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Why Would the Illinois General Assembly Want to Increase Gas Prices?

Henry Henderson

Posted March 27, 2012

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It is official. Chicago is in the grips of the highest gas prices in its history.  With that reality firmly shoved up our noses, you’d think that lawmakers would do everything they can to help the situation, not make it worse. Right?

Well, not in Illinois. A bill just introduced into the Illinois General Assembly gives a full-throated call of support for diverting oil OUT of the region, which would likely  result in further cost increases for fuel here and across the Midwest.

The bill is HR 877. It urges the U.S. Congress to push approval of the Keystone XL pipeline, a controversial tar sands pipeline project to connect the dirty tar sands oil mines in Alberta with refineries in Houston. The problem for Illinoisans is that the pipeline will result in higher priced oil in the region. That is a cost likely to be passed on to consumers in the form of increased gas prices---some estimates say an increase of $.25/gallon throughout the middle of the country. And the diverted oil will go to the Gulf for export out of the USA. (Yes: export. Even now, despite record gas prices, America is a net exporter of finished petroleum products and the Keystone XL pipeline will help increase the trend).

Perhaps more galling than just advocating for increased gas prices in Illinois, the bill directly or indirectly repeats an array of debunked myths and mistruths about the pipeline that have been knocked down in the national media repeatedly. I am not sure if the bill’s sponsors haven’t bothered to crack a newspaper or just don’t care, but here are some clear issues with the bill:

The bill implies that it will give gas price relief. As noted above, nothing could be further from the truth here in Illinois. The Keystone XL pipeline is designed specifically to increase oil prices in the Midwest, something specifically noted in the pipeline builder’s own filings, which is in turn, likely to increase gas prices paid in much of the middle of the country.

Here is NRDC’s fact sheet on the subject:

But don’t take my word for it. Check out these articles from across the nation:

The bill implies there will be lots of jobs. They wisely avoid including any actual numbers in the bill text, probably because the claims of massive employment windfalls have been debunked again and again. The pipeline builder told CNN “hundreds, certainly not thousands” of permanent jobs. The State Department guesses 20.

Here is NRDC’s fact sheet on the subject: 

But don’t take my word for it, try some of these folks:

The bill whines about “delays in permitting” the pipeline. Of course, the bill sponsors don’t mention that a final map of the pipeline does not even exists at the moment. The pipeline builder is in the midst of diverting the route away from the sensitive Sandhills region of Nebraska and Ogallala Aquifer after a public uproar from ranchers and farmers about safety concerns that could ruin the largest source of fresh water in the Great Plaines. The raw tar sands oil likely to course through the Keystone XL pipeline presents unique safety issues due to its thick and acidic nature. This is something the bill sponsors should be aware of due to their proximity to the first Keystone pipeline which terminates in eastern Illinois---it sprang more than 30 leaks on both sides of the US-Canada border in its first year of operation alone and has the dubious distinction of being the youngest pipeline to be shut down by the federal government as a threat to human health and safety.

The bill implies that the pipeline makes us more energy secure and calls on the Department of Defense to support the pipeline. I don’t know why they are bringing the Department of Defense into this, but our armed services are doing everything they can to cut their dependence on oil; all oil. They are investing heavily in energy efficiency and aggressively using renewables as both a smart economic and smart security move. They are studying and testing biofuels. And have repeatedly said that climate change that is resulting from our dependency on fossil fuels is a threat to American security.

Here is NRDC’s fact sheet on the subject:

But don’t take my word for it. Listen to retired Brigadier General Steven Anderson, Chief Logistician in Iraq and Afghanistan under General Petreaus, who says that Keystone XL makes us less secure; not more:

Look, in the last year, the Illinois General Assembly has been active on energy issues, with pricy results. There are the bills advancing a pair of super expensive synthetic gas plants, which would force customers across the state to buy dirtier, super-expensive fake natural gas while the country is awash in cheap natural gas. And there is the Tenaska “clean coal” boondoggle, which would force several generations of electric ratepayers in Illinois to subsidize an unnecessary coal plant to the tune of billions of dollars with increased utility bills. Given the fragile state and national economies, this is exactly the wrong time for the state legislature to work that same magic on gas prices…And now comes this utterly wrong-headed Keystone bill with its promise of higher gasoline prices.

But there is something our legislators should be doing. The real solution to our gas price problem is not doubling down on the dirtiest oil on the planet---instead we need to lessen our dependence on oil. That is what S.B. 3527, the “Get Illinois Off Oil Bill” would start to do, by developing a plan to reduce consumption by 30% by 2030. That would be concrete and timely action to help the economy of Illinois; rather than making it much, much worse.

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BSMar 28 2012 08:17 AM

You only left out one key piece of information. That the reasons that Chicago has such high prices include the fact that the area currently has very little access to cheap Canadian crude oil.

For reasons I am not familiar with, the glut of Canadian oil around St. Louis hasn't helped Chicago. Instead, they rely on more oil imported from overseas, which is much more expensive.

