Lost in all the hubbub over whether Obama is siding with the oil barons or the environmentalists on the plan to pipe Athabascan tar sands muck down to Houston is the economic fact that the window of profitability for the stuff is rapidly shrinking.
As most informed persons know, the muck’s eventual destination was never American gas tanks, but foreign — especially Chinese — ones. However, the stuff is too expensive to extract for it to be profitably shipped overseas in anything less than supertanker loads, and Canada’s western coast has no ports capable of docking supertankers. Even if it did, the First Nations peoples won’t let anyone hack through their lands and forests to get a pipeline — which is the only way the stuff can be profitably transported on land — to the British Columbia ports. That’s why crossing the border to get to Houston, with its supertanker-capable ports, is key.
But for this whole scheme to stay profitable, oil prices have to stay above $90 a barrel. As this oil price tracker shows, the price per barrel crashed well below that point when the US real estate and banking bubble’s popping took the US (and world) economy down with it in September of 2008, and prices stayed well below $90 a barrel until March of 2011. Only after oil prices consistently topped $90 a barrel did the TransCanada folks start talking heavily to the US mass media about Keystone XL.
Now we have word that the Chinese real estate bubble is popping:
The mainland property market is in meltdown and the damage is spreading, not only to consumers but across the mainland’s economy and, perhaps, internationally as well.
Since last year, Beijing has sought to burst what it saw as a dangerous bubble, which was pushing home prices beyond the reach of the middle class. It did so by initiating a series of tough measures to restrict bank lending and a crackdown on speculation.
As a result, sales have slumped by as much as 70 per cent, triggering a mainland-wide price war among major developers desperate to raise cash amid a credit crunch. Many are not expected to survive the shakeout.
This is having ripple effects throughout the Chinese economy. Steel suppliers in and out of China are adversely affected, since new construction accounts for 29% of China’s steel output and 15% of the world’s total steel output. Concrete, copper, and other construction-connected businesses in and out of China are also affected.
Municipalities and other local governments, which typically depend on land sales for a good chunk of their revenue, have sustained a hard blow just as they were struggling out of the long recession. Angry home and property owners suddenly find themselves “underwater”, or with negative equity, just as many if not most US homeowners have over the past five years.
The effects of the bubble’s popping will be to markedly slow the Chinese economy, if not stop it outright. That means that there will be less demand for oil, just as there was less demand during 2009 in the depths of the recession. That means that world oil prices will soon be dropping again.
And that means there won’t be any way to sell the tar sands muck to anyone and make a profit on it.