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Anthony Swift’s Blog

New report: Keystone XL will undermine U.S. energy security

Anthony Swift

Posted January 18, 2012 in Moving Beyond Oil, U.S. Law and Policy

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NRDC and Oil Change International released a report today showing that the proposed Keystone XL tar sands pipeline would undermine U.S. energy security and increase the price of Canadian crude. Canada doesn’t produce enough crude to fill the pipelines it already has. In fact, crude export pipelines to the United States are currently running half empty. That means that another pipeline isn’t going to bring more oil into the United States – it’s just going to take the oil that was already coming to a different place. Keystone XL will take oil from the Midwest to the Gulf Coast – where it can be sold on the international market where the price for many petroleum products is higher. Exporting Canadian crude at higher prices on the world market may increase profits for the tar sands industry, but it undermines U.S. energy security and increases prices for American consumers. True energy security and economic progress for the United States can be achieve by developing advanced car and clean energies technologies. This route takes us to millions of new jobs and clean air benefits, making our nation a leader in the international clean energy market.

Here is a summary some of the report’s findings:

Keystone XL will not bring additional oil into the United States. Existing crude pipelines from Canada are half empty right now. Canada doesn’t produce enough oil to fill them and isn’t expected to for more than a decade. If Canada had more oil to send to the United States, it would already be doing so.

Keystone XL is a pipeline through the United States, not to it. The vast majority of Canada’s export pipelines go to refineries in the U.S. Midwest. These refineries sell gasoline, diesel and motor oil to American consumers. Keystone XL will divert up to 830,000 barrels a day of oil from the Midwest, sending it instead to the Gulf Coast and the international market.

Gulf Coast refineries have tax incentives to sell refined products to international customers. Refineries in the Gulf Coast are engaged in an active export business – they sell more than 2.2 million barrels of refined products a day to the international market. That’s almost three times as much as Keystone XL would carry at full capacity. In fact, because these refineries are located Foreign Trade Zones, they won’t have to pay U.S. duty taxes if they sell to foreign customers.

Keystone XL will increase Midwestern oil prices. In the Midwest, American consumers are the primary market for refined products. Keystone XL will draw Canadian oil away from the Midwest and give it access to the international market in the Gulf – and the international price for many refined products is significantly higher than the U.S. price. TransCanada has acknowledges this, estimating that Keystone XL would increase the price the United States paid for Canadian crude by between $2 billion and $3.9 billion a year.

Canadian oil doesn’t protect the United States from oil shocks. Canadian oil production has no spare capacity – if something happens abroad to increase oil prices, Canada can’t turn the tap to increase U.S. oil supply. As the Canadian government has stated itself, it takes the global price of crude oil, it doesn’t make it. The only way to insulate the United States from the vagaries of unstable oil producers is to reduce its reliance on crude oil.

Clean energy technologies can put Americans back to work and provide real energy security for the United States. Over the next twenty years, the United States could reduce its oil consumption by 5.7 million barrels a day by adopting an Oil Savings Plan. These policies simply promote technologies that exist today – adopting measures to build more fuel efficient vehicles, better community planning and public transit, and using cleaner fuels. These would save U.S. consumers could save over $200 billion a year while putting American back to work manufacturing solutions to high gas prices and unstable oil markets.

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Comments

Phil MirandaJan 18 2012 06:52 PM

Wth

Ty CoonJan 19 2012 10:01 AM

you got it.
I would add that the job forcast is fantasy. Or an outright lie. It gets worse if North Dakota and/orMontana fracked oil gets in the pipeline. We can then add ground water poisoning and earthquakes to the pollution we get and the loss of fresh water used to refine the oil.

Bill SweetJan 19 2012 12:41 PM

Talk is cheap. I need to see the details and hard numbers that support each argument. Remember this is an election year!

Anthony SwiftJan 19 2012 01:01 PM

Bill: Isn't that the truth! Take a look at the report itself for the details and hard numbers. They're there! It's at: http://www.nrdc.org/energy/kxlsecurity.asp

Ty: You're right on the jobs - the State Department's report on its recent KXL decision debunks the inflated job numbers that are being thrown around.

