Keystone will reduce U.S. reliance on high-priced imports
On May 22, 2012 the Natural Resource Defense Council (NRDC) released a report that was essentially a compilation of rehashed talking points that made the claim “Keystone XL will increase gas prices,” based on the ludicrous assumption that Keystone XL is intended to export oil from the U.S. Nothing could be further from the truth and basic economic reasoning proves this.
The irony of the NRDC cloaking itself in the guise of protecting motorists’ rights to cheap gasoline deserves its own accompanying laugh track, but let’s focus on the factual and logical errors made in their report. First, the last time I checked, it still remains a fundamental tenet of economic theory that adding incremental supply of a good to a market with fixed demand can only lower prices.
Second, there is a fundamental, factual error in the NRDC’s argument. It claims Keystone XL would “divert oil away from refineries in the U.S. Midwest.” We have signed contracts with Midwest refineries for 18 to 20 years to deliver over 500,000 barrels of oil per day on our existing Keystone pipeline. Those contracts are binding and will not be broken. All oil delivered through Keystone XL will be new supply — separate from the oil transported to the Midwest. We have long-term, binding contracts for that oil as well.
It is a fact that the Midwest does not have enough refining capacity to meet the needs of Americans in this region. As a result, petroleum products like gasoline and diesel are imported from the Gulf Coast into the Midwest, and the cost of those imports and the associated transportation costs set the price for gas in the Midwest.
While prices can be volatile in the short term, in an average year, the cost of gasoline in the Midwest is higher than the cost in the Gulf Coast, with a difference that corresponds to transportation costs. Keystone XL will allow Gulf Coast refiners to buy cheaper American and Canadian crude instead of higher-priced foreign imports (WTI versus Brent), which should lead to the competitive pressure needed to lower gasoline prices, certainly not increase those prices.
The U.S. consumes 14 million to 15 million barrels of oil each day — forecasts recently released by President Barack Obama’s U.S. Energy Information Administration suggest this will not change for decades.