Oil Change International

Exposing the true costs of fossil fuels

Rising gas prices, Keystone XL and the real solutions

with Steve Kretzmann

Much is being written and said about rising gas prices, Obama’s energy policies in general and the Keystone XL pipeline in particular. While the President’s opponents repeat ad infinitum the “Drill Baby Drill” mantra, it has been interesting to note that much of the mainstream press has been skeptical. And so they should be.

Unsurprisingly, the President’s critics have honed in on the Keystone XL pipeline and the President’s denial of that project’s permit in a frenzy of finger pointing over the gas price rise. This not only ignores the true cause of rising gas prices but also ignores two key facts.

First, the Keystone XL pipeline will do nothing to lower gas prices in America.

Second, the President’s action on vehicle efficiency will save more oil than Keystone will ever pump.

These points go right to the heart of the gas price debate. Only efficiency and diversification away from oil can ease the pain at the pump by reducing the American consumer’s exposure to the inevitable rising price of oil. Further, we can make a difference through demand reduction, not just in 5, 10 or 15 years from now, but this year.

Keystone XL and gas prices: where is the evidence?

Keystone XL’s proponents claim the pipeline will reduce gas prices in America, some going so far as to say 20-30 cents could be knocked off the price of a gallon of gas as a direct result of building the pipeline.

When we look at the evidence, there simply isn’t any that would indicate that gas prices would decrease as a result of building Keystone XL. The problem with arguing that another pipeline from Canada to the United States will reduce gas prices is that we have six pipelines from Canada already and so far the impact on U.S. gas prices is negligible.

Canada has been America’s top source of petroleum imports since 2005. According to the latest figures, in November the U.S. imported over 2.3 million barrels per day of crude and products from Canada. This was nearly 30% of all petroleum imports and nearly 13% of total oil and oil products supplied. Yet because of global events, including the heightened tensions with Iran, ongoing production problems in Libya, the shut-in of production in South Sudan and rising tensions in Nigeria, gas prices in the United States have been rising steadily and it is widely believed that prices will reach new highs this summer.

The six pipelines bringing Canadian oil into the United States, two of which were only built in the last 3 years, have a capacity of nearly 4 million barrels per day. (See Table 1 below) They are currently utilized at slightly over 50% so we actually have nearly 2 million barrels of spare capacity.

The increase in both the actual and the capacity for Canadian petroleum imports has not made the slightest difference to the general trend of rising oil and gasoline prices. (See Figure 1 below) This is not a surprise. Oil is a global commodity and there are simply bigger things going on in the oil world than the steady increase in Canadian oil production. The problems mentioned above have a greater influence on global prices, as does the steady increase in demand in emerging economies. That a seventh pipeline (Keystone XL) from Canada to America can make a significant impact just does not bear serious scrutiny.

Table 1: The total capacity of Oil Pipelines from Canada to the United States
Pipeline Capacity (barrels per day)
Express 280,000
Bow/Milk River 129,000
Rangeland 83,000
Enbridge Mainline 2,050,000
Enbridge Alberta Clipper 800,000
TransCanada Keystone I 590,000
Total 3,932,000

Figure 1 shows that throughout the last 11 years, petroleum imports from Canada have steadily risen from below 60 million barrels per month at the beginning of the last decade to over 87 million barrels per month at its peak in early 2011, a 50% increase. Yet, gas prices have trebled with spikes and troughs along the way that clearly have little to do with the steady rise in imports from north of the border.

Exports: where the oil goes matters

Another factor that undermines the assertion that building a seventh pipeline from Canada will somehow change this dynamic is the nature of the market in the Gulf Coast where the pipeline would terminate.

As we have discussed several times before on this blog, the Gulf Coast is becoming a refining center as much focused on exports as it is on supplying the domestic market. It is therefore unclear how much of the pipeline’s deliveries will actually make it onto the domestic market. This makes it even less likely that this pipeline will be any better than the six others at affecting U.S. gas prices.

The latest figures for exports from the refining area known as PADD 3, which encompasses all of Texas, Louisiana, Arkansas and New Mexico, show that 32% of the region’s production of finished petroleum products was exported in November.

So while the industry and its supporters ply their misinformation regarding the gas price reducing attributes of their pet project, it is worth noting that the real action that has been taken to ease the pain of inevitable oil price rises over the coming years is mostly being ignored.

Efficiency: where the real action is at

The fuel efficiency standards passed by the administration will save more oil than Keystone XL will ever pump. They could cut oil use by 2.2 million barrels per day in 2025 while Keystone would at full capacity deliver 830,000. These efficiency programs will save Americans billions of dollars at the pump and genuinely ease the pressure of spiking global oil prices. There is a lot more that can be done to reduce America’s dependence on oil, but these standards are a great start.

But while more efficient vehicles mandated under the new standards are entering the market this year, obviously only a small percentage of the population will be able to make use of them this summer when prices are expected to spike.

What appears to be missing from the discussion on both sides is a plan for action to help consumers deal with this year’s price spike. We know it’s coming but where’s the plan to deal with it?

President Obama has pointed to the pay roll tax extension as a help, but that is merely a continuation of tax policy that consumers have been enjoying for some time, welcome though it may be. Others have called for releases from the Strategic Petroleum Reserve, a band aid at best.

What we should be seeing is a concerted effort to help people reduce their oil use through every means available. Online tools for carpooling, incentives from employers, private and public, to use them. Increasing public transit provision where possible and providing information and incentives for those that can make use of transit; these are just a few examples that could make a big difference this year. We need to see recognition and action from local authorities and major employers that gas prices will be a problem for the public this year and that there are actions that can be taken.

