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Anthony Swift’s Blog

Keystone XL is a tar sands pipeline to export oil out of the United States

Anthony Swift

Posted December 20, 2011

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One of the most important facts that is missing in the national debate surrounding the proposed Keystone XL tar sands pipeline is this – Keystone XL will not bring any more oil into the United State for decades to come.  Canada doesn’t have nearly enough oil to fill existing pipelines going to the United States. However, existing Canadian oil pipelines all go to the Midwest, where the only buyer for their crude is the United States. Keystone XL would divert Canadian oil from refineries in the Midwest to the Gulf Coast where it can be refined and exported. Many of these refineries are in Foriegn Trade Zones where oil may be exported to international buyers without paying U.S. taxes. And that is exactly what Valero, one of the largest potential buyers of Keystone XL's oil, has told its investors it will do. The idea that Keystone XL will improve U.S. oil supply is a documented scam being played on the American people by Big Oil and its friends in Washington DC. 

The fact that Canada has excess pipeline capacity is well known. In a Department of Energy report evaluating Keystone XL's impacts on U.S. energy supply over the next twenty years, the agency found that it will take decades for Canada to produce enough oil to fill existing pipelines. On page 90, the report concludes that the United States will import the same amount of crude from Canada through 2030 whether or not Keystone XL is built.

From Canada's perspective, the problem with existing pipelines is they all end in the U.S. Midwest and only allow one buyer - the United States. As Canada's Natural Resources Minister Joe Oliver recently said, "we export 97 percent of our energy to the U.S. and we would like to diversify that." However, the Canadian government has put the brakes on the two pipeline proposals to export tar sands through its provinces due to the need to take more time to listen to its own public's concerns about water and safety. 

Keystone XL would be Canada’s first step in diversifying its energy market. The pipeline would divert large volumes of Canadian oil from the Midwest to the Gulf Coast, where it would be available for the first time to buyers on the world market. To sweeten the deal, many of the refineries on the Gulf Coast happen to be located in foreign trade zones, where they can export Canadian oil to the world market without paying U.S. taxes. Oil Change International investigated this issue in a report that found the Keystone XL pipeline was part of a larger strategy to sell increasing volumes of Canadian crude on the international diesel market.

When Canadian regulators at the National Energy Board (NEB) considered the Keystone XL proposal in 2008, they asked TransCanada to justify another pipeline when there was already so much spare capacity.  TransCanada conceded that Keystone XL would take oil from existing pipelines, increasing shipping costs. However, TransCanada argued that this cost would be more than offset as shifting Canadian oil from the Midwest to the Gulf would increase the price that Americans paid for Canadian oil by $3.9 billion.

In fact, TransCanada refused to support a requirement that oil on Keystone XL be used in the United States in a recent Congressional hearing. Earlier this month, Representative Edward Markey asked TransCanada's President Alex Pourbaix to support a condition that would require the oil on Keystone XL to be used in the United States. Mr. Pourbaix refused, saying that a requirement to keep oil on Keystone XL in the United States would cause refineries to back out of their contracts. That very well may be the case as Valero, one of the largest prospective purchasers of Keystone XL's crude, has already told its investors the its future business is in international export. 

Simply stated, Keystone XL is a way to get Canadian oil out of the United States, not into it.

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Stephen HarrisDec 20 2011 10:18 AM

Mr. Swift - you have taken the Ensys report out of context to support a "no-oil at any cost agenda." That is not what the report stated, and in fact, it was referring to products exported (diesel particularly) after the oil is refined in Houston due to increase in international diesel demand over the past two years.

(Comment edited. Per NRDC policy stated below, comments that engage in personal / ad hominem attack will be removed. – Ian @ NRDC)

Bill HicksDec 20 2011 10:47 AM

Psycho alert. Take it easy Stephen, you sound like you're about to go on a shooting spree.

This is a very interesting viewpoint on Keystone I haven't heard before. It makes sense, I was wondering why we need to send oil all the way from Canada across the country. And once the pipeline is built, there won't be many jobs to show for it. It makes much more sense to invest in solar technology and get the cost down so it's more competitive.

