Fools And Their Fantasies

Today, Donald Trump signs an executive order to rollback Barack Obama's environmental protection policies. Last week he re-started the Keystone XL pipeline. The pipeline, Ross Pelot writes, is another Trumpian pipedream:

Keystone’s ultimate rejection by the Obama White House never had anything to do with the environment, of course. A 2015 State Department assessment stated that “approval or denial of any one crude oil transport project, including (Keystone XL), is unlikely to significantly impact the rate of extraction in the oil sands”.

Obama didn’t actually cancel the line until the discount on Alberta crude disappeared once other pipelines were expanded to eliminate the bottlenecks. Once it was clear the line was not needed anymore, Obama announced the rejection — and polished up his environmental cred in the process.

The truth that no one wants to talk about is that the economic case for Alberta bitumen has collapsed:

When OPEC agreed to cut output, the Saudis and other cartel members cut production of the kind of crude that fetches the lowest price — heavy crude. Now Canadian heavy crude and others, like Mexican Maya, are enjoying narrower spreads versus light crude. But since Canadian heavies are increasing production because of investments that were launched before the price of crude collapsed, we are helping to undo the effect of the OPEC cuts.

Couple that with the fact that U.S. shale oil production has improved its cost efficiency — and has now risen back to production levels higher than they were this time last year — and you have the reason why crude prices have dropped back below $50 due to long supplies. The principles of supply and demand are working — and we can no longer expect substantial future growth in the oilsands.

Trump has gone bankrupt four times. Justin Trudeau praised Trump's decision to restart Keystone XL. Fools and their fantasies.