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How BP's Energy Outlook 2030 tells the story behind the end of Keystone XL

  • 19 Jan 2012, 18:27
  • Ros Donald

Republicans and the conservative press have panned Barack Obama's decision on Wednesday to deny Canada tar sands company Transcanada the right to build a pipeline connecting the two countries, labelling it a hit to job creation and energy security. 

But the market has barely noticed - with Transcanada's stock declining by just one per cent today - possibly because Obama has left open the possibility of reapplication for permission by the company. More broadly, it's unlikely that the death of the Keystone project will leave the US dependent on oil imports from further afield, as BP's Energy Outlook 2030 report, released today, suggests.

That the pipeline was essential to US energy independence was a key argument of the pro-Transcanada lobby, but it looks like it might have been a bit of a red herring.

According to pressure group Nebraskans for Jobs and Energy Independence, for example:

"The Keystone XL Pipeline is good for America. Through it, oil will flow from our good friend and neighbor Canada, to help replace the five million barrels of oil the U.S. imports daily from the Mideast and Venezuela. Every barrel that passes through Nebraska to the U.S. Gulf Coast refineries will be used to fuel America not other nations."

Republican politicians also stressed the pipeline's symbolic link to the idea of energy independence in their criticism of the decision. Says Senator Joe Manchin:

"As our country has a continued need for oil, it only makes sense to me that we would buy it from our friends in Canada, rather than continuing to buy it from countries around the world that seek to do us harm."

But BP's report exposes the extent to which such political rhetoric on the issue has become divorced from energy market reality. It highlights that the US has plenty of its own unconventional fossil fuel sources in the shape of shale gas and oil - so much so that according to the analysis, the country is on track to becoming a net energy exporter by 2030.

According to BP's report - informed by this paper - US unconventional oil supply will increase by 2.2 million barrels per day. Overall, they predict a rise of eight million barrels per day in overall oil supply from the Americas - including Brazilian deepwater oil and Canadian tar sands.

What's more, the US is expected to significantly step up production of shale gas. BP predicts "shale gas and coal bed methane (CBM) will account for 63 per cent of North American production by 2030." This also means the US could be exporting LNG by 2030.

The BP report doesn't address a key fear often expressed by environmentalists and scientific bodies like the Tyndall Centre when unconventional energy is mentioned - that reliance on the prospect of new home-grown fossil fuel sources might displace investment in renewables.

It's not that renewables aren't expanding. As this source paper says, they are set to become the fastest-growing fuel source of all, increasing by eight per cent by 2030 and outstripping natural gas use, which is expected to rise by around two per cent. In the OECD, BP predicts renewables will begin to displace oil in transport and coal in power generation.

But this is all relative - renewables are still only expected to represent a small percentage of the world's energy mix - around five per cent by 2030. Meanwhile coal - one of the biggest sources of black carbon emissions - is expected to stay steady at around a quarter of world energy output. This would present a challenge to attempts to "lighten the carbon load", as the report puts it, through energy efficiency and switching to 'cleaner' fossil fuels such as gas.

The unconventional fuel industry is still in its infancy, so it remains to be seen whether investors will depart from renewables investment to sources such as shale gas. But the BP report, for all that it is the product of a major oil company, exposes the challenge for a decarbonisation agenda. Renewable energy development faces an uphill struggle in the US, with significant weight of political opinion dedicated to the development of domestic fossil fuels over renewables. Bloomberg also notes that global investment in renewable energy sources dropped 17 per cent last year. Meanwhile, last month BP closed its solar panel manufacturing business.

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