Consumer Advocacy Says Keystone XL Will Inflate US Gas Prices

Michael Teague |

Consumer Watchdog, a non-profit consumer advocacy group established in 1985, released a report on Tuesday highlighting the potentially negative impact of the hotly debated Keystone XL pipeline that would deliver Canadian tar sands crude from Alberta to refineries on the Gulf Coast.

While organized opposition to the project has mostly focused on the negative environmental impact of the pipeline, Consumer Watchdog’s report is significant in that it highlights the potential economic downsides of Keystone XL. Essentially, the report seeks to unravel some of the most commonly heard arguments touting the economic benefits of Keystone XL.

Proponents of the pipeline have advanced two major claims when arguing in favor of the project: Keystone XL will both reduce the price of gasoline in Canada and the US, and create jobs all the way along its trajectory to the Gulf of Mexico.

Consumer Watchdog counters that the argument about job creation is likely overstated. While TransCanada (TRP) has said that Keystone will bring good-paying, long-term jobs to the US, the group contends that such jobs would mainly be comprised of temporary to medium-term construction work at best.

But the more compelling and substantial objections in the report relate to claims about Keystone XL lowering the cost of gasoline and fuel prices. Consumer Watchdog points out that Canada’s energy needs are taken care of mostly out of its own domestic production. Canadian tar sands are landlocked, which forces TransCanada to sell its crude at a heavy discount, about $20 to $30 per-barrel less than what Mexican Maya crude goes for.

Thus, the goal of the pipeline is to connect Canada’s tar sands to the global energy market via the Gulf Coast, which would allow TransCanada to make more money off of its product through exports. The report cites a document submitted by TransCanada to the Canadian government in which the company says this in more or less plain language: “The Keystone XL Pipeline to the large USGC [US Gulf Coast] market would expand the market for Canadian crudes and increase demand. This should allow the price of Canadian heavy crude to increase at least as far as USGC parity with [Mexican] Maya [crude oil].”

Furthermore, TransCanada is acutely aware of the fact that its product is selling at such a steep discount in the Midwest because the supply has exceeded the demand, and this is compounded by the additional fact that the US is currently in the throes of its own energy renaissance that will affect demand.

So while the company has been promising the public the double benefit of more jobs and lower oil prices, it is actually planning and counting on being able to charge more for its crude, wherever it is sold. The price at the pump in the Midwest could increase by as much as $0.20 per gallon as a result.

Consumer Watchdog quotes another company document to illustrate this point: “The Keystone XL Pipeline to the large USGC market would expand the market for Canadian crudes and increase demand. This should allow the price of Canadian heavy crude to increase at least as far as USGC parity with [Mexican] Maya [crude oil].The price for Canadian heavy crude could increase further if the Keystone XL Pipeline causes the available supply in the Midwest to be less than the demand.”

The report notes that major international oil concerns are invested in the project, signaling that the Keystone XL will mostly benefit corporations involved in tar sands extraction, as well as refining on the Gulf Coast. These companies include ExxonMobil (XOM) , Chevron (CVX) , Royal Dutch Shell ($RDS), ConocoPhilips (COP) , Total S.A. (TOT) , Marathon Oil (MRO) , as well as Russian and Chinese firms such as Rosneft ($ROSN), SinoPec ($SHI), and PetroChina ($PTR).

Finally, Consumer Watchdog notes that since tar sands shipments through the pipeline would not be considered as “crude oil”, TransCanada does not have to pay the $0.08 per-barrel tax that is usually applied to crude, and that goes into the U.S. Oil Spill Liability Trust Fund. Thus, in the event of an accident or a spill, it would be the American taxpayer who would ultimately end up footing the bill for cleanup efforts.

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Companies

Symbol Name Price Change % Volume
COP ConocoPhillips 39.94 -1.08 -2.63 8,530,040
CRBJY China Resources Land Ltd ADR 30.98 -1.27 -3.94 1,262
CVX Chevron Corporation 99.22 -0.76 -0.76 7,396,784
MRO Marathon Oil Corporation 14.49 -0.38 -2.56 22,031,468
PTR PetroChina Company Limited 64.45 -0.99 -1.51 76,982
SHI SINOPEC Shangai Petrochemical Company Ltd. 51.97 -1.22 -2.29 2,592
TRP TransCanada Corporation 47.80 -0.48 -0.99 1,170,529
XOM Exxon Mobil Corporation 83.45 -0.09 -0.11 12,667,106

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