That plus the more stringent regulations around summer gasoline formulations tend to make prices very high in Chicago.

So what do high prices in Chicago have to do with Keystone XL? Nothing? You mean you're just using the financial struggles of Chicago-area residents to further your radical agenda?

Sounds like you just alienated several million people.

BSMar 28 2012 09:01 AM

Yay! Another pipeline to carry Northern US and Canadian oil to help improve energy security and reduce oil prices!

With a spare refining capacity of only about 150,000barrels/day and a potential to bring in another 2,000,000 barrels/day of oil from up north to the TX gulf coast, imports from OPEC in this area may soon be a thing of the past!

NRDC, if it seem like nobody is listening to you, it's probably because nobody is listening!

Josh MogermanMar 28 2012 09:41 AM

BS, as always, thanks for reading. Clearly, you are listening, but I am afraid that once again you are wrong. I can see the BP Whiting Refinery from the south side of Chicago. The City gets refined products from that refinery and two others in suburban Chicago. Lately, outages at those facilities have been part of the reason for price spikes here.

You are once again coy about the price spread that Keystone XL is designed in part to eliminate, and increase oil prices in this region, something worth billions of dollars to your industry (as you have mentioned in previous comments that you are a Canadian oil exec). Anyone who looks at the growing coverage of the issue in mainstream media can see that you are once again living up to your moniker.

BSMar 28 2012 01:41 PM

LOL. I said I'm a Canadian oil exec, huh? I'm in Texas, and I doubt I'll ever be an executive of anything. I work for an American company. And while we a major company in the oil industry, our profit really isn't even tied to the price of oil.

And I'm not "coy" about anything. Yes, Canada wants the price of their oil to increase. However, increasing the overall supply of oil reduces the overall price of oil (i.e. Canadian oil goes up, others go down). This is basic economics, and it's the piece of the economic puzzle that the NRDC refuses to acknowledge.

Since you brought up specific refineries, here is a new story about the Whiting refinery:

As you can see, it's ability to process Canadian crude is currently limited. By 2013 they expect to be able to utilize up to 80-90% Canadian crude.

I do see outages have cause problems, but the prices are high mainly due to botique blend requirements, less access to cheaper crudes (esp Canadian), and taxes that are aparently some of the highest in the nation.

BSMar 28 2012 02:10 PM

Oh, and I must doubly thank you for bringing up the refinery.

Another one of NRDC's myths is the claim that Keystone XL will divert Canadian crude away from Midwestern markets. Yet here we have BP spending billions to re-tool it's refinery to run much, much more Canadian oil. Proof that you claim of oil being diverted away is a lie.

You walked right into that one. Thanks.

Josh MogermanMar 28 2012 02:38 PM

Mr. BS---

Again, thanks for taking the time to comment---however, I'd ask you to re-read the post. Henry does not blame the current historic high prices of gas in Chicago on tar sands; he notes that it signals odd timing for the state legislature to champion a project which has been noted in mainstream business media (Bloomberg, Businessweek and the like, links in the post) as likely to make a bad situation worse.

We are very aware of the BP Whiting refinery and have actively litigated the inadequate pollution controls and pollution permits at the facility. Your reasoning on the investment in that plant is flawed and misconstrues the whole point here. As noted here and in previous blogs you have commented on, the price spread for tar sands oil in the midwest is problematic to the oil industry. More problematic is the trend at reduced fuel consumption in the US paired with increased production of Canadian tar sands. Keystone XL is a project designed to increase exports by moving oil out of the Midwest, down to refineries located in tax-free international business zones near Houston. Moving oil out of this region closes the price spread and accesses the Gulf's robust petroleum transport infrastructure. The pipeline goes through the US, but it is not for the US. Higher gas prices and increased safety threats likely to result from the project are not in the US's interest, even if they are in Big Oil's.

BSMar 28 2012 07:22 PM

I know he didn't. I just added that Chicago's gas prices would be lower if they were able to utilize MORE tar sands.

BP is counting on MORE tar sands when their refinery expansion is complete, right? I misconstrued nothing. The plan is for tar sands use in the midwest to INCREASE even as the XL system is built. This contradicts the NRDC's claim that the XL project will divert tar sands AWAY from the Midwest.

BSMar 28 2012 07:27 PM

With respect to exporting (which is not a bad thing), I've said it over and over. The TX gulf coast has spare refining capacity of about 150Mbpd (see data). That will expand, but will also be offset by refineries in the east closing.

So let's say that number even triples to 450Mbpd (which isn't going to happen). XL plus Enbridge's proposed pipelines will bring well over 1MMbpd of additional oil to the TX gulf coast. Do the math. Imports will decline by at least 550Mbpd.

And please stop the tired "tax free" argument. You know full well that inland refineries are also in "foreign trade zones" (not the same as "tax free") just like the ones on the TX gulf coast.

We can argue about this all you want, but your claims are easily refuted by actual data.

Comments are closed for this post.


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