Why Keystone will Raise Gas Prices
March 8, 2012
“I’ll get us that oil from Canada,” Mitt Romney said in his victory speech after the Michigan primary. He was referring to Keystone XL, the crude-oil pipeline that has become a top-tier campaign issue for Republicans.
Problem is, the tar-sands oil in that pipeline wouldn’t be coming to “us.” It would go directly from Canada to refineries in the Gulf region en route to export markets in Latin America and Europe. The U.S. would be used as little more than a transit corridor.
We’ve heard a lot about groundwater contamination near the completed portions of the pipeline — more than a dozen spills of the highly corrosive oil, including one near Kalamazoo, Michigan, that they can’t seem to clean up. Conservative Nebraskans became greens overnight when they learned the details of the project that will go through their state.
But the immediate effect of completing the Keystone pipeline (perhaps by 2015) is more surprising and counterintuitive.The project would increase domestic oil prices by more than $6 a barrel and prices at the pump in parts of the country by about 20 cents a gallon. You read that right. At a time when rising gas prices threaten President Barack Obama’s re-election, the Republicans’ most ballyhooed remedy — a new pipeline — would make the problem worse.
TransCanada’s plan to jack up oil prices is hiding in plain sight. In the appendix to its application to the Canadian National Energy Board (helpfully provided to me by the Natural Resources Defense Council), the company brags that its project is “expected to realize an increase in the heavy crude price of approximately $3.00 per barrel by avoiding a discount” at the U.S. Gulf Coast. The market price of heavy crudes should rise an additional $3.55 per barrel when the new pipeline “relieves the oversupply situation in the Midwest.”
That oversupply, which holds down prices, is a result of more oil flowing south from Canada into Midwestern refineries. (It used to flow north from the Gulf region, which was more expensive.) The Canadians “propose building the Keystone line to go around Midwest refineries,” says Philip Verleger, an oil industry consultant and professor at the University of Calgary.
John Kilduff, an oil analyst at Again Capital, reminds me that eventually the supply bottlenecks (most famously in Cushing, Oklahoma) will ease, the oil will flow, and sharply increased supply from Canada will push down global oil prices.
Maybe so, but in the meantime the Keystone XL pipeline has become just another example of Republican hype. Like the false claim that Obama is hostile to oil leasing (in truth, he has greatly expanded it) and intent on putting the industry out of business (so why the record profits?), this debate feeds dangerous myths about our energy future.