Editor's Note: Our energy industry insider - who for professional reasons must remain anonymous - yesterday explained how the Keystone XL Pipeline debate is largely a political football. Today, he advances his controversial exposé of Keystone in the context of today's cheap oil, and whether the project would do more harm than good. This shows how energy investors should position their portfolios to reap the best returns at the lowest risk.
To understand the logic behind the Keystone XL pipeline requires a trip back in time. When Keystone and its associated 830,000 barrels of oil per day were announced in 2008, U.S. crude production was at lows generally not seen since 1950 - right around 5 million barrels per day.
Meanwhile, U.S. oil imports were rampant, near their all-time highs of 10 million barrels a day.
Worse yet, over half of U.S. imports, again a near-record high of 5.6 million barrels per day, came from countries that don't like us very much (i.e., OPEC).
In a nutshell, the U.S. oil and gas industry was in decline, without much hope for a real renaissance. We were meeting a whopping two-thirds of our appetite for oil with imports, and over half of those imports were coming from potentially unstable, if not outright hostile, nations.
In that context, Keystone looked like a great idea.
Decisions based on these assumptions - such as the decision to green-light Keystone - seem in retrospect to be perfectly reasonable. Unfortunately for the project and the economy at large, the energy industry has since changed dramatically.