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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It's going to be back-to-school time soon, but will children go into the classrooms?
The American Academy of Pediatrics (AAP) thinks so, but only as long as safety measures are in place.
Keeping Schools Safe<p>What will safer schools look like?</p><p>In a <a href="https://jamanetwork.com/journals/jama/fullarticle/2766822" target="_blank">JAMA article</a> published last month, <a href="https://www.jhsph.edu/faculty/directory/profile/1781/joshua-m-sharfstein" target="_blank">Dr. Joshua Sharfstein</a>, a pediatrician and professor at the Johns Hopkins Bloomberg School of Public Health, outlined suggestions — many of which are similar to AAP's.</p><p>Remote learning protocols must stay in place, especially as some schools stagger home and in-building learning. If another shutdown needs to occur, children will rely on distance learning completely, so it must be easy to switch to, he said.</p><p>He suggested giving parents a daily checklist to document their child's health. Kids should be screened quickly on arrival and be given hygiene supplies. Maintenance staff should use appropriate PPE and have regular cleaning schedules. A notification system should be in place if a case is identified, Sharfstein recommended.</p><p><a href="https://www.albany.edu/rockefeller/faculty/erika-martin" target="_blank">Erika Martin</a>, PhD, an associate professor of public administration and policy at University at Albany, said nutrition assistance and health services should be included. She called for tutoring programs with virtual options as well as technology access.</p>
Supporting Staff<p>Teachers and staff will be affected by safeguarding measures, noted <a href="https://directory.sph.umn.edu/bio/sph-a-z/rachel-widome" target="_blank">Rachel Widome</a>, PhD, an associate professor of epidemiology and community health at University of Minnesota.</p><p>"In order for all of the in-school precautions to work well, we'll be asking a lot of teachers and staff," Widome told Healthline. In addition to their usual workload, they'll now be asked to monitor mask-wearing, ensure children are keeping distance, and be aware of any symptoms.</p><p>Along with Sharfstein, Widome called for an increase in financial support. More employees will likely be required so teachers and staff members can keep up with the added demands.</p>
Should Kids Go Back?<p>While these guidelines may help get some schools to reopen, many people don't think children should go back to school over fears they could contract the disease and spread it to other vulnerable family members like grandparents, infant siblings, or their parents.</p><p>In a <a href="https://pediatrics.aappublications.org/content/early/2020/07/08/peds.2020-004879" target="_blank">Pediatrics</a> commentary, <a href="https://www.md.com/doctor/william-raszka-md" target="_blank">Dr. William V. Raszka, Jr.</a>, an infectious disease specialist at The University of Vermont Medical Center, argued that schools should open because school-aged children are far less important drivers of COVID-19 than adults.</p><p>But he says the risk and benefit is not equal among all students ages 5 to 18.</p><p>"Elementary schools are arguably higher priority for face-to-face schooling, since younger children are at lower risk for infection and transmission, and since parental supervision of younger children's distance learning may be particularly challenging," added Sorensen, who penned a <a href="https://jamanetwork.com/channels/health-forum/fullarticle/2767411" target="_blank">June article in JAMA</a> with reopening tips. "That means middle and high schools are more likely to emphasize distance learning."</p><p>Specific student populations, such as special education students and students with disabilities, would also benefit greatly from more time spent in face-to-face environments, Sorensen said.</p>
What Parents Can Do<p>Parents should ask for and receive frequent updates from schools about plans for the fall. They should also be informed about plans if and when COVID infections are identified, Sharfstein said.</p><p>"I'd like to see parents investing now, during the summer, in doing things that can slow and stop the spread of the virus in their communities," Widome said.</p><p>"Now is a good time for kids to practice wearing masks and get used to them as they may be wearing them for longer stretches if school starts up in person," Widome suggested.</p><p>She recommends parents try different mask designs and materials to see what children are more comfortable wearing.</p><p>"If you are using cloth face coverings, it's good to have extras on hand," Widome added.</p><p>Parents should model healthy behavior at home and while out in public — another thing that could affect how well children adapt to reopening practices, Sorensen said.</p><p>"Children may want to know more about face coverings," added <a href="https://www.linkedin.com/in/leescott/" target="_blank">Lee Scott</a>, chairwoman of the Educational Advisory Board at <a href="https://www.goddardschool.com/" target="_blank">The Goddard School</a>. "Dramatic play, such as creating or wearing a face covering, may help some children adjust to this concept." Schools can also show children photos of what faculty members look like in their masks so the students are familiar with that appearance.</p><p>Johns Hopkins University recently released its eSchool+ Initiative, a slew of resources surrounding education during the pandemic. These include a <a href="https://equityschoolplus.jhu.edu/reopening-checklist/" target="_blank">checklist for administrators</a>, report on <a href="https://equityschoolplus.jhu.edu/ethics-of-reopening/" target="_blank">ethical considerations</a>, and a tracker of <a href="https://equityschoolplus.jhu.edu/reopening-policy-tracker/" target="_blank">state and local reopening plans</a>.</p>
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