New Keystone XL Report Calls Pipeline A Mirage for Tar Sands Investors
New research from the Carbon Tracker Initiative reveals approval of the controversial Keystone XL pipeline would only have a marginal positive impact of the economics of the Canadian oil-sands industry, but could trigger a rush of investment into additional risky high-cost, high-carbon projects, dependent on rising oil prices.
The report, Keystone XL Pipeline: A Potential Mirage for Oil-sands Investors, shows "new Canadian oil-sands development is increasingly economically questionable without the additional export capacity that pipelines such as Keystone XL would bring," says Mark Lewis, external research advisor to Carbon Tracker. "But the vision of improved prices it promises could quickly be wiped out by increasing costs, meaning investors who believed the mirage of improved oil-sands economics with KXL will be left disappointed."
"Efforts to stay within a carbon budget, increase fuel efficiency, reduce costs and improve air quality mean that if capital continues to flow into oil sands, the projects risk becoming stranded assets," says Carbon Tracker’s research director, James Leaton.
Questionable Project Economics
Oil sands in situ projects currently under consideration need above $65/barrel net-present value to break-even according to Rystad Energy. Given the discounted price Western Canada Select output achieves, these projects will not produce a profit.
Keystone XL will enable oil sands production to achieve higher prices—perhaps equivalent to the current Maya (Mexican heavy crude) price or WTI price achieved on the U.S. Gulf Coast, generating a $20/barrel price uplift.
However, it is not clear that the margin will improve given the cost increases that will accompany the uplift in price. Production with Keystone XL will incur greater pipeline transit and diluent costs reducing this uplift to around $5.5/barrel. This leaves only a few dollars margin to absorb other factors such as potential carbon offset costs, likely inflation in labor, materials and energy costs.
This makes it questionable that the margins will improve sufficiently to make even the lowest cost $65/barrel projects provide sufficient returns for investors. Investment in heavy oil refining capacity will also need to be factored in if production increases.
The economics of rail are no more promising than Keystone XL. It is not clear that sufficient commitments are in place to utilise new capacity at the current cost levels. The volumes that could be brought on stream are also not likely to be equivalent to the time and scale of a pipeline such as Keystone XL.
Keystone XL and rail are additional export routes to the current limited infrastructure. The export capacity is the limiting factor to production—which the industry body figures show could utilize all mooted pipeline routes and increased rail capacity. Keystone XL would mean more production sooner, which is evidenced by analysts giving oil sands producers higher valuations with Keystone XL.
However, as co-advisor Mark Fulton says, "KXL will improve revenues in the short-term which means that it will help catalyse new investment, more oil-sands production and additional greenhouse gas emissions."
This is confirmed by the Canadian government offering to offset these emissions, which further undermine Keystone XL’s economic benefit.
Access to More Capital
Keystone XL-enabled production will mean more revenues for oil sands producers, which will improve the market’s view of the value and creditworthiness of the companies. This will help them access capital, or reduce its cost, which will facilitate further investment in the oil sands, leading to more production and therefore more emissions. However, this in turn will put upward pressure on costs in Alberta, and soon exhaust the additional transportation capacity the pipeline would provide, further depressing prices.
Keystone XL constitutes a mirage that may tempt investment in greater production in search of higher margins, which are not likely to materialize without continued upward movement in oil prices. Keystone XL could provide some temporary relief to oil sands export constraints, which will stimulate the cycle of investment again, which either will lead to increased emissions or stranded assets in the future.
The analysis follows Carbon Tracker’s recent collaboration with CERES to co-ordinate a group of large investors to engage with companies on stress-testing their capital expenditure plans against a range of price and emissions scenarios. With the context of these considerations, Leaton notes that, "oil sands are high-cost, high-carbon projects, being proposed at a time when both costs and emissions are under pressure to shrink; as such they should immediately hit an investor’s higher-risk screen."
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Wisdom the mōlī, or Laysan albatross, is the oldest wild bird known to science at the age of at least 70. She is also, as of February 1, a new mother.
<div id="dadb2" class="rm-shortcode" data-rm-shortcode-id="aa2ad8cb566c9b4b6d2df2693669f6f9"><blockquote class="twitter-tweet twitter-custom-tweet" data-twitter-tweet-id="1357796504740761602" data-partner="rebelmouse"><div style="margin:1em 0">🚨Cute baby alert! Wisdom's chick has hatched!!! 🐣😍 Wisdom, a mōlī (Laysan albatross) and world’s oldest known, ban… https://t.co/Nco050ztBA</div> — USFWS Pacific Region (@USFWS Pacific Region)<a href="https://twitter.com/USFWSPacific/statuses/1357796504740761602">1612558888.0</a></blockquote></div>
By Hui Hu
Winter is supposed to be the best season for wind power – the winds are stronger, and since air density increases as the temperature drops, more force is pushing on the blades. But winter also comes with a problem: freezing weather.