Anthony SwiftDec 20 2011 10:51 AM

Mr. Harris, if you take a look at what the DOE/EnSys report has to say about KXL's impact on Canadian crude imports into the U.S., the report concludes that Canadian crude oil imports will be almost identical whether or not Keystone XL is built, reaching 3.6 million bpd by 2030 both cases. (Section, page 90-91, ). Moreover, that finding is repeatedly reiterated throughout the report.

The issue of Keystone XL's use as a pipeline to export diesel is based on Oil Change International's report, Valero's presentation to its investors and TransCanada's comments to regulators and law makers in the US and Canada.

Jordan MacPheeDec 20 2011 01:14 PM

This is a very informative and well-written article. I haven't heard any of this information before, and this really drives the point home that the Keystone XL pipeline is a purely economically motivated project with absolutely no consideration for environmental externalities (environmental costs and damages that don't get factored into the price of the final product, which is the only reason that fossil fuels are less expensive than renewable energy).

I also appreciate the fact that you answered Mr. Harris' claims that you misrepresented the context of a scientific report.

PeterDec 20 2011 03:46 PM

"Keystone XL is a tar sands pipeline to export oil out of the United States "

Yes. This is news? Yes people. The US of A imports crude oil from all over the world to refine it and then export it for a profit. The US is number 2 or 3 in the world for exporting refined petroleum products. You ship more than 2.5M barrels a day and other products. This has been a cornerstone of the american economy now since WWII.

Don't believe me? Here is a chart of US crude and petroleum exports. Take a look.
How much crude oil does the US export per day? 42,000 barrels.
And finished petroelum products, refined from crude imports? 2,025,000 barrels per day.

So can we drop this myth that the US just imports crude to in turn export crude for absolutely no benefit for any Americans or the economy?

If you want to believe that the only thing America profits from in this scheme is the "50 jobs" it'll take to build the pipeline that ships the oil, (am I the only one who recognizes that the value of a pipelin is what runs through it, not how many peole built it?), the by all means continue believing that.

PeterDec 20 2011 03:56 PM

Clever little entrepreneurs that you are, you have invented a business whereby you ship crates and crates of raw un-whipped whipping cream from all over the world. You then whip (refine) this cream into a finished product and sell it all over the world as whipped cream for a profit. Suddenly one day you wake up and forget why you're doing this so you decide to interrogate the milkman as to why you "need" so much milk. And the milkman (transcanada) is just transporting the stuff. He's not producing it and he's not the one refining it.

Not exactly sane is it?

S. GablinDec 20 2011 04:14 PM

Two points that are a little disingenuous in your argument:

1. Most, if not all, of the refineries in the Midwest that currently process oil sands are FTZs. So, bulk petroleum product could be exported from those refineries "without paying U.S. taxes" as well.

2. Any crude refined at an FTZ could then be exported duty free. Thus, Iraqi or Saudi crude could be brought into an FTZ, refined, then exported. That is the whole point of an FTZ.

It's important to note, while exports are increasing, only about 11% of finished product from Gulf refineries is exported. With declining crude imports from Venezuela and Mexico, there will not be a huge surplus of refined product to export. I find it hard to believe that any more than 15 -20% will be exported. Of course, these products are traded globally and will be imported and exported to balance international demand, that's just the nature of a free market.

Anthony SwiftDec 20 2011 06:38 PM

Jordan: Thanks for the kind comment!

Peter: I understand that it is in the interests of Gulf Coast refineries to process crude and sell the refined product to the highest bidder (where-ever that bidder may be). It's also in the interests of the tar sands producers to get their oil where it may command the highest price. And that a fair place to debate the merits of Keystone XL.

But that is not the argument being made right now - that the US needs more Canadian crude for its energy security and Keystone XL will provide it. The bottom line is that Keystone XL won't increase Canadian crude exports to the US for decades. Meanwhile, if the costs and liabilities of this project are being borne in order to allow refineries in the Gulf Coast to expand their exports of refined products out of the country, the American people deserve to know that.

