Report: Keystone XL oil won’t end up in U.S. drivers’ tanks *updated*

Environmentalists fighting a controversial oil pipeline insisted today that the Canadian crude it would carry will be exported by refiners instead of remaining inside the U.S.

The arguments were advanced in a new report from Oil Change International, a clean energy advocacy group that opposes the proposed Keystone XL pipeline, which would stretch 1,700 miles from Alberta to the Gulf Coast. The eventual fate of the Canadian oil sands crude — and the possibility that it would be exported after a short trip through Gulf Coast refineries — also has come up in congressional debates about Keystone XL.

According to the report, the refiners at the end of the pipeline’s planned route (in Port Arthur, Texas) are focused on expanding exports. Oil Change International says those plans undermine a common industry argument in favor of the pipeline — that it will enhance U.S. energy security by supplying America with more crude from a friendly North American ally.

The energy security argument is also a key factor in the Obama administration’s analysis over whether the pipeline would be in the “national interest.” Secretary of State Hillary Clinton is set to make that national interest determination by the end of the year — paving the way for a presidential permit authorizing the project.

“To issue a presidential permit for the Keystone XL, the administration must find that the pipeline serves the national interest,” said Stephen Kretzmann, director of Oil Change International, in a statement. “An honest assessment shows that rather than serving U.S. interests, Keystone XL serves only the interests of tar sands producers and shippers, and a few Gulf Coast refiners aiming to export the oil.”

The report hones in on the long-term plans of Valero, the nation’s top independent refiner, and cites recent investor presentations and comments by CEO Bill Klesse that outline a growing diesel export strategy. According to financial disclosures, Valero exported 65,000 barrels per day of gasoline to Mexico and South America during the first quarter of 2011; at the same time, it sent 165,000 barrels per day of diesel to Europe and Latin America.

According to the report:

“The idea that Keystone XL enhances U.S. energy security is undermined by Valero’s business model that seeks to export products made with imported oil while further importing gasoline from a third country.”

Oil Change International also says Valero is poised to claim big tax benefits from its Port Arthur refinery’s status as a Foreign Trade Zone, which ensures duty-free treatment on items that are processed within the zone and then reexported.

According to Oil Change International:

“Usually, refineries importing oil tax-free will still pay taxes when selling the refined products into the U.S. market. By both importing into and exporting from Port Arthur, the company will avoid paying tax on the product sales.”

Valero spokesman Bill Day called the report “misleading,” and stressed that even though the company is exporting an increasing amount of products, “the volume of exports remains relatively small,” and “the vast bulk of our products are made for domestic consumption.”

“The pipeline would provide a steady supply of oil from a nearby and friendly trading partner, in a manner that is more efficient than bringing cargoes of oil in by ship,” Day added. “Keystone will generate 20,000 jobs, increase property values and generate tax  revenue that will directly benefit hard-hit cities, counties (and) school districts.”

The potential fate of the Canadian oil sands crude that Keystone XL would carry also has been debated on Capitol Hill. During a May House Energy and Commerce subcommittee hearing on Keystone XL, National Wildlife Federation vice president Jeremy Symons insisted that the pipeline would give oil companies an avenue for exporting the Canadian crude to energy-hungry China.

“The pipeline will take Canadian oil that is already flowing to America away from U.S. refineries in the Midwest and send it instead to foreign-owned refiners on the Gulf Coast for export,” Symons said at the time.

The $13 billion Keystone XL pipeline would double the capacity of an existing TransCanada Corp. pipeline network that now ends in Cushing, Okla. The proposed pipeline expansion initially would allow an additional 700,000 barrels per day of crude oil to flow into the United States.

The oil it would carry is synthetic crude and diluted bitumen harvested from the oil sands of Alberta, Canada using open-pit mining and in-situ techniques.

Canada is estimated to have 175 billion barrels of recoverable crude oil — a supply that is more than eight times U.S. reserves and which puts it second only to Saudi Arabia in stockpiles. Right now, almost all of Canada’s oil sands crude goes to the U.S. — about 1.1 million barrels per day in 2010. But the crude cannot be delivered by pipeline to the Gulf Coast.

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About The Author

Jennifer A. Dlouhy covers energy policy, politics and other issues for The Houston Chronicle and other Hearst Newspapers from Washington, D.C. Previously, she reported on legal affairs for Congressional Quarterly. She also has worked at The Beaumont Enterprise, The San Antonio Express-News and other newspapers. Jennifer enjoys cooking, gardening and hiking. She lives in Washington, D.C., with her husband and toddler son.