Keystone Foes Ask: Where Will This Oil Go?

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Edward Markey speaks during a Congressional Briefing on Protecting Children and Teen Online Privacy at the Rayburn House Office Building on March 7, 2012 in Washington, DC.

Edward Markey speaks during a Congressional Briefing on Protecting Children and Teen Online Privacy at the Rayburn House Office Building on March 7, 2012 in Washington, DC.

Photographer: Kris Connor/Getty Images

As Republicans revive the Keystone debate in Congress, opponents are trying to shift the focus to where the Canadian pipeline’s oil will end up once it reaches Texas: China or U.S. gas tanks?

Massachusetts Democrat Edward Markey stood on the floor of the Senate this week next to a giant sign reading “Keystone Export Pipeline” as he argued against a bill to approve the project.

Russ Girling, head of pipeline builder TransCanada Corp. issued a lengthy statement saying it doesn’t make any sense to export the oil once it reaches the U.S. coast of the Gulf of Mexico, home to the world’s biggest concentration of refineries.

Who’s right? Energy analysts say probably both. The crude oil Keystone XL carries probably will be processed by U.S. refineries. Some of the gasoline, diesel, or jet fuel the crude becomes, though, almost certainly will be shipped elsewhere.

What’s clearer is the political advantage Democrats see in pressing the point.

Up to now, the main rallying cry of Keystone opponents has been that it would worsen the climate by promoting development of the carbon-intensive oil sands of Alberta, where the pipeline originates. That remains a focus.

But with polls showing Keystone has broad support, opponents may be right to try a new tactic, said Paul Bledsoe, a former climate adviser to President Bill Clinton.

Public Opposition

“The question is can Democrats use the nativist public opposition to oil exports as a means to question the pipeline?” Bledsoe said.

The goal “is to show that building this pipeline will have very minimal economic benefits to the United States,” Bledsoe, a senior energy fellow at the German Marshall Fund of the United States, said in a phone interview.

Girling said the company’s internal polling shows the export issue raises the most concern for Americans. In an interview last month with Bloomberg News, Girling acknowledged that critics found a “nerve that resonates” in that argument.

Recently, an important voice joined in.

In his final press conference of 2014, President Barack Obama said the oil Keystone would carry was from Canada, not the U.S., and would be shipped to global oil markets once it got to the Gulf Coast. The benefits to U.S. consumers would be nominal, he said.

‘High Ground’

Kevin Book, managing director of ClearView Energy Partners LLC, a Washington-based consultancy, said Obama’s comments may reflect an effort to reclaim the “rhetorical high ground” ahead of Republican efforts to take the decision out of his hands.

The export comment “could be an attempt to undermine supporters’ energy-security arguments, or at least to reject them as the basis for a decision,” Book said in an e-mail.

Obama has authority over the project because it crosses an international border. He has said he’s waiting for a State Department review into whether the Keystone is in the national interest before deciding.

The review has been on hold until a Nebraska court challenge to the route was resolved. The state’s Supreme Court today set aside the legal challenge, clearing the pipeline’s path in the state and putting the decision back in Obama’s lap.

The 1,179-mile pipeline would extend from Hardisty, Alberta, across the the U.S.-Canada border to Steele City, Nebraska. It would then connect to an existing network to provide another outlet for the landlocked oil sands to the Gulf Coast.

Export Limits

U.S. laws largely restrict domestic crude oil from being exported, a holdover from supply shortages after the Arab oil embargo four decades ago. Even under the restrictions, Canadian oil could be sent overseas from Gulf coast ports.

There are no limits on exports of refined products, even if they’re made with U.S. oil. In fact, refined exports have risen sharply along with U.S. production, which is at a three-decade high thanks to hydraulic fracturing and horizontal drilling in North Dakota, Texas and elsewhere.

According to the U.S. Energy Information Administration, which tracks and analyzes data, refineries along the Gulf Coast in 2013 exported more than 983 million barrels of processed products like gasoline, diesel and jet fuel. That’s more than double the 429 million barrels exported in 2008.

Extra Costs

Michael Levi, an energy and environment fellow at the Council on Foreign Relations, said in a phone interview re-exporting the Keystone oil once it arrived at the Gulf Coast was unlikely given the extra transportation costs of shipping it by tanker to other countries.

While the basic crude probably won’t be sold overseas, Levi said some of the gasoline, diesel, or jet fuel it gets refined into will be.

The State Department said in an analysis released a year ago that exporting the oil is unlikely.

Among the amendments Democrats plan to introduce to the Keystone legislation next week is a measure that would bar export of both the raw crude and any processed products from the oil, said Eben Burnham-Snyder, a spokesman for Markey.

Stephen Kretzmann, executive director of Oil Change International, an advocacy group that opposes Keystone, said a glut of U.S. oil could widen the spread between U.S. and global crude benchmarks, and make it more likely some of Keystone’s crude could be shipped overseas where prices are higher.

‘Better Price’

“The bottom line is they are going to get a better price for this stuff than they are domestically,” Kretzmann said in an interview.

Keystone proponents counter that Americans benefit even if some portion of the refined oil is exported. Exports, for example, would support refinery jobs and lower the U.S. trade deficit.

Keystone could even lower U.S. gasoline prices by adding to global oil supplies, though only by a small amount, said Guy Caruso, a former head of the Energy Information Administration.

Restricting exports is “bad economics” because it makes the market less efficient, Caruso said. It also may not be practical: once the oil is sent to the refinery, it’s mixed with other crude, making it impossible to pinpoint the origin, he said.

Burnham-Snyder said the amendment is appropriate because the U.S. shouldn’t assume the environmental risk if the oil is going to be used someplace else.

On the other hand, falling oil prices, which translate to lower gasoline costs, could undercut the Democrats’ efforts to stir public opposition by warning the oil is headed overseas, said Michael Webber, deputy director of the Energy Institute at the University of Texas in Austin.

“I can see why policymakers would worry about a minor price bump from increased exports when oil is $100,” Webber said in an e-mail. “But when oil is $50, some of the urgency about prices seems out of place.”

(An earlier version of this story corrected the name of Senator Edward Markey’s spokesman.)

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