The refiners with contracts to purchase oil from Keystone XL are: Valero, Motiva (a partnership between Saudi Aramco and Shell), the French company Total, the Latin American refiner Trafigura, and the two Canadian companies Canadian Natural Resources and Encana. That their economic interests and those of the US are aligned is not clear at all.

Mr. Gablin: Thanks for the discussion. A couple of points on the Foreign Trade Zones (FTZs) to consider:

1. For Midwest refiners in FTZs, customs duties on imported crude oil are not paid until the finished products enter the US for consumption - because many refined products are of lower duty that raw crude oil, it does result in some tax savings, but in the end, the Midwest refiners pay taxes on their product.

2. However, custom duties are never paid on FTZ products that are directly exported from a zone. And that's the advantage to the Gulf Coast refineries - crude oil comes in from the US and ships leave in international waters with refined product. No tax is paid. With Keystone XL, the U.S. is bearing the environmental liability of a 1700 mile pipeline, carrying crude that would have otherwise been sold to US consumers, going to the Gulf to be exported to international buyers as refined product.

Anthony SwiftDec 20 2011 06:55 PM

Mr. Gabin: I see I missed your final comment - apologies. I'm not saying all the crude on Keystone XL will be exported, but taking even 20%, or 160,000 barrels, from the US market would have an effect on domestic prices. Remember this is oil that, in absence of Keystone XL, would otherwise have been sold in the U.S. to U.S. consumers.

Moreover, the real issue is that the pipeline is being pitched as a means of increasing US oil supply, and it's not going to for decades. Meanwhile, our only contention appears to be the question of how much Keystone XL will decrease U.S. oil supply.

TimDec 20 2011 09:31 PM

Very interesting, Mr. Swift. Have you considered, though, that it might not matter whether the oil is exported or sold domestically? The way I see it, since oil is a global commodity, it's really going to increase the GLOBAL supply, which would lower world prices. Therefore the US price would decrease, no matter where the oil is actually sold.

Not that I'd ever support the pipeline, for environmental reasons, but how does destination really matter from America's perspective?

Anthony SwiftDec 21 2011 10:55 AM

Mr. McCarthy: You make a good point. Usually, the global nature of the oil market means that it really doesn't matter where you get your oil, you will pay the international price for it. That's why simply switching suppliers isn't the safe haven that one might expect it to be.

However, this case is different for two reasons. First, Keystone XL won't increase global oil supply. There is no extra production waiting to be put oni it - it's actually taking oil currently moving on pipelines to the US Midwest and taking it to the Gulf.

Second, the lack of extra pipelines connecting the Midwest market to the Gulf/International market has actually caused crude to sell at a discount within the United States. North American West Texas Intermediate (WTI) has historically been slightly more expensive that North Sea Brent crude. Because there is so much oil in the central US, WTI is actually cheaper than Brent (it's about $10 cheaper now; but was as much as $27 cheaper in October). Connecting that oil in the Midwest to the international market won't increase global oil supply - but it will increase supply available to international buyers while decreasing oil available to US buyers... so you would expect to see a significant increase in cost in the US oil market with a smaller decrease in cost for the international oil market, as the regional price disparity equalizes. A morally neutral market reaction... the problem is that Keystone XL is being presented as something that will increase US supply and decrease US prices when the opposite will happen.

But your final remark hits on the heart of the matter. The environmental impact of the development, transport and refining of tar sands are enormous. KXL is a pipeline that will leverage investment in further development, and will bring more tar sands in sometime after 2030... the question is, do we really want to be in the same place we are now in 20 years?

We can reduce our oil use by 7 million barrel a day by then... take a look at my colleague Luke Tonachel's blog on that:

herman deckysDec 25 2011 02:51 PM

the fact is that this really wont do much to stop $4 gas prices. if canadian oil can only come to the midwest now and its $3.50 here in chicago how much will it go up when it is no longer a captive commodity? this almost sounds like another deal for haliburton. whos going to build it? will the inividual states be able to tax it as it passes thru them? i see no benefit for me at all unless i own a million shares of someone involved in it.

