How fracking killed Keystone (and is saving the climate)

(Photo: Andrew Caballero-Reynolds, AFP/Getty Images)

By Robert Bryce and Steven F. Hayward:

Environmentalists are correct in calling President Obama’s decision to reject the Keystone XL pipeline a “symbolic” victory, but that description is too generous. For them, it’s a Pyrrhic victory of the first order because the main factor behind Obama’s decision is something environmentalists hate even more than Keystone: hydraulic fracturing, or fracking.

But for the gusher of new oil — and the resulting drop in gasoline prices — brought about by the fracking revolution, the political cost of stopping Keystone would have been prohibitive. And while environmentalists are loath to admit it, by unlocking a vast supply of natural gas from shale deposits, fracking is also playing a key role in helping reduce carbon dioxide emissions.

The numbers tell the story. Since 2006, the U.S. has added 3.6 million barrels per day of new oil production. That’s roughly equal to the combined output of two Organization of Petroleum Exporting Countries: Kuwait and Ecuador. That surge in crude production has driven global oil prices down from more than $100 per barrel in 2014 to about $45 per barrel today.

While 350.org, Sierra Club and other groups were protesting Keystone, domestic firms were building new pipelines to handle the surge in crude production. Since 2010, the U.S. has added about 12,000 miles of new oil pipelines. That’s more than 10 times the length of the contested section of Keystone XL, which was to span 875 miles.

Blocking Keystone hasn’t prevented Canadian oil from coming into the USA. Back in 2008, when the pipeline was proposed, the U.S. was importing 2.5 million barrels of oil per day from Canada. By August of this year, it was 3.9 million barrels per day. In other words, since 2008, just the increase in Canadian oil coming to the USA amounts to more than 1.5 times the capacity of Keystone XL, which was designed to carry 830,000 barrels a day.

Economics, not politics, will decide the fate of Canada's tar sands. Energy analysts at Wood MacKenzie recently estimated that $200 billion in oil and gas investments in 45 projects around the world were being delayed due to low prices. About $60 billion of those planned investments were slated for oil sands projects. Just last month, Royal Dutch Shell announced it was halting its Carmon Creek oil sands project in Alberta due to low oil prices.

Our newfound ability to extract hydrocarbons from shale has also been a net win in the effort to cut carbon dioxide emissions. Again, the numbers tell the tale. In August, U.S. natural gas production hit nearly 91 billion cubic feet per day. That’s an increase of about 27 billion cubic feet per day since August 2006. That increase is roughly equal to the combined gas output of three OPEC members: Algeria, Iran and Venezuela.

The surge in domestic production of low-cost natural gas is displacing coal in electricity generation, with the result that coal (which emits about twice as much carbon dioxide as gas during combustion) now provides about 30% of domestic electricity, down from 44% five years ago. In fact, without the surge in domestic natural gas production, the Obama administration’s controversial Clean Power Plan would be essentially impossible to implement.

The lesson for climate change is obvious: Innovation is the key to moving from dirtier fuels to cleaner ones. Some environmentalists despair that this means there’s nothing governments can do on climate. But the truth is that the federal government helped create the fracking revolution. Forty years of Department of Energy funding and research and development, as well as favorable tax policies (such as the depletion allowance and the deduction for intangible drilling costs) helped set the stage.

If we want to keep oil (and coal) in the ground, we need to make other forms of energy cheaper. That means nurturing technologies such as natural gas extraction. It also means promoting another technology that environmentalists love to hate: nuclear energy.

The essential point here is that America has, as President Obama said last week, established itself as the global leader in cutting carbon dioxide emissions. And that leadership is due to hydraulic fracturing and other technologies that have made clean-burning natural gas cheaper.

As politicians from around the world prepare to meet in Paris for the latest round of climate talks, their focus should be on spreading the fracking revolution worldwide. Their goal should not be making energy more expensive. Instead, it should be making cleaner energy cheaper.

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