Three Facts You Should Know About the Keystone XL Tar Sands Pipeline and Exports

When he vetoed legislation meant to force approval of the proposed Keystone XL tar sands pipeline last week, President Obama noted that the project is designed largely as a way to route Canadian tar sands to the global export market.

Sure enough, the Gulf Coast refineries the pipeline would serve already export the majority of the fuel they produce, leading a four fold increase in U.S. petroleum exports overall in just the past decade. Meanwhile, tens of thousands of barrels of unrefined tar sands are being exported for Gulf Coast ports daily—a figure that many energy experts expect to increase dramatically should Keystone XL be permitted.

The Washington Post Factchecker responded with outdated and demonstrably incorrect information, relying on an industry report we've debunked and dated State Department assumptions that have since proven wrong.

The President is on solid ground. The Keystone XL tar sands pipeline is an export pipeline through the United States, designed to increase the tar sands industry's access to the international market.

Here's what the President said:

"I've already said I'm happy to look at how we can increase pipeline production for U.S. oil, but Keystone is for Canadian oil to send that down to the Gulf. It bypasses the United States and is estimated to create a little over 250, maybe 300 permanent jobs. We should be focusing more broadly on American infrastructure for American jobs and American producers, and that's something that we very much support."

—President Obama, interview with WDAY of Fargo, N.D., Feb. 26, 2015 (emphasis added)

1. FACT: Refineries interested in Keystone XL export the majority of their refined product.

As we've detailed over the years, the Gulf Coast has become a major exporter of refined products—and coastal refineries now export the majority of their production. According to the U.S. Energy Information Administration (EIA), Gulf refineries in coastal Texas and Louisiana exported the majority of their refined product for the first time in 2014 (with exports reaching 50.4% of their production over the course of the year). Gulf Coast exports of refined product reached an all time high of 3.5 million barrels per day (bpd) in December 2014. This means that Texas Gulf and Louisiana Gulf Coast refineries with access to coastal shipping exported 56% of the refined product produced in the region in December. We did not get here by accident—this has been part of a strategy that Gulf Coast refineries have been pursuing for over a decade to reposition from supplying the domestic market to maximizing their international exports—and this trend shows no signs of diminishing.

This trend is strongest among the refineries closest to the Keystone XL terminus points in the Texas ports of Houston and Port Arthur. These Texas coastal refineries began exporting the majority of their refined product in the final quarter of 2011, years before the ahead of their regional peers.

The refineries are leading a surge in U.S. exports of petroleum products, which have more than quadrupled in a decade, rising from 1 million barrels per day, on average, in 2004, to 4.2 million gallons a day in 2014 according to EIA data.

Valero, which is the largest buyer of capacity on Keystone XL, is at the forefront of this trend. Valero has been increasing the export capacity from its Gulf Coast refineries for years now. In its most recent investor presentation, Valero detailed plans to increase its Gulf Coast export capacity for gasoline and diesel alone to reach 780,000 bpd (slide 44). Given that the company's total Gulf Coast refinery capacity is less than 1.6 million bpd (slide 37), and gasoline and diesel production rarely accounts for more that 60% of a refineries output, this represents more the 80% of Valero's production of premium refined products. Moreover, lower quality refined products, such as petroleum coke—of which tar sands crude produces significantly more than conventional crude—tends to have much larger volumes exported than more products such as gasoline and diesel.

2. FACT: Unrefined Canadian tar sands crude is already being exported from the Gulf—a trend that is expected to increase.

The problem with the WaPo factchecker's argument that the Gulf Coast refineries would never allow raw Canadian crude to be exported is the fact that tar sands producers are already re-exporting 25,000 bpd of unrefined Canadian tar sands from Gulf Coast ports. That's about 10% of the total volume of Canadian crude making it to the Gulf Coast today.

Ed Morse, one of the few oil analysts who called the drop in oil prices, believes that this is just the beginning for Canadian crude re-exports from the Gulf and Martin King predicts them growing to 200,000 bpd in two years. To put that in perspective, that's more than two-thirds of all Canadian crude getting to the Gulf Coast today. We know industry is planning to re-export significantly larger volumes of Canadian tar sands from the Gulf because it is already sending millions of barrels of tar sands to refineries in Europe and Asia for testing and has spend enormous resources lobbying to weaken the European Union fuel quality standard to preserve access to that market.

The WaPo factchecker relies on the early 2014 State Department environmental review to support his critique of the President. The State Department report was published before 1) the Gulf Coast became inundated by domestic crude, lowering prices relative to international markets and 2) the trend of Canadian re-exports from the Gulf had become clear. Today, State's assumption that re-exports of Canadian crude wouldn't happen is no more accurate than its proposition that oil prices would stay between $90 and $140 a barrel. Re-exports of Canadian tar sands are a reality—and should Keystone XL bring more tar sands to the Gulf, energy experts believe they will increase substantially.

3. FACT: Keystone XL is designed for Canadian tar sands, not domestic crude.

Keystone XL was proposed in 2008, it was planned to be a bullet pipeline from Alberta to the Gulf for Canadian crude. While it's true that domestic oil producers negotiated on ramp with 100,000 bpd capacity for North Dakota crude, the state's producers have shown a marked disinterest in pipelines to the Gulf Coast, which is already inundated with light crude.

Rather than moving their crude by pipeline to the Gulf Coast, North Dakota's producers are shipping their product by rail to the East and West Coasts. According to North Dakota's Pipeline Authority, Bakken producers are only using about 25% of their existing pipeline capacity—the rest is moving by rail. They have turned down two major new oil pipelines—the 200,000 bpd Bakken Crude Express and the 250,000 bpd Dakota Express and are only using a fraction of their current pipeline capacity.

The North Dakota's Pipeline Authority shows the state will have 3.15 million bpd of rail and pipeline export capacity by 2017—the earliest Keystone XL could be built. Of course, that's three times as much capacity as North Dakota currently needs—and of that inflated figure, North Dakota only puts Keystone XL down for 20,000 bpd. Based on how much excess transport capacity North Dakota will have and how underutilized the state's pipelines already are, that figure will likely prove to be an overestimate.

Keystone XL is an export tar sands pipeline through the United States, not to it. It would carry tar sands to Texas Gulf Coast ports where refineries have been exporting the majority of their product for years and where an increasing amount of Canadian tar sands goes straight from pipelines to tankers to be exported elsewhere. Domestic producers in North Dakota not only don't need Keystone XL, by all accounts, they don't want it. And the pipeline would enable the expansion of some of the dirtiest and most carbon intensive crude oil in the world, undermining efforts to address climate change while putting our communities, lands and waters at risk. It is not in the nation's interest and should be rejected.

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