ATC WhartonDec 25 2011 07:37 PM

This is an excellent breakdown of a cost benefit analysis of shipping tar sands product for the US economy and its environmental impact. It addresses the question of "who profits most." Anyone want to add what profit there is for Canada as only 10% profit goes to Canadian investors, or the government in royalties. The rest is a cost to environment and to our political stability. We will be a petro state, run by big oil, foreign ownership, our Aboriginals will suffer quality of life and ultimately global emissions from this tar pit endangers everyone. Get the lawyers ready.

JCalesJan 5 2012 05:44 PM

Yo Anthony:

Spellcheck missed the word "breaks".

Stan MickelsJan 10 2012 09:24 AM

I have heard alot about the environmental impact and the job creation this project will bring but would somebody answer a simple question for me? Will the the oil from MT, ND and other states be able to tap into the line and send OUR oil to the gulf?

JDPCJan 12 2012 10:18 PM

Fine article.

As JCales noted, please change "breaks" to "brakes" in the third paragraph.

Otherwise, interesting information.

Anthony SwiftJan 18 2012 03:36 PM

Mr. Mickels: Keystone XL is primarily a bullet pipeline which load tar sands in Alberta and offloads in the Gulf Coast. The only exception is an on ramp in Montana that would move up to 100k barrels per day of crude. The three things to keep in mind are:

1) The pipeline that was going to take oil from North Dakota to Keystone XL has been scaled down and is taking oil to a rail facility in ND instead.

2) Bakken has about 500,000 bpd of take-away capacity, with an additional 477,000 bpd of pipeline capacity planned in the next couple of years. In that context, the limited capacity that KXL provides doesn’t really factor in as a major solution (and its absence won’t be a problem).

3) Ironically, KXL would likely increase the cost of getting crude out of North Dakota. Right now, the Enbridge pipeline bringing ND crude to the main Enbridge Lakehead pipeline system in Minnesota is the largest pathway to get Bakken crude to market. However, Enbridge has said KXL will increase the cost of moving crude on its pipeline. That’s because KXL will take Canadian oil from the Enbridge pipeline, which is a cost-of-service pipeline. That means that the oil moving on the pipeline shares a set cost – the less barrels traveling on the pipeline, the greater the toll. Because Keystone XL would take up to 700,000 barrels of oil from Enbridge pipelines moving Bakken crude, it would increase the cost of moving that crude on Enbridge pipelines.

Meanwhile, thanks all for the edit!

Toni SouthJan 19 2012 06:48 PM

from "ATC Wharton's comment"
"only 10% profit goes to Canadian investors or the government royalties", Am I missing something here? Is that all they are getting out of this? There has to be some other kind of deal with the oil companies, right?

Toni SouthJan 19 2012 06:56 PM

Oh, I also meant to say Anthony , excellent written article. I have not kept informed on the situation and your article is very concise, thorough and well documented. I'm not sure how I feel about the pipe-line now but it's probably already a "done-deal" . like it or not. With so many high paid lobbyists in Washington I don't know how much control the American people will have of it any more. I grieve for my children.

Stan MickelsJan 20 2012 02:35 PM


Thank you for your response to my question posted above. I understand it was a very elementary question but one that nobody could clearly answer for me. Your comments very helpful and very succinct.

I have a few other simple questions and comments that never seem to get answered or addressed in the mainstream media from either side of the issue.
1. Will Transcanada continue to use the existing Keystone pipeline in conjunction to the proposed KXL?
2. How will the KXL decrease our dependence on OPEC oil? Aren't we already one of Canada's largest customers for the "tar sands oil"? Don't they supply most of our oil we use in the states?
3. Is it true the Chinese have huge investments in the "tar sands" of the Canadian Prairies?
4. According to Stephan Harper in an interview I listened to earlier this week, He states, "Canada is interested in diversifing their markets."He said, "it would be in the best interest of Canadians."
5. Why don't they develop the Northern Gateway Pipeline?
5. Was the Keystone Pipeline completed to Cushing in 2010?
6.How many jobs were created from that project?

