Nonprofit organization Consumer Watchdog released a report this week claiming that the Keystone XL Pipeline project would significantly increase gasoline prices for US consumers, particularly in the Midwest, where the per gallon price could rise by as much as 40 cents. But some question these findings.
The report’s main thesis states that companies producing Canadian oil are backing the pipeline in order to access international markets and obtain higher prices for their product, which currently trades at a discount to international benchmarks and crude imported from Mexico.
Read more from Breaking Energy about this oil market pricing relationship here, and here.
Consumer Watchdog analysts suggest that if the price of Western Canadian Select – the regional benchmark – reached parity with Mexican Maya crude and US refiners begin running greater volumes of the higher-priced Canadian grade, this would translate into higher prices at the pump.
However, some experts suggest this relationship does not accurately represent the dynamics impacting US gasoline price discovery in recent years.
“It is unlikely that a rise in Canadian crude prices would raise Midwest gasoline prices. We have seen over the past two years, as the spread between the world price [Brent] and US price [WTI] of oil has widened sharply, that the price of gasoline in the Midwest was being set by the marginal imported barrel of crude oil, not by the depressed price of US crude oil. To the extent the price of Canadian crude were to rise as more transportation options out of Canada are developed, that may harm US refiners that have benefited from cheap crude oil, but would be unlikely to harm consumers who have been paying gasoline prices set by the global price of oil,” Jason Bordoff, Director of the Center on Global Energy Policy at Columbia University told Breaking Energy in an email.
Additionally, page 65 of the “market analysis” section of the draft State Department Environmental Impact Statement (SDEIS) states:
“Midwest product prices are derived from Gulf Coast prices, both of which are in turn driven by international (rather than U.S. inland) crude oil prices. Enabling (additional volumes of) WCSB [Western Canadian Sedimentary Basin] crudes to flow to the Gulf Coast would not change this dynamic.”
KXL would also transport greater volumes of Bakken crude into Midwest refining systems that currently rely on more expensive rail transport. “Along with transporting crude oil from Canada, the Keystone XL Pipeline will also support the significant growth of crude oil production in the United States by allowing American oil producers more access to the large refining markets found in the American Midwest and along the U.S. Gulf Coast,” according to the TransCanada website, the company seeking to build the pipeline. The CWD analysis does not appear to address the impact reduced transport costs – associated with pipe versus rail – might have on refiners and gasoline prices.
The report’s critics claim its backers’ motivation is more about moving the US away from oil as a fuel source than saving consumers money on gasoline. “Keystone XL opponents like Steyer [co-author of the report] tell us we don’t need more North American oil – the very thing that could keep prices low. But this is not surprising since it’s pretty clear their motivation isn’t helping consumers get lower gas prices – it’s about one thing only: getting rid of oil altogether,” said Matt Dempsey on the industry website Oil Sands Fact Check.
It seems clear the Keystone XL controversy is unlikely to dissipate anytime soon.