Comparing rime ice and glaze ice shows how each changes the texture of the blade. Gao, Liu and Hu, 2021, CC BY-ND
Ice buildup changes air flow around the turbine blade, which can slow it down. The top photos show ice forming after 10 minutes at different temperatures in the Wind Research Tunnel. The lower measurements show airflow separation as ice accumulates. Icing Research Tunnel of Iowa State University, CC BY-ND
While traditional investment in the ocean technology sector has been tentative, growth in Israeli maritime innovations has been exponential in the last few years, and environmental concern has come to the forefront.
theDOCK aims to innovate the Israeli maritime sector. Pexels<p>The UN hopes that new investments in ocean science and technology will help turn the tide for the oceans. As such, this year kicked off the <a href="https://www.oceandecade.org/" target="_blank" rel="noopener noreferrer">United Nations Decade of Ocean Science for Sustainable Development (2021-2030)</a> to galvanize massive support for the blue economy.</p><p>According to the World Bank, the blue economy is the "sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of ocean ecosystem," <a href="https://www.sciencedirect.com/science/article/pii/S0160412019338255#b0245" target="_blank" rel="noopener noreferrer">Science Direct</a> reported. It represents this new sector for investments and innovations that work in tandem with the oceans rather than in exploitation of them.</p><p>As recently as Aug. 2020, <a href="https://www.reutersevents.com/sustainability/esg-investors-slow-make-waves-25tn-ocean-economy" target="_blank" rel="noopener noreferrer">Reuters</a> noted that ESG Investors, those looking to invest in opportunities that have a positive impact in environmental, social and governance (ESG) issues, have been interested in "blue finance" but slow to invest.</p><p>"It is a hugely under-invested economic opportunity that is crucial to the way we have to address living on one planet," Simon Dent, director of blue investments at Mirova Natural Capital, told Reuters.</p><p>Even with slow investment, the blue economy is still expected to expand at twice the rate of the mainstream economy by 2030, Reuters reported. It already contributes $2.5tn a year in economic output, the report noted.</p><p>Current, upward <a href="https://www.ecowatch.com/-innovation-blue-economy-2646147405.html" target="_self">shifts in blue economy investments are being driven by innovation</a>, a trend the UN hopes will continue globally for the benefit of all oceans and people.</p><p>In Israel, this push has successfully translated into investment in and innovation of global ports, shipping, logistics and offshore sectors. The "Startup Nation," as Israel is often called, has seen its maritime tech ecosystem grow "significantly" in recent years and expects that growth to "accelerate dramatically," <a href="https://itrade.gov.il/belgium-english/how-israel-is-becoming-a-port-of-call-for-maritime-innovation/" target="_blank" rel="noopener noreferrer">iTrade</a> reported.</p><p>Driving this wave of momentum has been rising Israeli venture capital hub <a href="https://www.thedockinnovation.com/" target="_blank" rel="noopener noreferrer">theDOCK</a>. Founded by Israeli Navy veterans in 2017, theDOCK works with early-stage companies in the maritime space to bring their solutions to market. The hub's pioneering efforts ignited Israel's maritime technology sector, and now, with their new fund, theDOCK is motivating these high-tech solutions to also address ESG criteria.</p><p>"While ESG has always been on theDOCK's agenda, this theme has become even more of a priority," Nir Gartzman, theDOCK's managing partner, told EcoWatch. "80 percent of the startups in our portfolio (for theDOCK's Navigator II fund) will have a primary or secondary contribution to environmental, social and governance (ESG) criteria."</p><p>In a company presentation, theDOCK called contribution to the ESG agenda a "hot discussion topic" for traditional players in the space and their boards, many of whom are looking to adopt new technologies with a positive impact on the planet. The focus is on reducing carbon emissions and protecting the environment, the presentation outlines. As such, theDOCK also explicitly screens candidate investments by ESG criteria as well.</p><p>Within the maritime space, environmental innovations could include measures like increased fuel and energy efficiency, better monitoring of potential pollution sources, improved waste and air emissions management and processing of marine debris/trash into reusable materials, theDOCK's presentation noted.</p>
theDOCK team includes (left to right) Michal Hendel-Sufa, Head of Alliances, Noa Schuman, CMO, Nir Gartzman, Co-Founder & Managing Partner, and Hannan Carmeli, Co-Founder & Managing Partner. Dudu Koren<p>theDOCK's own portfolio includes companies like Orca AI, which uses an intelligent collision avoidance system to reduce the probability of oil or fuel spills, AiDock, which eliminates the use of paper by automating the customs clearance process, and DockTech, which uses depth "crowdsourcing" data to map riverbeds in real-time and optimize cargo loading, thereby reducing trips and fuel usage while also avoiding groundings.</p><p>"Oceans are a big opportunity primarily because they are just that – big!" theDOCK's Chief Marketing Officer Noa Schuman summarized. "As such, the magnitude of their criticality to the global ecosystem, the magnitude of pollution risk and the steps needed to overcome those challenges – are all huge."</p><p>There is hope that this wave of interest and investment in environmentally-positive maritime technologies will accelerate the blue economy and ESG investing even further, in Israel and beyond.</p>
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