I may be a bit polly anna in my assumption, But If the USA proponents of KXL had all the facts I think they would agree, the risks far outweigh the rewards.

It appears to me that Transcanada and Enbridge are having a pissing contest and we are the recipient.

Doug WhitingJan 23 2012 05:40 PM

"Canada doesn’t have nearly enough oil to fill existing pipelines going to the United States."

This is not true, projected growth in the oil sands will more than fill that pipeline. Oil sands output will go up 50% by 2020. If every company that has plans actaully got approved and got the money it would be 100% increase. Canada needs Keystone plus Gateway plus twining K-M to Vancouver plus by 2025 Keystone XL 2.

B SJan 23 2012 10:44 PM

Wow. I ran into this blog while looking for real facts. What a load of crap this is. Canadian oil production is growing by leaps and bounds. And the shippers that move oil on the existing Keystone pipeline have long-term contracts that require them to continue to ship the oil to refineries in the Central US.

And I'm sick of this myth that this is going to be an export pipeline. Look at a freaking map, people. China is to the west. The US Gulf Coast does not have easy access to China and India, the places that one might want to export oil.

But even if they want to export, would you rather Canada ship raw crude oil to the west coast and export it, or would you rather have it shipped to the US where it can be refined by Americans, thereby creating some jobs.

And lastly, most refineries are foreign trade zones, including those in the central US.

You clearly have a lot of knowledge about the US oil industry. By completely fabricating a few key points, it's obvious you have some sort of ulterior motive to deceive people.

Shame on you.

Doug WhitingJan 24 2012 06:47 PM

On the jobs front , the jobs are in the spin off from the projects to build the oil sands plants not the pipeline...

Americans are confused on the issue. They think there is a set amount of Canadian heavy oil, so its to us ( the US) or to China. No its increasing by 50 % by 2020. If every companies plans for production increases were put together it would be 100% but that won't happen. If it did we would need to import 20,000 construction workers from the US to get the job done.

The oil sands in total is the biggest industrial project in the world and will be for next 20 years. Canada has the 2nd biggest oil reserves ( soon will become no.1) but pretty low production. Think straws into a pool. To fill this pipeline we need to add another straw. that straw will cost $20-25 bill of investment. The pipeline jobs in US for Keystone XL ! Who cares that nothing compared to the spin off jobs the US will get from the overall project over the next 20 years. By 2020 there has to be another keystone XL call it son of XL, plus Gateway plus twining Kinder-M to Vancouver.

One company I deal with in Tulsa is producing 20 boilers for the oils sands a year. That $100 mil work for welders a year. Could go to $150mil. Times 20 years now that a lot of jobs. Big picture people , look at the big picture. Just think of the number of 1 ton pickup trucks when the oil sands really gets going and every boy who can hold a welding rod earns $200K.

Anthony SwiftJan 24 2012 08:29 PM

B.S.: Canadian production is increasing, but it hasn’t kept up with the growth in pipeline infrastructure to the U.S. Since 2008, Enbridge’s Alberta Clipper and the first Keystone pipeline added almost 1.4 million bpd in potential pipeline capacity, while Canadian production increased by a little over 0.3 million bpd. It’ll take production a long time to catch up. The point is there simply isn’t oil at the border waiting for a new pipeline and won’t be for some time.

Gulf Coast refineries are engaged in an active export trade with European and Latin American diesel markets. Here, the issue is that at the moment, Canadian crude is being processed in the Midwest where U.S. consumers have access to the refined goods. U.S. consumers have to compete with the international market for refined products from the Gulf Coast, and right now the international market is paying more.

The trouble with foreign trade zones in the Gulf is that refineries may exploit their status by bringing Canadian crude into the U.S. without paying duty taxes and exporting the refined products internationally (without paying duties). In the central U.S., refineries defer taxes on Canadian crude to pay it when they sell it to the U.S. market.

