President Obama has recently singled out the southern route of TransCanada’s Keystone XL tar sands pipeline as a means of getting domestic crude from the Midwest to Gulf Coast refineries. Here’s the problem – the Keystone XL pipeline is designed to move costly Canadian tar sands, not domestic crude, to the Gulf Coast. Not only are 90% of TransCanada’s contracts to move Canadian crude, but Keystone XL only contains two spots where only limited quantities of domestic crude can be put on board. Keystone XL is a pipeline for Big Oil companies producing tar sands in Canada, where the United States will receive very little benefit. President Obama should not provide special benefits to a company that seeks to build a tar sands pipeline benefiting Canadian tar sands producers. If getting domestic crude to the market is the problem, the Canadian Keystone XL tar sands pipeline is not the answer.
The Keystone XL tar sands pipeline simply is not designed to move significant volumes of domestic crude. The 900,000 barrel per day (bpd) pipeline only has two comparatively small on-ramps in the United States. The first, in Montana, includes an on-ramp for a maximum of 100,000 bpd of crude. The second in Cushing, Oklahoma, allows a maximum of 150,000 bpd – and oil going into the southern segment from Cushing could easily be tar sands as well as domestic crude. That means that at most, little more than a quarter of the oil on Keystone XL would be from domestic producers.
While the southern route of Keystone XL is being touted as a means to move domestic crude to market, it is also designed to move primarily Canadian tar sands. From Cushing, the southern route of Keystone XL is connected to two pipelines – the 150,000 bpd on ramp in Cushing (that can carry tar sands and domestic crude) and TransCanada’s 590,000 bpd Keystone I tar sands pipeline (which has no on-ramps for domestic oil). Keystone XL’s design prevents it from being used as a pipeline primarily for domestic production.
In reality, Keystone XL is part of a larger strategy to maximize the profits of large multinational oil companies at the expense of smaller domestic oil producers. Even as domestic production is increasing, major pipeline projects like Keystone XL are bypassing domestic crude piling up in the field, allowing Canadian tar sands to ‘skip ahead in the line’ in order to access the highest prices and the most lucrative global markets in the Gulf Coast.
Meanwhile, U.S. refiners in the Gulf Coast are gearing up to process Canadian tar sands crude instead of domestic light crude. The price that a producer gets for its oil, heavy or light, is related to how much refinery capacity there is to process that particular kind of crude compared to the overall supply of that oil. In the inland United States in places like Bakken, Texas, New Mexico and Oklahoma, primarily small to intermediate size domestic companies produce high value light crude. The Canadian tar sands, which are being produced primarily by large multinational integrated oil companies, produce very low quality, heavy bitumen. As U.S. refineries reconfigure their operations to process heavy Canadian tar sands, they have less space to process light domestic crudes. While more heavy crude capacity increases the price for tar sands producers, it lowers the price for domestic companies producing light crude.
It is possible to build a pipeline to move domestic crude to Gulf Coast refineries, but that is not what Keystone XL is designed to do. Keystone XL is designed to take Canadian crude through America’s heartland on its way to the Gulf Coast where it can be refined and exported. While that may help big multinational oil companies producing Canadian tar sands, it’s going to hurt smaller companies producing light crude in the United States. If moving domestic oil to market is really the goal, the President should consider pipeline infrastructure projects that are designed to do so, without the safety risks of tar sands.
Ultimately however, the U.S. economy, national security and the environment would be best served by measures that reduce our long term reliance on oil. 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 promoting technologies that exist today. 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.