Keystone: Exporting Canadian Oil Across America’s Backyard

Cross-posted from Huffington Post

Given the relentless “all of the above” energy strategy pursued by the Obama Administration, the release this past Friday of a positive environmental impact report for the proposed Keystone oil pipeline was no big surprise. The U.S. State Department essentially declared that since the extra-dirty tar sands oil designated for the pipeline was going to be shipped and burned one way or another, building the pipeline down from Canada to Gulf coast refineries would not have that much impact on the environment — despite warnings from climate scientists that burning all the tar sands oil would be “game over” in the fight to stop climate change.

This conclusion by the State Department was a laughable bit of self-fulfilling logic. But perhaps the biggest surprise in the report was the tacit admission that the tar sands oil isn’t going to be burned in the U.S. at all. Instead, it is destined for refining and export overseas.

The State Department report details how Gulf Coast oil refineries will use the tar sands crude oil delivered by Keystone to replace supplies from Venezuela and Mexico, refine the crude into high-end products like gasoline, and then export the refined fuel overseas. Meanwhile, as if to add insult to injury, fuel prices paid by U.S. consumers in the Midwest are expected to jump as the pipeline will siphon off crude oil supplies that are currently landlocked in America. The U.S. State Department did not, of course, highlight these findings at the top of its report but instead buried them down in the “market analysis” section, where it left a clear trail of breadcrumbs.

Interestingly, the State Department went way out of its way to argue that the pipeline won’t be used to export unprocessed crude oil. (Though the industry clearly expects otherwise: see here.) Yet at the same time, the State Department admits, using painstakingly disconnected phrasing, that the crude oil delivered by the pipeline will be processed by Gulf coast refineries and then exported, in a shell game whereby export refineries replace declining crude oil supplies from Venezuela and Mexico with Keystone Canadian tar sands oil.

Regarding the pipeline’s impact on the export of refined crude, the State Department report says: “…future refined product export trends are also unlikely to be significantly impacted by the proposed Project.”

And what exactly are those trends? The State Department reports that: “In 2005, exports began increasing… Export volumes have increased to over [3 million barrels of oil per day] in the first half of 2012. This increased volume of refined products is being exported by refiners as they respond to lower domestic gasoline demand and continued higher demand and prices in overseas markets.”

And why use the extra dirty crude oil to be delivered by the Keystone Pipeline? The State Department says: “Gulf Coast refiners’ traditional sources of heavy crudes, particularly Mexico and Venezuela, are declining and are expected to continue to decline. This results in an outlook where the refiners have significant incentive to obtain heavy crude from the oil sands.”

And there you have it, a shell game, with Keystone as the lynchpin for the whole effort. Gas prices go up for Midwesterners, big oil refineries profit from the overseas export of fuel processed from dirty tar sands oil, and the rest of us are that much further in the hole in our fight to stop climate change. The environmental impact statement appears to be a clear signal that the Obama Administration is headed down the road to approval. However, the growing backlash against the pipeline creates a headache for the president who just made a very public commitment to protect the climate. A fight is clearly in the works.

— Hunter Cutting is a consultant and writer.

11 Responses to Keystone: Exporting Canadian Oil Across America’s Backyard

  1. Paul Klinkman says:

    Are the Keystone Cops laughable now?

  2. Paul Magnus says:

    People who own the bitumen disagree with the report…

    Bitumen Discount
    The lack of pipeline capacity and processing costs have cut the price of Western Canada Select, a blend of oil-sands bitumen produced in Alberta, to about $25 a barrel below U.S. benchmark West Texas Intermediate oil. That discount may lead Alberta to collect C$6 billion less in revenue this year, Premier Alison Redford said last month, and is cutting into the country’s income and economic growth, according to the Bank of Canada.

  3. Mulga Mumblebrain says:

    The originals? God, yes!

  4. Lore says:

    It’s pretty evident at this point in time that the pipeline will now be approved somewhere within the next 60 days. The President will attempt to placate those concerned with the environmental impact by telegraphing the approval as a way to gain leverage with tighter EPA regulations. The problem with that tactic is now of course the camel’s nose is under the tent, along with the rest of the camel.

    All the administration has done, in effect, is lobbed several nuclear carbon bombs across the planet.

  5. Russ says:

    The Keystone does present all sorts of complicated problems, but our penchant for game theory eventually has to take a backseat to our climate. Every circumstance in which we compete for resources will offer excuse not to change the tide, but if cooking the Earth isn’t a deterrent, what is?

  6. Sasparilla says:

    Very well said Lore. The fact that any EPA regs will face the same roadblocks with or without the XL, don’t appear to factor into this situation.

    It’s amazing to go back and realize the misguided Europeans gave Obama the Nobel Peace prize because of what he said he’d do on climate change….boy did we all get snookered

  7. Sasparilla says:

    Great article, so well layed out.

    Ahhh, yes the President who approved the Keystone and Alberta Clipper tar sands pipelines in 2009 is lining the XL expansion up for approval, but is going to get serious blowback after mouthing the climate change words recently.

  8. Tami Kennedy says:

    Since this is now solely a financial and economic benefit for the U.S. it will almost assuredly be approved by the president. Other presidents looking back will be seen as ignoring the issue. Obama will be seen as a liar.

  9. Thomas Rodd says:

    Hunter Nutting, seemingly correctly, summarizes the draft EIS as saying: “The oil designated for the pipeline is going to be shipped and burned one way or another, so building the pipeline down from Canada to Gulf coast refineries would not have that much impact on the environment.”

    My hope is that evidence and expert opinion that responds to, discusses, and seeks to refute this conclusion and the supporting analysis in the EIS, is now available on the Internet. After all, it’s been a few days and people have had time to collect their thoughts and data.

    Would someone please post a brief selection from, and links, to such evidence, discussion, and opinion — especially material directly responding to the EIS on this important predictive point?

  10. Thomas Rodd says:

    More accurate summary, sorry: “The oil designated for the pipeline is going to be shipped and burned one way or another, so building the pipeline down from Canada to Gulf coast refineries would not have that much impact on the amount of tar sands oil production.”

  11. Aaron Lewis says:

    A failure to produce a NEPA compliant Environmental Impact Study would open the entire decision to judicial review, even if the final decision was based on non-environmental considerations.

    As it stands, there are enough problems with the Draft SSIS to keep it in the courts until the end of time.