Anthony SwiftJan 24 2012 08:31 PM

Mr. Whiting: It is true that Canada's crude pipelines are running half empty. Right now Western Canada has over 4 million bpd of potential capacity on its existing pipelines and it exported less than 2 million bpd of crude to the United States. Even if the Canadian Association of Petroleum Producers accurately predict the rate of growth in Canada’s tar sands (and they have consistently overestimated in the past), Canada won’t be able to fill its existing pipelines to the U.S. until after 2025. The State Department came to a similar conclusion in its rejection of the Keystone XL permit, finding that the overcapacity in pipelines means that volumes of Canadian imports would be not be effected by KXL until at least another decade.

BSJan 26 2012 08:43 AM


First, Canadian production statistics are for bitumen. That bitumen is then dilued, generally with condensate, to make it pumpable. So whatever production statistics you see for Canada, you still have to add in the condensate volumes. 25% or more of Canadian crude is actually the condensate or other diluent.

Second, production is expected to double over the next 8 years or so. Including diluent, that's an increase of well over 2MMbpd that needs to be moved by pipeline. What do you want them to do? Build a bunch of tiny pipelines, one every year to match production? Not only is that energy inefficient, it's a much higher environmental risk than one big one. Additionally, Keystone XL is meant to also carry significant amounts of US Bakken crude, so the space is not just allocated to oil from Canada.

The US exports diesel because we use proportionally more gasoline. The US IMPORTS 1MMbpd of gasoline, a statistic you conveniently ignore. You also ignore the fact that US refining has spare capacity and several refineries are on the verge of shutting down due to low margins. And you ignore that a significant portion of our exports go to places that have no refineries. So without our exports, they have no fuel.

Your comments about foreign trade zones and duties are irrelevant. A refinery doesn't have to be at a port to export their product. We have these things called pipelines. Refined products are fungible, and a barrel of diesel from Illinois is the same as one from Houston. A refinery in Illinois can just as easily make diesel for export as one on the gulf coast can. All they need is access to a common carrier pipeline that terminates at location capable of loading product onto ocean-going vessels.

See how the story is a little bit different when you consider all the facts and not just the ones that suit you?

Stan MickelsJan 26 2012 01:00 PM


Do you know what portion of the KXL capacity would be allocated to Bakken oil?

If an additional oil pipeline needs to be added and it is going to traverse across the USA, I would like to see it filled with US oil instead of CN oil.

Or better yet, It seems obvious from the points you made that CN needs additional PIPELINES. Why doesn't Tanscanada or Enbridge build a pipeline to the west to BC. It may be in the best interest of both CN and the USA to have the option to ship our oil north then west or to the south to US refineries.

BSJan 26 2012 04:41 PM

Stan--No, I do not know. Sorry. However, US oil production is growing by leaps and bounds. There are a lot of pipelines that are being built, reversed, or expanded to handle this increase in production. This includes pipelines going in to move Bakken oil.

There's also a lot of US oil being moved by train right now until pipelines can handle more of the new oil production.

Remember, Canadian oil used in the US offsets oil imports. We currently get a lot of heavy crude from unfriendly Venezuela. So those imports might be the first to go away if we import more oil from Canada.

YUSAJan 28 2012 06:25 AM

BS- I'm trying to find more objective material to research this, can you refer anything?

BSJan 28 2012 09:45 AM

For pipelines, the US govt regulates them and keeps statistics. You could try PHMSA. There should be other regulatory bodies that keep statistics on other aspects.

Exxon Valdez was probably a critical turning point where ruining the environment finally became unacceptable.

GaryJan 29 2012 03:20 PM

B.S., we have more than just two choices, Canada shipping their toxic unneeded goop west or south through the U.S. The main issue is that WE NEED TO STOP EXTRACTING AND BURNING THE STUFF NOW! The true costs of extracting, transporting and using fossil fuels are deliberately hidden, externalized and deferred to the future by short-term opportunists. Mr. Swift's well presented facts make fools of the Congressional puppets who are still promoting this affront to American taxpayers called "Keystone XL".
It is faster, cheaper and easier to use less energy than it is to keep expanding supply. But that doesn't enrich the bygone fossil fuel profiteers, does it?

