Coincidence? Massive tar sands mine put on hold as stalled tar sands pipelines like Keystone XL choke industry
Yesterday, a major tar sands company Total E&P – who is also a confirmed shipper for the proposed and now delayed Keystone XL tar sands pipeline – announced it would put on hold indefinitely its plans for the massive tar sands Joslyn mine. The company said the economics for the $11 billion plan no longer added up. Over its lifetime, the tar sands mine would have pumped hundreds of millions of metric tons of carbon pollution into the air equivalent to putting 2.4 million cars on the road for 45 years according to Oil Change International. This announcement severely undercuts oil industry arguments that the expansion of tar sands development is unavoidable. In fact, there is clear and compelling evidence that the growth of the tar sands industry is directly linked to the availability of pipelines like Keystone XL. It is why the State Department must reject tar sands pipeline projects like Keystone XL because they it would directly enable the growth of the carbon polluting tar sands industry.
The plans for the Joslyn tar sands mine were approved by the Government of Canada in 2011 and would have produced 874 million barrels of bitumen over its life span (production rate of 100,000 barrels/day). The mine would have commenced production in 2020. The announcement to indefinitely suspend the project came only a few months after the process for the proposed Keystone XL tar sands pipeline was put on hold as the State of Nebraska resolves legal issues over the route of the pipeline through the state. Was this a coincidence? Perhaps not. Total E&P is a confirmed Keystone XL shipper and the costs of transporting tar sands is an integral indicator to determine whether a tar sands operation is profitable given the industry is landlocked and critically dependent on transport to move its product to markets.
This announcement should have a direct bearing on the State Department’s evaluation of whether Keystone XL is in the national interest. Instead of assuming the tar sands industry will have no problem expanding with or without Keystone XL (a conclusion that was unfortunately made in the State Department’s environmental review) this announcement should wake up the Obama administration to the fact Alberta’s tar sands industry is likely very dependent on cheap pipeline infrastructure to grow.
Overall, the tar sands industry is facing multiple economic challenges. It is currently facing rising labor costs and shortages of workers as well as a significant discount for the low grade tar sands oil. Industry has behind closed doors complained of how economically marginal it is to develop tar sands projects. These factors combined with limited avenues for tar sands pipeline – favored by industry as far less expensive than rail – have made tar sands production more risky. Total E&P CEO Andre Goffart confirmed this challenge for the entire tar sands industry, “As a general comment, I would say that Joslyn is facing the same challenge as most of the industry worldwide in the sense that costs are continuing to inflate when the oil price and specifically the netbacks for the oilsands are stable at best, squeezing the margins.”
The announcement has been welcome by Canadian organizations who have long opposed the project based on its environmental impacts have welcomed the news. Greenpeace campaigner Mike Hudema said, “This project would create over 12.5 billion litres of toxic tailings waste per year after it was fully producing and, of course, it would also contribute greenhouse gas emissions.”
Hannah McKinnon of Environmental Defence Canada was quick to point out it was no coincidence this announcement was made shortly after the Keystone XL process. “Tar sands are high cost, high risk, and high carbon. Josyln North’s mothballing is the latest in a developing trend that doesn't bode well for the industry's future. The economics of the tar sands are marginal today. And in a carbon constrained world, they become increasingly unviable.”
In the end, there are any number of reasons why a massive expansion of the tar sands industry doesn’t make sense in a world where we are aiming to limit carbon pollution and fight catastrophic climate change. Right now, the tar sands industry wants to triple production until 2020 and then eventually quintuple production in the longer term. But one of the key determinants to that growth is the availability of pipeline infrastructure like massive pipelines like Keystone X. We have seen clear and transparent evidence that the lack of new tar sands pipeline (an outgrowth from massive public opposition in Canada and the United States) is preventing industry from building new mines. It is time the Obama administration recognizes this and understands that its decision over the Keystone XL tar sands pipeline will have a direct bearing on the future growth of this carbon polluting industry.