Fact Check on Gas Prices, Energy Security and Keystone XL

  • Paul Brandus’ Market Watch column is unconvincing.
  • Imports of Canadian oil sands have hit a “record high,” which has helped to prevent price increases during times of unrest in other oil producing countries.
  • That’s why national security advisors have called on President Obama to approve Keystone XL. 

A recent column in Market Watch by Paul Brandus provides the perfect opportunity to dive back into the question of how Keystone XL impacts the price of gas at the pump. In Brandus’s estimation, it’s not much. He’s wrong.

Despite unrest in many oil producing countries, the United States has been shielded by the usual price shocks.  In fact, in some parts of the country, gas prices have even fallen as this unrest has ensued.  Why?  Not only because of unprecedented increases in domestic production but because of record imports from Canada too.

That’s something that numerous energy experts and economists have pointed to in recent reporting.  For instance, the Lincoln Journal Star recently quoted economist Bernard Weinstein who said,

“With a dustup in the Middle East, you used to see a spike,” said the Dallas economist, who also listed production in the Canadian oil sands as a factor. “OPEC has kind of become irrelevant.”

As the New York Times reported recently, Americans are paying less at the pump today thanks in large part to Canadian oil sands.  The Times quoted Tom Kloza, who said,  “We can thank Texas, North Dakota and Canada” for these lower gas prices.

Just how much oil is the United States importing now from Canada? According to the Energy Information Agency (EIA), last month, imports from Canada hit a record high.  As the Financial Post explained,

“U.S. crude oil imports from Canada hit a record high of nearly 3 million barrels per day in the week ended Sept. 12, U.S. Energy Information Administration data showed on Wednesday. The weekly data showed Canada, the top supplier of crude to the United States, exported 2.994 million barrels of crude to its southern neighbour. That was a 20 percent increase on the same period a year earlier.”

Yet all of this was clearly spelled out in an IHS report released last August.  As Kevin Birn, IHS associate director said when the report was released:

“Over the past decade the Canadian oil sands have moved from the fringe to become a key pillar of global oil supply.  This growth has made oil sands the single largest source of U.S. oil imports and also a key source of global supply growth that could account for 16 percent of all new oil production by 2030. Today, the output of just Canadian oil sands—excluding all other Canadian oil production—is greater than the output of five out of the 12 members of OPEC.”

As for Brandus’s argument that Keystone XL would actually increase the price of the pump, anti-Keystone XL activists have been trying to convince people of that for years but they have been thoroughly debunked by independent studies.  In fact, IHS finds that the pipeline will likely lower prices:

If proposed pipelines are completed, the oversupply situation in the US Midwest will be resolved, and crude prices would strengthen as they reconnect with global market prices. There is a view that this would also cause prices for refined products, such as gasoline, in the Midwest to increase. However, this is not the case. The global price of oil is the most important factor shaping global and US gasoline prices. Although the price of inland North American crudes has been below the price of crudes on the USGC, this spread has not been reflected in inland North American gasoline prices, which have tracked USGC prices […] As a result, increased oil sands imports to the USGC and other US markets will not have a material impact on US gasoline prices in any market. However, as oil sands production expands, as discussed above, it can help boost global spare capacity, which can help moderate global prices, which in turn affects US gasoline prices. (p. 4)

Brandus doesn’t understand our refineries in the Gulf Coast either.  As IHS explains, while the United States is significantly ramping up production of tight oil, we will still need over 5 million barrels per day (bpd) of net imports each year over the next two decades. From the report:

“Oil sands are expected to remain an important pillar of US supply to meet this demand.  (p. 3).”

Further, IHS has also found that since our Gulf Coast refineries have “a strong appetite for heavy crude—requiring 2.4 million barrels per day (mbd)” they will need to refine heavy crudes, which would come from Venezuela, Mexico or Canada.  But if Gulf Coast refineries area not producing larger amounts of heavy crude from Canada via Keystone XL, IHS finds, “the most likely alternative USGC heavy oil supply is Venezuelan crude which has the same GHG emissions range as oil sands.”

Hitting on another debunked talking point, Brandus argues that the oil from Keystone XL would just be shipped overseas.  The State Department has looked into this issue in five separate assessments and in its Final Environmental Impact Statement (FEIS) it confirmed once again that Keystone XL will not be a crude oil export pipeline:

“Once WCSB crude oil arrives at the Gulf Coast, Gulf Coast refiners have a significant competitive advantage in processing it compared to foreign refiners because the foreign refiners would have to incur additional transportation charges to have the crude oil delivered from the Gulf Coast to their location.

By now is should be clear that Brandus simply strung together a number of opponents’ old and thoroughly debunked talking points. We just find it amazing that he would do so at a time when the evidence is so overwhelming that oil sands has been producing clear benefits for American families and that Keystone XL will just accelerate them.

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