Doug WhitingJan 30 2012 11:32 AM

I'm not a pipeline Engineer so I don't know what capacity factor they use for deciding on when they need more pipeline capacity. But I'm pretty certain that the pipeline capacity numbers are being misused. Yes it will take time to for the prodcution to increase enough to over stretch the capacity of existing lines. You don't build a road or a bridge for todays capacity you build it for tomorrows capacity.

Anyway if they build it too soon then the pipeline companies and the oil coampanies loose as they have $ tied up not making any profit. The oil comapnies have a big motive that the pipeline companies don't get too far ahead of production.

Doug WhitingJan 30 2012 11:36 AM

The US import 8 mil barrels aday. Thats a lot. About 2 mil from Canada. Canada want to increase that. If the US doesn't want bitumen then the heavy oil can be upgraded so the value added is done in Canada. Hell it could even be refined in Canada if the US shuts down its refineries.

If the US want to reduce oil consumption increase the price like the Euros do. Tax it so gas is 6-8 a gallon. That will cut consumption.

BSJan 30 2012 02:00 PM

Gary--I respect your preference for non-petroleum energy sources, and I hate seeing energy wasted. However, I do not believe it even remotely realistic to expect such a change to happen overnight (i.e. in the next 10-20yrs).

But if you have a plan that is specific and actionable, I'd invite you to share it.

However, Mr. Swift's blog is neither honest nor factual. The facts are quite easily refuted. Remember, facts aren't just whatever information happens to marry up to your existing opinion. Facts are facts, regardless of what you or I believe. This article was not factual, and it's clear that even Mr. Swift himself is unable to back up his claims.

BSJan 30 2012 02:03 PM

Doug--You make a good point. The first Keystone pipeline had a very low expected rate of return. They only built it because of the fact that all the shippers were willing to be contractually obligated to ship their barrels. Without those committments, the line would not have been built.

The first Keystone line has not yet turned a profit. The idea that they'd build another one and take all the oil off the first one is absolutely preposterous. TransCanada is in the business of making money.

Anthony SwiftJan 30 2012 02:06 PM

All: It's great to have a lively discussion on these issues and I respect that fact that, for the most part, the discussion has focused on issues of fact.

There are so many issues that need to be addressed that I'll commit to do so in a follow-up blog early this week - I think a comment isn't the best post to address everything.

BSJan 30 2012 02:10 PM

Doug--The capacity numbers are being mis-used in at least two ways.

First, the bitumen is actually diluted with condensate or some other light hydrocarbon to thin it out so that it can be pumped efficiently. So when the author references Canadian oil production, he's leaving out the condensate that is at least 25% of the volume shipped.

Second, you are right that they try to plan ahead. Clearly they don't want to build a bunch of small pipelines when on big one would be much cheaper to build and operate (not to mention safer).

The first Keystone was built based on shippers having already committed contractually to ship their barrels. I'm not sure about the second one, though. Perhaps it is more speculative.

BSFeb 7 2012 09:57 AM

Anthony--You had promised a follow-up article. Have you had time to confirm that everything I've said is, in fact, true?

If so, could you please let your readers know?


Anthony SwiftFeb 14 2012 11:56 PM

I've addressed most of these comments in a long comment in the "New Report: Keystone XL will undermine U.S. Energy Security" blog.

Just a quick and important point - the United States is a net exporter of gasoline as well as diesel. U.S. imports of gasoline were 109,00 barrels a day in 2011, compared to 442,000 bpd of gasoline exports. Most imports were received in the East Coast while gasoline was exported from the Gulf. This is publicly available from the Energy Information Administration.

While pipeline companies do need to plan somewhat in advanced. This however is not a matter of prudent planning. Even relying on production estimates that historically proven to be wildly exaggerated, Keystone XL is not needed to increase U.S. imports of Canadian crude for more than a decade.

