Approving The Keystone Pipeline Could Cost U.S. Consumers $3-4 Billion Per Year in Higher Gas Prices


There are many good reasons why approving the Keystone XL pipeline is a bad idea. But not many factor the possibility of higher gas prices into the equation.

According to a new report from Consumer Watchdog, that is likely to happen. In particular, drivers in the Midwest would see increases at the pump ranging from 25 to 40 cents per gallon. This dovetails with another report by Public Citizen earlier this year.

Why would this happen? Isn’t the global oil market immune to changes in where oil comes from, or even better, wouldn’t more oil supply on the market make prices drop? Right now, the price of Canadian tar sands oil is lower than it otherwise would be because refining the substance into usable oil is an energy-intensive process, and Alberta does not have an easy way to transport it all to refining and export facilities. As the report says, “The tar sands oil price won’t go up without substantially more exports.”

Refiners in the Midwest are taking advantage of the glut of supply in Alberta and the corresponding low prices, but that savings is not being passed down to the consumer at the pump. At the same time, gas prices in the Midwest have been similar to or higher than prices nationwide this year.

The construction of the pipeline would mean much of it would likely be sent down to refineries in Texas, bypassing the Midwest and reducing supply. According to the report, this means that local gas prices would rise by 20-40 cents in the region, and a few cents nationally. All told, the cost to Americans could range from $3-4 billion, according to the Consumer Watchdog report:

In the Midwest alone, each year of only a 20-cent-a-gallon increase could rip $3 billion to $4 billion from more productive spending. The up to $4 billion in Midwest economic loss is close to the amount that TransCanada would spend on the pipeline project, canceling a major claim of U.S. economic benefit. While the company says it will spend $7 billion, some of that will be spent in Canada and some has already been spent, so it is has no future economic effect.

Backers regularly make the case that approval of the Keystone XL pipeline will drop gasoline prices, even though the pipeline would take years to build even if the Obama administration approved it today. A comment from Rep. Fred Upton last year that Keystone would help lower gas prices earned a “Pinocchio” from the Washington Post’s Fact Checker.

TransCanada and other stakeholders that want to extract the oil sands out of Albertan soil see the Keystone XL pipeline as the best way to be able to charge more for the Canadian tar sands oil. That is, at root, what this fight is about. So they try to move the debate away from how it would affect gas prices, and onto U.S. construction spending and jobs. But, as the Consumer Watchdog report says, “It is likely that the higher oil price and gasoline prices would offset any provable jobs or manufacturing benefit from the Keystone XL pipeline.”

Meanwhile, American Automobile Association and the Energy Information Administration officials told Congress Tuesday that current gas prices remain high and are only likely to get higher despite increasing domestic production.

5 Responses to Approving The Keystone Pipeline Could Cost U.S. Consumers $3-4 Billion Per Year in Higher Gas Prices

  1. catman306 says:

    Only slightly off topic:

    Governor blames Vogtle cost overruns on nuclear critics

  2. rollin says:

    Have to disagree with some of the reasoning behind this article. Tar sands bitumen sells at a lower price because it must be converted to a synthetic gasoline at the refinery, a costly process. So the resource is not as valuable as petroleum.
    Railroads are more expensive to use than pipelines for transport.
    I think if anything is going to increase the price it will be the ability to bypass the Midwest and place the tar sands products on a world market pricing.

  3. Sasparilla says:

    Excellent article Ryan and probably up to 8 months ago or so, it was totally accurate (then Transcanada split the pipeline into two pieces and changed this equation).

    As stated, the reason for tar sands crude being low in price is that it was marooned in the midwest, oversupply, as additional sweet crude from fracking poured onto that same market dropping overall prices (which the refiners kept the profit) and demand not increasing.

    However Transcanada figured an end run around this problem, they split the XL expansion into two pieces and are actively building the part from the midwest to the Gulf Coast (doesn’t require Obama’s approval) – so no matter what happens the price of oil in the midwest (at the refiner level) is going up (if it hasn’t already) – game over there on this issue unfortunately.

    The XL getting approved would still drastically increase the amount of tar oil being pulled out of the ground which should be prevented.

  4. The price of Canadian crude will rise because the flow of supply will be de-bottlenecked–producers won’t have to bid each other down (in effect) to get the crude to a refinery. Your last sentence is right–it will link to world prices. That is the ONLY reason this project is on the boards: money. The oil will be refined into products and most of it will be shipped overseas.

  5. Mark E says:

    Anything (excluding violence) that RAISES gas prices is a longterm GoodThing.

    So in a weird way, this article appears to make an unintentional blunder of advocating for relatively cheap gas. I know that was not the goal. Just sayin’