Texas

Energy and Environment Reporting for Texas

How The Keystone XL Pipeline Could Raise Gas Prices

Photo by Tom Pennington/Getty Images

Pipe is stacked at the southern site of the Keystone XL pipeline on March 22, 2012 in Cushing, Oklahoma.

The debate over TransCanada’s proposed oil pipeline from the oil sands of Alberta to the Texas Gulf Coast has mostly focused on the environmental and economic impacts. People in favor say it will bring jobs and energy security. Opponents say the pipeline, and the crude it will carry, will harm the earth.

But the project might have another consequence that’s been largely overlooked. Some analysts say it could actually raise gas prices for many American consumers.

Here’s how.

Access to crude oil is not evenly distributed. There are large sections of the country that are awash in the stuff and others that have little.  These days the upper region of the American Midwest has more crude from Canada, North Dakota and Montana than refineries can handle.  And a huge glut of oil called West Texas Intermediate is sitting in Oklahoma, undervalued because it can’t get to refineries.

“If only there was another pipeline that would bring [the crude] to the Gulf Coast, where from Corpus Christi, Texas to the Mississippi River, there is the largest concentration of refineries in the world, ” Jim Prescott, a PR rep for TransCanada, mused during a recent phone interview.

 

In effect, that’s exactly what the Keystone XL Pipeline would accomplish.

Like the pipeline’s other supporters, Prescott says bringing that crude to refineries will increase supply and translate into lower gas prices for consumers.  It’s basic supply and demand, he says. But in the world of international oil markets, things aren’t always simple. And some experts warn that moving Canadian crude to Texas will actually drive prices up where consumers benefit from over-supply.

These Deals Won’t Last Forever

Phillip Verleger runs the Energy Consulting firm PK Verleger. Recently he’s lead the charge against the pipeline proposal not from an environmental standpoint, but because he believes it would actually be bad for the U.S. oil industry.

 

“Proponents of the Canadian pipeline testified to the Canadian energy board, that Keystone would extract an extra six billion dollars from the upper Midwest,” he told StateImpact Texas.

He says if TransCanada’s pipeline from Alberta is completed, “what you would have is consumers in Illinois, Minnesota, probably Iowa Nebraska, possibly Missouri and possibly the Dakotas paying more.”

Others say the same could happen with the glut of oil in Oklahoma.

A Real Punch in the Glut

Like Canadian crude to the North, West Texas Intermediate crude in Cushing, Oklahoma is selling cheaper because it can’t get to refineries. The southern leg of the Keystone pipeline, and another project by the Enbridge pipeline company is set to bring that crude to the Gulf.

“That’s the concern here. Is that by removing the glut in supply that you will cause oil prices to go up which will likely impact motorists,” Patrick Dahaan, an analyst for GasBuddy.Com told StateImpact Texas.

Dahaan says it’s possible that a jump in the price of West Texas Intermediate, which is used as a benchmark in oil pricing by investors, could lead to higher gas prices in states like Oklahoma and Texas.

TransCanada’s Precott disagrees with both Verleger and Dahaan, and emailed a Department of Energy memo from June of last year to back up his position.

“It says in the summary and conclusion that these pipeline projects would not increase gasoline prices to Midwestern consumers. That’s the last line in the report,” he paraphrased.

But some of the oil companies set to refine crude from TransCanada’s pipeline, concede that it could raise prices in some places.

“I suppose it’s possible that places like the Rocky Mountains could see a slight increase in prices. The benefit to the rest of the country is going to outweigh that though.” Bill Day, spokesman for Valero, told StateImpact Texas.

Day says more crude flowing South to the Gulf should lower oil prices on the East coast and other parts of the country, offsetting any rise in the mid-continent.

Good news if you’re a driver in Boston, but probably cold comfort if you’re currently paying lower prices for gas because of the abundance of crude in your neck of the woods.

DOE Memo Says Pipelines Wont Raise Gas Prices

Comments

  • EvanBaum86

    Those against the pipeline are not only bringing up the environmental risks.  We also bring up the fact that those for the pipeline are lying about the number of jobs it will create, and how it will, undoubtedly, raise oil prices for Americans.  
    It has already been studied and proven that this pipeline will only create between 2,500 and 5,000 part time jobs.  Of those jobs, only 50 will be permanent.  
    And every drop of this oil has been earmarked and sold to other countries.  Americans will not see a drop of it.  So we will not only be selling the new oil pumped out of the tar sands, but we will also be selling the oil we have been pumping ourselves.  Oil supply will go down and prices go up.  That’s how the market works.  That’s how big oil is planning on being able to keep making more money

  • A Commentator

    “Summery” isn’t even a word. Do reporters not even have the sense to use SpellCheck, much less actually KNOW how to spell simple English words?

    • Mose Buchele

      Hi There,
      So our readers aren’t confused, I’d like to point out that “summery” is a word, and is accepted by spell check.

      Thenks for reading!

  • Dsprtt

    Obviously in areas of oil glut they do not have the capacity to refine more or they would be doing so. More supply will replace what is siphoned off by the southern pipeline. It is a function of supply and demand and always will be. Prices now are a function of that law. Where there is demand there will be supply. Since the environmental aspect is not working as an argument against it ,, some people will find another reason. More supply will lower prices up to a point. When it costs more to drill and recover it than it sells for that is when producers will stop putting more into the market .

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