Keystone Weirdonomics Means Gas Prices Won’t Be Getting Any Cheaper

Gasoline Prices
Photographer: Jody Dole/Getty Images

Canadian Prime Minister Stephen Harper missed the signs of growing opposition to the proposed Keystone XL pipeline, Bloomberg reporters describe in a behind-the-scenes investigation today. It took just one phone call with President Obama, on Nov. 10, 2011, to bring him up to speed.

By the time Harper hung up… he had sized up the potential economic calamity for Canada and its oil ambitions. (Read the full story here.)

That the oil-hungry U.S. couldn’t be counted on for limitless consumption “came as a shocking epiphany” to the Canadians, write Edward Greenspon, Andrew Mayeda, Rebecca Penty and Theophilos Argitis, drawing from interviews with more than 75 people.

Keystone opposition has been shocking to many Americans, too. The world’s biggest oil consumer relies on some of the world’s cheapest gas prices to power its economy. How could the U.S. possibly turn down a new artery to deliver the stuff, even if it does come with new environmental risks?

The answer is that Keystone isn’t meant for U.S. consumption.

In Keystone’s weirdonomics, the pipeline would actually increase prices of gasoline for much of the country, according to at least three studies that have looked into it. Keystone would divert crude from Midwest refineries to Gulf Coast refineries, where it would then be shipped to more expensive markets. Bypassing heartland refineries could drive up prices at home.

For people living in the Midwest, Great Plains and Rocky Mountains, it could add 20 cents a gallon to the price at the pump. From a Bloomberg story in 2012:

“The Canadian plan was to use their market power to raise prices in the United States (UNG) and get more money from consumers,” Philip Verleger, founder of Colorado-based energy consulting firm PK Verleger LLC, said in an interview. Prices may gain 10 to 20 cents in central states, he said.

Canadian oil producers like Exxon and Suncor would be the real winners, not American consumers.

A Cornell University study in 2011 had similar findings:

KXL will divert Tar Sands oil now supplying Midwest refineries, so it can be sold at higher prices to the Gulf Coast and export markets. As a result, consumers in the Midwest could be paying 10 to 20 cents more per gallon for gasoline and diesel fuel. These additional costs (estimated to total $2–4 billion) will suppress other spending and will therefore cost jobs.

Consumer Watchdog, a California-based advocacy organization that has faulted oil companies for high gasoline prices in the past, found price increases in some areas could be even greater:

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.

TransCanada, the company that would build Keystone if it ever gets approved, has a different take. The Calgary-based company says the pipeline wouldn't change much, perhaps even lowering the price as much as 4 cents. Similarly, the U.S. State Department analysis found the pipeline would have “little impact on the prices that U.S. consumers pay.”

There’s much at stake over Obama’s Keystone decision, which the administration again delayed last week. Building the pipeline would create 3,900 temporary construction jobs (50 permanent jobs) and contribute $3.4 billion in economic growth. It would also add to the threat of climate change by speeding up production of oil-sands crude, which is about 17 percent more carbon-intensive than the conventional barrel.

One thing that’s not at stake: cheaper gas prices.

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