Keystone XL Gas Price Myth Busted
This report finds that Keystone XL would reduce gasoline supplies in America by diverting Canadian tar sands crude from the Midwest to the Gulf Coast, blowing apart the tar sands industry’s claims that building the Keystone XL pipeline would lower gasoline prices in America.
NRDC, Oil Change International and ForestEthics Advocacy released a report today, “Keystone XL: A Tar Sands Pipeline to Increase Oil Prices,” that blows apart the tar sands industry’s claims that building the Keystone XL pipeline would lower gasoline prices in America. The report lays out how Keystone XL would reduce gasoline supplies in America by diverting Canadian tar sands crude from the Midwest to the Gulf Coast.
The findings show that the industry mantra, “more supply = lower prices” just doesn’t play out when it comes to the way the oil industry is configured today. The mantra should actually read, more pipelines = more profits. Building Keystone XL will likely raise gasoline prices in America for the following reasons.
The pipeline would not add to oil supply coming into America for at least 15 years. This is because there is currently around 2 million barrels per day of spare pipeline capacity between Canada and the United States. Keystone XL would therefore divert oil that would have been processed in the Midwest to the Gulf Coast.
The Gulf Coast produces less gasoline per barrel of oil than the Midwest. Midwest refineries are configured to produce much more gasoline from a barrel of crude and over 90% of the gasoline produced in Midwest refineries stays in the United States. Gulf coast refineries are configured to produce more diesel than gasoline. The majority of gasoline and diesel produced in Gulf Coast refineries is exported.
Midwest refineries have been enjoying discounted crude oil prices for the past 18 months. This is due to the glut of Canadian and American oil in the region. The stated purpose of Keystone XL is to relieve that glut and raise the price tar sands producers receive for their oil both in the Midwest and in Canada. Midwest refineries will pay more for their crude and will either pass on the cost to consumers or reduce their production, which eventually will have the same effect.
So put simply, Keystone XL moves existing crude oil supply from refineries that have been producing gasoline predominately for the US market to refineries that are predominately producing diesel for the export market. This will lower the amount of gasoline produced in America, raise the price Midwest refineries pay for crude oil and lead to higher gasoline prices.
None of this should be a surprise. The industry has no interest in lowering gas prices, why should it? It has for a long time enjoyed a monopoly on transportation fuel. Today, as demand trends shift slowly towards greater efficiency and alternatives, the prospects of raising American demand for oil are fading. The response is to export in order to maintain revenues and maintain prices. The industry is doing its fiduciary duty to its shareholders to maintain and grow profits in a changing global market. It has no such duty to consumers and citizens.
This report should help dispel the myth that somehow the oil industry is striving to lower prices and help consumers and that this is worth the risks and costs of pollution and climate destruction while justifying subsidies. When it comes to gas prices and energy security, America is being sold a boondoggle in the shape of Keystone XL. It’s high time its supporters recognized the truth and end their cover for the scam.