Proponents of the Keystone XL pipeline have two central arguments: that the project will create jobs and lower gas prices. That would make it a wonderful undertaking—if either claim were true.
On the jobs front, the Cornell Global Labor Institute estimates the project would create only 2,500 to 4,650 short-term construction jobs—not the “hundreds of thousands” of jobs claimed by House Speaker John Boehner.
And as we’ve noted, Keystone XL will ultimately raise gasoline prices in the United States. While Boehner has said, “We want lower gas prices for the American people” by completing the project, that simply isn’t the case.
Here’s a more detailed explanation of why that won’t be, courtesy of a new, in-depth report from the National Resources Defense Council.
If you’ve filled up a car in a foreign country, you probably noticed that it used diesel. The United States is one of the few countries to use primarily gasoline—it provides two-thirds of the fuel for our ground transportation network. Conversely, on the international markets, diesel accounts for about two-thirds of the ground transportation fuel.
For many years, while America was at the top of the consumption pyramid and everyone was driving around in SUVs and minivans, gasoline commanded the highest prices. But in recent years, increasing demand in diesel-using countries areas like Europe, China, India and Latin America—combined with better fuel-efficiency standards in the United States—pushed up the price of diesel fuel. By 2004, average diesel prices exceeded gasoline prices.
This shift impacted domestic oil production facilities greatly. For not much cost, refineries can restructure their operations to increase their diesel yield, which necessarily decreases their gasoline production. Refineries on the Gulf Coast largely moved to do this, since they had access to international markets through ocean shipping routes. But refineries in the land-locked Midwest don’t really have access to those international markets, and so focus more on gasoline production for domestic consumers.
In fact, Midwestern refineries sell 99 percent of their product to US customers. Gulf Coast refineries, meanwhile, produce more than half of the country’s gasoline and diesel exports and are shifting rapidly to more diesel production:
Next, it’s important to note two things about the existing pipeline network from Canada: one, it provides crude oil at discounted prices to Midwestern refineries. Two, it’s bigger than Canada needs—in fact, Canadian oil production is only half of what the pipelines are able to carry.
This is ultimately why prices will go up if Keystone XL is built—the pipeline goes directly from Canada to the Gulf Coast, bypassing the Midwest, which will no longer get the discounted crude. And since Canada already doesn’t have more oil than it can transport, this means a trade-off to the amount of crude headed to the Midwest.
The NRDC report indicates that if Keystone is built, Midwestern refineries will produce 80,000 fewer barrels per day—which means reducing the gasoline available to US consumers by 1.2 billion barrels per year. There is no way that doesn’t lead to higher gas prices.
In fact, that’s part of the TransCanada business plan. The increased supplies to the Midwest have lead TransCanada to sell its crude at a $3 discount—which Keystone would then eliminate. Based on the company’s own analysis, this would increase the cost of crude by up to $27 billion per year.
This is an energy product almost uniquely designed not to lower prices, though that wasn’t really the intent. They simply want to ship the oil to more expensive international markets—which are so big that the additional Canadian crude won’t lower prices, and even if it did, OPEC would likely act to counter that. Meanwhile, US refineries get less crude and thus prices go up.
And this doesn’t even take into account the environmental consequences of harvesting more dirty tar sands oil. From any angle, this seems like a terrible deal.