Regarding the condensate - it's counted in Canada's production numbers. Western Canada produces the vast majority of condensate and synthetic crude used to dilute tar sands bitumen. It would be double counting to assume that that condensate would be exported individually and as a diluent for bitumen. The argument that 25% of the volume being shipped is left out would only be valid if Canada imported all of its condensate from the United States. That's not the case.

The first Keystone pipeline is generating profits for TransCanada. Of course it hasn't paid all of its capital costs yet - but its a 50 year piece of infrastructure and has only been in operation for a year.

The Midwest can't export gasoline as easily as the Gulf can - and if you take a look at EIA data, you'll see that in 2010, the Midwest exported 37K bpd of refined product (to Canada) while the Gulf Coast exported more than 2 million bpd.

Keystone XL will allow only 100K bpd from Bakken, there was only 65 bpd of interest, and that was before the Bakkenlink pipeline, that would connect KXL with ND Bakken production, was shortened - now there isn't a means to get Bakken crude to KXL. KXL is intended to carry Canadian crude, not US crude.

Mke FerongMar 22 2012 11:53 AM

I think the overall price of fuel won't be affected by the addition of more oil to the US by building this pipeline, for the simple fact that right at this moment we are producing more oil than in the past and also US consumers are using less. So the supply and demand issue that used to regulate gas prices has been taken over by the global market speculators. Until that factor is resolved the people that have nothing to do with producing, transporting or using oil will control the price of this commodity, with our Congressional leaders help. The corruption in our government, and political ties to big oil will keep them from rectifying the problem for the people they represent!! Campaign money for their re-election is way more important than their constituents energy prices.

l smithApr 6 2012 04:18 PM

Obamas' decision was a big "Wake-up Call" for the Canadian Prime Minister. They will take the pipeline to their west coast so that America will not hold this market captive thus creating a security risk.
Thanks to Obama, Canada will now enter the oil world market. They are trying to transpose what will occur on Canadas' west coast, to what would have happened at our gulf coast.
Of course those companies are now talking about diversifying.

Joseph ToomeyApr 14 2012 11:21 PM

To anyone still interested in this topic, Mr. Swift has erected a massive edifice of logic based upon his assumption that Gulf refiners, based in Foreign Trade Zones, would qualify for duty deferral on imported product and then would avoid duty payable exposure in their entirety once those refined products were subsequently exported. All of those observations are valid and 100% correct.

Swift therefore assumes that the FTZ status of Gulf refineries will offer imported crude from Canada a hefty duty avoidance incentive to export finished product. There is a mountain of discussion that follows this key assumption. Everything he argues is based upon his belief in this chain of logic. The problem is, Canada is a signatory party to NAFTA. Hence, crude oil imported from Canada to the U.S. is subject to a zero percent duty whether it lands in an FTZ or not. So, irrespective of the FTZ status of the refiner, there were no duty offsets or deferrals in the first instance. His entire chain of logic is built upon a complete lack of understanding. In other words, it is built upon ignorance of the facts.

There may be an encyclopedia of reasons to either support of oppose the Keystone XL pipeline. But duty avoidance or an imagined economic incentive from duty avoidance on exported products from Gulf refineries is not one of them, because there is no duty deferral or avoidance economic incentive. But to know that would have required a measure of knowledge that Mr. Swift does not possess.

Big WoodyApr 18 2012 08:29 AM

Mr. Toomey, I think you and the article have both missed the real issue here. It is not Canada that will benifit. It is companies like Valero. Valero does not care if Canada and/or the US tax it's transactions on oil. It wants to get the profit on oil sales. It sells Canadian oil to the US and gets it's cut. Because of the oil they sell to the midwest, there will now be more available to sell offshore from the gulfcoast. So they now get their cut of the oil sold from Houston. Valero realizes N. America has such great quantities of oil that the investment now will pay off for decades. Continued unrest in the middle east will make N. American oil worth more than we can now imagine during those decades.
If it were Canada promoting the Keystone, they would simply build it to Vancover (700 miles closer and a free trade zone) or to Hudson Bay. They would build new refineries in either place. and make all the profit themselves. Canada has a nack of cutting red tape if they feel it is worth their while.

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