Report: Keystone XL Pipeline Will Raise Gas Prices, Hurt Economy

Consumer Watchdog released a groundbreaking report today that asks and answers the following question: What economic effect will the Keystone XL oil pipeline have on U.S. drivers and the U.S. economy as a whole?

The 19-page report compiles information from various sources including industry data, public records and company documents related to the issue. But the bottom line is this: the prime motivation behind the pipeline is to drive up the price of Canadian tar sands oil. The direct impact of this will be a significant increase in the pump price of gasoline for U.S. drivers, particularly those in the Midwest.

According to the report, prices could rise anywhere from 20 to 40 cents per gallon as a direct result of the fact that various overseas markets will gladly pay more than what Midwesterners are currently paying for that oil. The authors expect the price of the crude would rise anywhere from $20 to $30 for a 42-gallon barrel and that it would be up to refiners to decide how much of that increase to pass along to consumers.

Overall, the anticipated impact would be a $3 to 4 billion annual hit to the US economy.

The Midwestern U.S. is the main market that this tar sands oil presently reaches, with a small amount going to the West Coast. Given the fact that the government of British Columbia recently refused to allow a similar pipeline through its territory to ports on the Pacific, it will likely remain that way unless Keystone is approved. This limited market access has led to a discount for the tar sands oil that would certainly disappear should its producers achieve the access to worldwide markets they desire.

One of the major arguments used in the justification of the pipeline’s controversial 1,179 mile fourth phase, (the other three are already completed or under construction), which would connect Hardisty, Alberta with Steele City, Nebraska, is that it would help bolster U.S. energy independence, bringing in oil from our trusty neighbor to the North, rather than from rogue regimes in the Middle East, or from the former Soviet Union. That argument continues to lose traction as U.S. domestic production continues to rise and is now expected to exceed that of Saudi Arabia by 2020. U.S. oil imports have declined steadily since 2006, as exports continue to rise. Improved fuel economy and the blending of bio-ethanol have both played a role in reducing demand.

The report also found that much of the Keystone-delivered oil would bypass the Midwest and go directly to Gulf Coast refineries owned by the same multinational companies investing in tar sands, including Exxon Mobil, Chevron, Koch Industries, Marathon Oil and Shell Oil. The refineries would then refine the tar sands crude into diesel fuel and gasoline for export. There are also a number of foreign companies investing in the pipeline in the hopes of securing a low-cost supply of oil. Among these are SinoPec, Petro China and the military CNOOC, all from China, as well as the Korea Investment Fund, Total S.A.(France), and Rosneft (Russia).

Another argument used in support of the pipeline is that it would create jobs. However, the report authors found that most of these jobs would end once construction of the pipeline was completed. Project owner Trans-Canada initially estimated the number of construction jobs to be 20,000 which it later revised down to 9,000. Analyses by the federal government and Cornell University’s College of Industrial and Labor Relations came up with 6,000-6,500, and 2,500-4500 respectively. Meanwhile, the State Department estimated a total of only 35 permanent jobs for pipeline maintenance and inspection.

None of this even touches on the huge public outcry, or the question of the environmental impact of Keystone XL, either from the increased carbon emissions resulting from the highly energy-intensive extraction and the major local pollution hazards associated with tar sands oil, or with the risk associated with the pipeline itself which is proposed to pass right over the Ogallala aquifer upon which much of the Midwest depends for water.

Last week, news surfaced that not only was the company charged with preparing the Environmental Impact Statement (EIS) for the pipeline, Houston-based Cardno Entrix, in fact, a client of Trans-Canada, exposing a blatant conflict of interest, but so was a second firm hired to perform a supplemental EIS, after knowledge of the first conflict was revealed.

An investigation by two environmental groups, Friends of the Earth and the Checks and Balances Project, found the UK-based ERM had lied about their ties to Trans-Canada.

All of this points to the increasingly obvious fact that the sooner our society can discontinue use of oil altogether, the better. Oil company executives and stockholders might not like it, but it’s becoming increasingly clear. Not only are the greenhouse gas emissions destroying the climate, but all of the easy oil has already been pumped and burned and now, the simple act of getting the crude out of the ground and to the refinery is simply too dirty and dangerous. The Pegasus pipeline spill back in April showed us that these pipelines are far from foolproof. As for the alternative, transporting it by train, well, look at what happened last week in Lac-Megantic, Quebec. Some are already speculating that this could derail the oil train boom. It's only a matter of time before all that oil will be all dressed up with no place to go. Believe it or not, it needn’t be the end of the world.

[Image credit: Steve Rhodes: Flickr Creative Commons]

RP Siegel, PE, is an inventor, consultant and author. He co-wrote the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water in an exciting and entertaining romp that is currently being adapted for the big screen. Now available on Kindle.

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