Keystone XL Tar Sands Pipeline Raises American Gas Prices: Report

by: Obert Madondo  | Published Jul 22, 2013

Photo credit: Consumer Watchdog

Photo credit: Consumer Watchdog

TransCanada’s proposed Keystone XL tar sands pipeline would force Americans to pay as much as 40 cents more per gallon for gasoline, according to a new report by Consumer Watchdog [PDF].

The report, authored by Research Director Emeritus Judy Dugan and independent energy analyst Tim Hamilton, also argues that the pipeline offers no long-term economic benefit to the U.S. economy.

“Keystone XL is not an economic benefit to Americans who will see higher gas prices and bear all the risks of the pipeline,” said Dugan. “The pipeline is being built through America, but not for Americans.”

The U.S. State Department is expected to decide Keystone’s fate later this year.

“A vote for Keystone is a vote to raise gas prices on Americans and send the profits to a foreign oil company,” said clean-energy investor Thomas Steyer. “The Consumer Watchdog reports makes clear that the Keystone XL Pipeline will lead to higher prices for American drivers at the pump and increased profits for foreign oil interests at a time when our U.S. economy is still in recovery.”

“The overall economic benefit to U.S. consumers is in doubt, especially beyond the construction period,” says the report’s executive summary. “In addition, U.S. domestic oil production is rising swiftly, diminishing any “energy security” argument for a 50-year pipeline that imposes economic, safety and environmental burdens on U.S. consumers.”

Consumer Watchdog also connects the dots to reveal the real beneficiaries of Keystone X – multinational companies that own oil refineries in the U.S. Gulf Coast or invest in the Alberta tar sands. These include Shell Oil, Exxon Mobil, Marathon Oil, Chevron and Koch Industries. (See photo.)

“Any reduction of deliveries to Midwest refineries would crimp gasoline supply, further driving up pump prices, and Keystone XL’s backers want to move cheap oil out of the Midwest,” said Dugan. “Many major Midwest refineries have also made expensive changes to maximize their use of the tar sands oil and could not operate as efficiently using different grades of oil from other sources.”

The report’s findings:

U.S. gasoline prices will rise, with the greatest effect on the Midwest. The chief purpose of the pipeline is to raise the price of Canadian tar sands by creating new export markets outside the Midwest. Statements by Alberta, Canada officials and the pipeline developers reflect this aim. Their explicit intention is to export to the Gulf and abroad, which would increase the price of crude oil and gasoline in the United States and, in particular, the Midwest.

Midwest drivers would be hardest hit because the region currently imports more than half of its oil for refining from Canada. Increases at the pump could range from 25 cents to 40 cents a gallon, depending on how regional refineries respond to paying $20 to $30 more per 42-gallon barrel for Canadian crude oil.

Canadian oil currently sent to the Midwest from Canada would likely be diverted to Keystone XL to reduce Midwest supply, which would put additional pressure on gasoline prices.

Midwest refiners have been reaping exceptional profit on cheaper Canadian oil and will resist giving up that profit to offset the large increase in the price of their Canadian crude oil.

The aim of tar sands producers with refining interests on the Gulf Coast- primarily multinational oil companies–is to get the oil to their Gulf refineries, which would process additional oil largely for fuel exports to hungry foreign markets. Other oil sands investors, including two major Chinese petrochemical companies and major European oil companies, have an interest in exporting crude oil and/or refined products to their markets. Such exports would drain off what the tar sands producers consider a current oversupply, and help push global oil prices higher.

Political leaders in the Canadian province of British Columbia have officially opposed plans for a major new tar sands oil pipeline from Alberta through their province to the Pacific Coast. Two other similar proposals may meet the same fate, and are certainly years in the future. This Canadian opposition increases the motivation of tar sands investors and developers to get Keystone XL built to secure access to overseas markets. …

U.S. drivers would be forced to pay higher prices for tar sands oil, particularly in the Midwest. There, gasoline costs could rise by 20 cents to 40 cents per gallon or more, based on the $20 to $30 per barrel discount on Canadian crude oil that Keystone XL developers seek to erase. Such an increase, just in the Midwest, could cost the U.S. economy $3 billion to $4 billion a year in consumer income that would not be spent more productively elsewhere. The West Coast imports much smaller amounts of Canadian oil in a larger and more complicated market. Even so, a sharp price hike for Canadian oil could bump Pacific Coast gasoline prices by a few cents a gallon.

The report concludes: “U.S. consumers should be wary of the Keystone XL pipeline–not just for substantial environmental and safety reasons, but because it threatens their wallets. Given the fleeting benefits of construction jobs, the unprovability of long-term benefits and the negative effect of higher gasoline costs on consumers, Keystone XL is no economic boon to the United States. U.S. consumers and the overall economy would bear the substantial risks of the pipeline without measurable permanent benefit.”

Obert Madondo is an Ottawa-based progressive blogger, and the founder and editor of The Canadian Progressive. Follow him on Twitter.com/Obiemad

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Obert Madondo

Publisher and editor
Obert Madondo is an Ottawa-based independent journalist and progressive political blogger. He's the publisher and editor of The Canadian Progressive.