Halving The Price Of Oil Makes Keystone XL More Important, Not Less
http://www.forbes.com/sites/timworstall/2015/01/11/halving-the-price-of-oil-makes-keystone-xl-more-important-not-less/
1/11/2015
...The basic economic concept here is that the transport costs of that oil drive a wedge between the production at the wellhead (OK, tar pit, not wellhead) price and the market price. As the global price of oil falls that wedge becomes a larger portion of that total price.....
Let’s just invent some numbers here in order to illustrate the problem. Oil is at $100 a barrel when delivered to the refinery. It costs $40 to produce it in Alberta, $30 to ship it by rail and $5 if the pipeline were built. Yes, they are entirely made up numbers (although not a million miles from reality) just in order to illustrate the decision making process.
So, at that market price of $100 the oil will be produced with or without the pipeline. There’s a $30 profit in each barrel even after paying for rail transport. Now we halve the price to $50 at the refinery. All other costs stay the same. Well, if it costs $40 to produce and $30 to ship then obviously, after a winding down period, none will be produced and none will be shipped (we’ll ignore sunk costs and so on here)....
Now think of what happens if Keystone XL is built. The mining of the tar sands goes on because it’s now $45 in total to do so and deliver but $50 can be earned by doing it....
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As he owns the trains currently carrying this oil, Warren Buffett still doesn't think it's a good idea, and he's a major Obama campaign contributor, so Obama's veto will prevent it from ever happening.