California billionaire Tom Steyer and other Keystone XL opponents pulled out another weapon in their fight against the pipeline on Tuesday, arguing that the project would cause gasoline prices to climb up to 40 cents per gallon in the Midwest.
According to a new report by Consumer Watchdog, Keystone XL would give Canadian oil a new avenue to competitors on the Gulf Coast and access to a global market, bypassing Midwest refiners who now rely on that discounted oil for more than half of their raw supplies.
The inevitable result, according to the 27-year-old not-for-profit group’s analysis: the discount on Western Canadian Select crude would disappear, causing Midwest refiners to pay more for the product and leading to higher gasoline prices for motorists in the region.
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California drivers also could see gasoline prices climb by a few cents per gallon, according to the analysis, since the West Coast also imports some Canadian oil.
Steyer, an activist who has invested millions of dollars in campaigns against the pipeline and supporting political candidates who want to tackle climate change, said the report directly contradicts the arguments of Keystone XL supporters that the project will widely benefit U.S. consumers. Instead, he said, the biggest winners if President Barack Obama approves the pipeline, are Canadian oil producers who are eager to fetch a world price for the crude.
“A vote for Keystone is a vote to raise gas prices on Americans and send the profits to a foreign oil company,” said Steyer, the founder of the hedge fund Farallon Capital Management. “It’s a consumer cost to the people of the United States of $3 to $4 billion.”
Canadian crude — including synthetic crude oil derived from Alberta’s oil sands — generally sells for a $20 to $30 discount per barrel in the oversupplied Midwest.
Analysts and oil industry leaders have said TransCanada Corp.’s Keystone XL pipeline would help ease the bottleneck in Cushing, Okla., allowing as much as 830,000 barrels of U.S. supplies as well as Canadian crude to reach the Gulf coast each day. For ExxonMobil, Shell Oil Co., and some other integrated oil companies, Keystone XL would effectively link their Gulf Coast refineries with their Canadian production.
TransCanada Corp. previously said the pipeline would help end an oversupply of Canadian heavy crude in the Midwest and likely increase its price in that market as a result. But a State Department analysis suggested price impacts in the Midwest are likely to be modest, at best. According to the State Department, which is reviewing Keystone XL:
“Midwest product prices are derived from Gulf Coast prices, both of which are in turn driven by international crude oil prices. Enabling (Canadian) crudes to flow to the Gulf Coast would not change this dynamic.”
The industry initiative Oil Sands Fact Check noted that the State Department also concluded that oil transported through Keystone XL is likely to be refined on the Gulf Coast, where facilities “have a significant competitive advantage in processing it,” over foreign competitor who would face additional transportation costs to obtain the crude.
Michael Whatley, executive vice president of the Consumer Energy Alliance, said the pipeline is essential to ensuring Gulf Coast refiners have domestic supplies to replace declining imports from Mexico and Venezuela.
“Gulf Coast refiners will need to increase their purchases fro low-cost North American sources or higher-cost overseas sources,” Whatley said. “Given that gasoline and diesel prices are pegged directly to crude oil prices, the construction of Keystone XL will reduce prices.”
The State Department is reviewing about 1.2 million public comments filed in response to a draft environmental study of the project, before issuing a final determination on whether Keystone XL is in the national interest. If any one of eight separate federal agencies disagrees with State’s decision, that would launch a process that would put the final decision in President Barack Obama’s hands.
Last month, Obama pledged that his administration would only approve the multi-billion-dollar pipeline “if this project does not significantly exacerbate the problem of carbon pollution.”
Environmentalists say the crude extracted from Alberta’s oil sands through mining and energy-intensive steam-based techniques produces more greenhouse gas emissions over its entire lifecycle than alternatives. Therefore, they argue, any project that sustains Canadian oil sands production contributes to climate change.
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But the State Department concluded in March that Keystone XL would have little impact on carbon pollution or oil sands development, with an estimated 0.83 million metric tons per year of carbon dioxide hanging in the balance. Even if Keystone XL were never built, the State Department concluded, trains and other pipelines would continue to foster Canada’s oil sands development.
Environmentalists dispute that assessment, citing Canadian resistance to other pipelines as evidence that other transportation methods may not materialize. Rail transport is limited by infrastructure and general costs more than moving oil by pipelines.
Although the northern leg of Keystone XL is on hold pending the Obama administration’s authorization, TransCanada has nearly completed the southern portion of the project.