65%)
Volume: 3,049,826
Day Low 3.055
Day High 3.14
52 Week Low 2.78
52 Week High 8.84

Their stock started tanking in September, about the same time that the OPEC price wars began. Certainly not the thing that capitalist dreams are made of.

Key in Keystone. Somehow, the United States has forgotten that Canada has a lot of problems in building a pipeline themselves. Aboriginal land claims, and treaties with First Nations people (what Canada calls Native Americans) have blocked pipelines in Canada. For some reason, First Nations people don’t want tar flowing through their land. In response, the Harper government has accused First Nations people of being environmental “terrorists,” and “radical groups,” even though there has not been a single act of mass violence; just an assertion of treaty rights in the courts. So Keystone in Canada still isn’t a sure thing.

Yet many politicians on both sides in the U.S. seem to think that Keystone is worth building. They cite numbers that are completely outrageous, and come up with new justifications every day. Yet they have refused to a) recognize that Keystone is economically unsustainable, and that b) Canada can’t even legally build their own pipeline because it turns out it would violate the rights of hundreds of thousands of people’s who have constitutional protection in Canada. Keystone in the U.S. would simply be a pipeline from nowhere.

And this is all without the externalities of pollution, the impossible task and cost of remediation, and all that.

Let’s not forget that public taxpayer money would be used for Keystone on both sides of the border, which (theoretically) is supposed to provide a public good. Yet if the tar sands are not sustainable, then neither is Keystone. Which will beg the question of what public good will the taxpayers have received from a near-idle pipeline, as opposed to say…highways and sewers?

This entry was posted in Economics, Environment, Markets, Politics, Public Policy. Bookmark the permalink.

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