B SJan 24 2012 12:58 PM

Wow. This article is even more factually inaccurate than your last one. The only accurate point you make is the one about Canada not having spare capacity to absorb "oil shocks". Unfortunately, that point really isn't relevant, since other markets have that spare capacity and will still be able to absorb the shocks.

I'll pick just one to address, and that's the idea that we export 2.2MMbpd of refined products.

First, USGC refineries may be in foreign trade zones, but so are most refineries, including the ones in the middle of the country. So that point is irrelevant.

Second, you purposely mislead your readers by pointing out that we export over 2MMbpd of refined products with out also pointing out that we also IMPORT over 1MMbpd of refined products. The imbalance is because we export primarily diesel and import primarily gasoline.

Lastly, a lot of our exports go to countries that have no refining capabilities. Please let me know if you think it would be appropriate to just cut those countries off and make their people starve.

dougwFeb 9 2012 04:50 PM

read report, but if its not necessary then why does Transcanada say it is as its putting its money on line Billions. TC says that new capacity will be required by 2014-2015. If there is that much too much capacity then the point is moot isn't?

The report quotes Enbridge that is not needed , a TC competitor, who is doing Gateway to export oil and Trail breaker to gt more oil to eastern Canada. Seems strange that all of these companies are wrong.

S. GunasekaraFeb 10 2012 12:30 PM

Anthony,

I appreciate the discussion. I would, however, suggest retracting the following: "In fact, because these refineries are located Foreign Trade Zones, they won’t have to pay U.S. duty taxes if they sell to foreign customers."

Canadian crude, like Mexican crude, is not subject to U.S. duties under NAFTA. The fact that these refineries are in FTZ's has no impact whatsoever on the U.S. duties applied. I would also like to point out that by refining Canadian crude in an FTZ and then exporting the product these refineries would lose that U.S. duty advantage over say a Venezuelan crude if the same products were sold into the U.S. market. From that perspective it makes more economic sense to keep refined product from Canadian crude here in the U.S.

Anyway, I just thought I would point that error out to you.

BSFeb 14 2012 05:01 PM

Don't count on any retractions any time soon. Anthony Swift promised an article several weeks ago to address all of the facts I've presented to counter all the misleading and false statements coming out of the NRDC.

I'm still waiting on that article....

These guys know they're lying to the public, and when challenged on the facts, they are suddenly speechless.

Anthony SwiftFeb 14 2012 11:14 PM

Easy BS. I’m afraid there were a number of things that I had to prioritize ahead of getting back to you. But here are a few quick responses.

1. Let’s start with a few important facts about U.S. imports of refined products. Using EIA data, in 2011 the United States imported 934K barrels per day (bpd) of refined products – and most of these (515K bpd) went to the East Coast where there is a relative shortage of refineries. We imported 109K bpd of gasoline – again, most of that went to the East Coast.

2. Now let’s go to exports. In 2011, the U.S. exported 2.45 million bpd of refined products – that makes us a net exporter of 1.5 million bpd of refined products, not 500K bpd – and most of that (1.844 million bpd) was exported from the Gulf Coast. In fact, the Gulf Coast was a bigger net exporter of refined products than the U.S. was (1.55 million bpd), because we export from the Gulf and our much smaller imports mostly come into the East Coast. We exported 466K bpd of gasoline – again, most of that from the Gulf Coast.

3. We know that the U.S. uses more gasoline and international markets tend to favor diesel. TransCanada claims that after oil from Keystone XL is refined, though diesel may be exported to Europe and Latin America, the U.S. would import gasoline in return. There’s a major problem with that argument - the United States is a net exporter of gasoline. The Gulf Coast imported 32 bpd of gasoline in 2011 and exported over 420K bpd. While the Gulf is focused on exported diesel, it’s also exporting gasoline.

