Will crude oil prices go low enough and for long enough to become the final nails in the coffin of the Keystone XL pipeline?

Soaring production in the United States, slack international demand and increased fuel efficiency have produced a glut in the past few weeks that has left the benchmark WTI grade bouncing around $80 a barrel. Futures markets are pointing even lower and some analysts, most recently Goldman Sachs, are predicting a price of $75 or even less in the months ahead.

Already, Canadian tar sands producers appear likely to put off at least some of the new projects they had on the drawing board.

This slackening of Canadian production would seem to lessen the urgency of opening up the Alberta-to-Texas Keystone XL tar sands line, which has been delayed for years.

But it is also true that in a world of cheaper oil, the industry would need the Keystone XL more than ever. Without it (or some other pipeline to export markets) the Canadians' only shipping alternative to move its landlocked product would be costlier rail transport.

Just ten months ago, the State Department, brushing off the possibility of cheaper oil, found that the Keystone XL would have little impact on Canada's tar sands oil production—and by implication, little effect on greenhouse gas emissions. As long as oil prices stayed high enough, the reasoning went, the industry could afford to ship its output by rail to the Gulf Coast markets that the Keystone XL is intended to serve.

But the market analysis in that final environmental impact statement acknowledged that if oil prices went below $75 for a long time, the Keystone XL would indeed become a crucial factor for expanding the tar sands enterprise. And in that case, however unlikely, the report said the pipeline would enable a significant increase in emissions of greenhouse gases.

In other words, low oil prices mean the Keystone XL fails the Obama administration's carefully hedged litmus test, set by the president himself when he said in June 2013 the pipeline's impact on climate change would be the deciding factor in whether to approve the project.

Ever since, the administration has been delaying that final decision.

In the meantime, the price of oil has done exactly what the State Department's analysis said was highly unlikely—it has fallen by nearly 25 percent, and is now just at the point where the tar sands operators, among the highest-cost producers of oil in the world, are starting to feel the pinch.

Here's what the State Department's dense, detailed market analysis said on the subject back in January, when the department issued its final environmental impact statement on the Keystone XL project. At the time, the benchmark West Texas Intermediate (WTI) grade of crude was near $100 a barrel. Tar sands crude trades at a discount to WTI, both because it is dirtier and because of transportation constraints.

"Above approximately $75 per barrel for West Texas Intermediate (WTI)-equivalent oil, revenues to oil sands producers are likely to remain above the long-run supply costs of most projects responsible for expected levels of oil sands production growth. Transport penalties could reduce the returns to producers and, as with any increase in supply costs, potentially affect investment decisions about individual projects on the margins. However, at these prices, enough relatively low-cost in situ projects are under development that baseline production projections would likely be met even with constraints on new pipeline capacity. Oil sands production is expected to be most sensitive to increased transport costs in a range of prices around $65 to $75 per barrel. Assuming prices fell in this range, higher transportation costs could have a substantial impact on oil sands production levels— possibly in excess of the capacity of the proposed Project—because many in situ projects are estimated to break even around these levels. Prices below this range would challenge the supply costs of many projects, regardless of pipeline constraints, but higher transport costs could further curtail production."

Environmental groups challenged some of the technical reasoning about tar sands costs, but they embraced the central idea: At lower oil prices, the pipeline was especially significant in terms of expanding tar sands production, and hence greenhouse gas emissions.

"Tar sands only makes sense in a world of high oil prices," said Anthony Swift, the Natural Resources Defense Council's resident expert on Keystone XL economics. "We're in a world where cheap transportation by pipeline makes or breaks even the cheapest tar sands project."

That's not necessarily the case for the American drilling boom, which is producing more new oil each year than the KXL would carry. At today's price, according to the Energy Department, almost all drilling in Texas and North Dakota will at least break even.

Those ample supplies flowing from American oil fields, increasing each year at a rate of a million barrels a day, are just one factor; OPEC's decisions are another, and are thought unlikely to prop up prices. What Washington decides to do about allowing crude oil exports is a third; the Government Accountability Office recently said lifting the ban would probably reduce world prices, while increasing greenhouse gas emissions.

Ultimately, the need to deeply cut consumption of all fossil fuels in order to cut emissions and head off the biggest risks of climate change can only put downward pressure on oil prices. A comprehensive treaty committing the whole world to rapid, deep cuts in emissions of carbon dioxide, leading later in this century to a zero-carbon economy, would mean an end to the world's ever-growing thirst for oil.

That would seem to be not just a nail in the coffin, but a stake in the heart for any project that depends on ever-increasing oil prices.