When gas prices spiked in 2007-2008, Americans took to transit and carpooling in large enough numbers to precipitate the first dip in vehicle miles travelled in nearly thirty years and the biggest spike in transit use since the 1950s. This is bound to happen again this year but there is surely more we can do to facilitate it and after all, it is not just a short term salve but a major part of the long term solution.

Comments (8)

  1. Ronnie Lorensen says:

    You do know that the Right does not want to hear the truth. You are right if we would just improve on efficency we would solve many of the problems we face today. And also create jobs and good paying jobs at the same time. The Rights God Ronnie the actor Reagen gutted Jimmie Carters fuel efficiency standard by creating the SUV class. They knew what they were doing and it was all based on greed. Where would we be today if he had not done that?

  2. Replace the Energy Lie with Existing FREE and Clean Energy NOW.

    The government protects the corporation and the president tells the People to swim in and eat seafood from the oil/poisonous dispersant Gulf of Mexico, [Please DO NOT]. And they say not to worry about Fukushima Fallout but they stopped testing when fallout was in water [and more].

    Superior alternatives exist but they’ll never come from those adding to the problems (never forget it’s the same government that declared WE are the enemy)
    Learn more about REAL SOLUTIONS, why we need them now. BE the solution and say NO to Drill Baby Spill UniParty politicians for oil/nuclear – sources+, http://saynotocorporateamerica.blogspot.com/2012/02/expose-energy-lies-and-supression-of.html

  3. Mark says:

    It really seems to me that Obama didn’t grasp the importance of benefiting from the Canadian energy sector that has recently been on the rise and now he is forced to look for other solutions such as higher taxes for the rich and the biggest corporations to reduce the budget deficit. After a series of unreasonable steps comes outright discrimination. What a policy!

  4. Helen A. Spalding says:

    The crude from the tar sands which will be pumped through the Keystone XL pipeline to be refined in New Orleans, will then be shipped to China. That is what the Canadian oil company intends to do with it, and always has inteded to do with it. NONE of it will come to the US, except to be piped across the Oglala aquifer. WHEN (not if!) that pipeline leaks, it is the water which is pumped to most of the population of the US which will be contaminated. Of course, these minor facts will never be presented by our corporate media or the Republicans, nor the Democrats!

  5. David K. M. Klaus says:

    Better than a new oip pipeline and better than battery-powered would be going back to the external combustion engine — the engine which powered the Stanley Steamer, but with a near-century of technical and technological improvements. Steamers could burn any combustable liquid: gasoline, kerosine, salad oil, wood alcohol, hemp oil, you name it, it could burn it, and burn it completely. No range limit that gets you only a 2-1/2 hour drive before recharging your batteries, no explosive or expensive batteries at all except to start the engine. You have to wait until the steam pressure is built up, but then it’s the open road.

    Think about it.

  6. The other thing it would provide is another resource to help reduce our trade deficit…. One of the major factors of our bubble economy in the past is continuing to borrow to live a lifestyle based on credit… Well importing Canadian oil and selling it to China as gasoline would help with the trade deficit….

    The great think in your post is that you call for an Energy Independence initiative…. Instead of forcing fuel and energy prices higher so alternative energy is more competitive… why not focus on Natural Gas as well as a short term replacement for oil… converting Diesel Long Haul trucks and some cars to Nat Gas uses our abundant supply of nat gas, cleans up even further the emissions from vehicles and cuts way back on fuel oil needed to sustain economic recovery and our life style…. PLUS an added benefit is we can replace a lot of the dirtiest coal fired electricity plants….This is an intermediate solution that could support our longer term objective of fossil fuel free energy….

    Obama and every administration to this point clearly have not focused here I personally like it since it will eliminate ANY involvement in a war to assure our supply of energy….

    The pipeline is really a no brainer… we have six already that are functioning well and focus on conversion of some of the heavy uses to Natural Gas, while we continue to develop alternative fuels to meet our future needs….

  7. Greg Phillips says:

    While this pipeline may not provide immediate relief from higher prices at the pumps… it would provide something similar to our Strategic National Reserves in that in a time of crisis it could be used to offset any oil no longer coming from the middle east….

    The other thing it would provide is another resource to help reduce our trade deficit…. One of the major factors of our bubble economy in the past is continuing to borrow to live a lifestyle based on credit… Well importing Canadian oil and selling it to China as gasoline would help with the trade deficit….

    The great thing in your post is that you call for an Energy Independence initiative…. Instead of forcing fuel and energy prices higher so alternative energy is more competitive… why not focus on Natural Gas as well, as a short term replacement for oil… converting Diesel Long Haul trucks and some cars to Nat Gas uses our abundant supply of nat gas, cleans up even further the emissions from vehicles and cuts way back on fuel oil needed to sustain economic recovery and our life style…. PLUS an added benefit is we can replace a lot of the dirtiest coal fired electricity plants….This is an intermediate solution that could support our longer term objective of fossil fuel free energy….

    Obama and every administration to this point clearly have not focused here I personally like it since it will eliminate ANY involvement in a war to assure our supply of energy….

    The pipeline is really a no brainer… we have six already that are functioning well, and if need be beef up teh hazardous spill clean up procedures etc to assure no environmental impacts… and focus on conversion of some of the heavy uses to Natural Gas, while we continue to develop alternative fuels to meet our future needs….

    this is a duplicate in part from a previous post as I didn’t understand the format of adding a comment in the first one so some parts were missing…. Greg

  8. Dean Cutler says:

    “If not now, then when?
    If not here, then where?
    If not us, then who?”

    NO OIL + NO COAL = A BETTER LIFE FOR US ALL.

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>