4. Now, some comments have observed that Keystone XL will not increase U.S. refined product exports – it will just back out other sources from Mexico and Venezuela. That’s actually correct. Here’s the problem – Keystone XL also isn’t going to increase Canadian imports to the United States for over a decade. The pipeline will bring Canadian crude from the Midwest (where it was going to US customers) and taking it to the Gulf, where it is being refined and sold to international customers (replacing Mexican and Venezuelan crude which was being refined and sold to international customer). Do you see how this reduces the amount of crude available to the U.S. market and increases our prices?

5. I’d like to note – nobody is making a normative statement that Gulf Coast refiners shouldn’t be selling their products to other countries. The problem is when a project like Keystone XL is being promoted to the American people as a means to increase U.S. energy supply and reduce gas prices. It’s not – in fact, it’s going to do the opposite.

6. Regarding the one comment on the 2008 PGI analysis suggesting both that Keystone XL would increase U.S. oil prices and that Canadian pipelines would reach capacity in 2015. Here is why we accept one conclusion and not the other. The underlying production forecasts PGI relied on to predict that Canada would exceed it’s pipeline capacity have proven to be wildly exaggerated. However, the price differentials between Canadian crude, West Texas intermediate and the international crude market (Brent) which was the basis for PGI’s finding that Keystone XL would increase prices in the U.S. have only increased. Were PGI to do its analysis today, it would find that Keystone XL would increase the amount the U.S. paid for Canadian crude by more than $2-4 billion a year.

7. The U.S. was a net exporter of refined products in 2008 when Keystone XL was proposed.

8. A commenter asked why TransCanada would invest billions of dollars into a pipeline if it wasn’t needed. The operative question is – needed for what? Keystone XL will increase the price of Canadian tar sands, it will increase U.S. oil prices and it will generate a profit for TransCanada (for those reasons). It will not increase U.S. oil supply or energy security.

As a more general note, let's keep our discussions on a level of mutual respect. One thing I think people on all sides of this issue can agree upon is that added civility is something that our public discourse could see more of.

KurfcoFeb 15 2012 03:06 PM

The oil from Keystone XL will NOT be exported. This article is full of misunderstandings and misinterpretations. The reason the oil is going to the Gulf Coast is obvious -- the absolute heart of the US refining industry is along the Gulf Coast, not in the Midwest. Oil is refined there, then shipped in products pipelines to the West and East and Northeast. No one is going to import oil on one ship (we still import 50% of the oil we use -- check the EIA data) and export oil on another ship. Where did this nonsensical idea originate? ! Some oil may be refined and exported but since when are exports, made in American plants, employing American unionized refinery workers a bad thing?

Anthony SwiftFeb 15 2012 04:06 PM

If you take a look at the Energy Information Administration's statistics, you'll see that the Gulf Coast exports 33% of the oil it processes (in November '11, it exported 2.4 million bpd out of 7.5 million bpd).

While the Midwest doesn't refine as much, it exports virtually nothing (in Nov. '11, it exported 0.2 million bpd out of 4.2 million bpd).

Right now, there is plenty of pipeline capacity from Canada going to the Midwest - so Keystone XL isn't going to increase our national oil supply. Also, crude from the pipeline is expected to replace other sources currently coming into the Gulf.

So that means you're taking oil from the Midwest, where virtually none of it is exported, and sending it to the Gulf, where a third of it is exported. The Gulf doesn't get more oil than it would have otherwise (according to DOE's EnSys report). The net effect is that oil which almost entirely had been going to US consumers in the Midwest is being diverted to a place where a significant portion will be exported.

One correction - our refineries import 50% of the oil they refine. The United States does not use all of the oil it processes in its refineries.

Again, there's nothing wrong with exporting refined products - the trouble is when you sell a project intended to take oil to be refined and exported and promote it as a way to increase US oil supply and energy security.

But another issue with Keystone XL - DOE shows that we'll be refining the same amount of oil in the Gulf with or without Keystone XL - it will just be sourced differently (though we'll have less oil in the Midwest with KXL). American unionized refinery workers don't need Keystone XL.

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Switchboard is the staff blog of the Natural Resources Defense Council, the nation’s most effective environmental group. For more about our work, including in-depth policy documents, action alerts and ways you can contribute, visit NRDC.org.

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