Keystone Pipeline Oil to Cost Consumers More and Go to China?

By Terri Hall l April 9, 2012

Keystone XL Pipeline                                                                    Panama Canal

Advocates for the Keystone XL pipeline boast that building itwill secure energy resources, diminish dependence on foreign oil and help reduce the soaring price of gasoline. However, when Rep. Ed Markey asked Russell Girling, President and CEO of the Keystone pipeline company, TransCanada, if they would be agreeable to write a condition on the pipeline that all the oil would stay in the U.S., TransCanada refused to sign it. The company has also signaled that it intends to sell the oil outside the United States.

In a free market economy that stands to reason. Yet, in view of all the hype that the Keystone pipeline is the silver bullet to achieving American energy independence and massive job creation, light-of-day is necessary. The timing between the scheduled completion of the Panama Canal expansion, 2014, and TransCanada’s projected completion of Phases 3 and 4 of the Keystone pipeline, 2013, is no coincidence. And, as far as the Port of Houston is concerned, the Panama Canal expansion has been appropriately described as a game changer. Canadian crude oil reserves are enormous, estimated at 175 billion barrels, they are considered the “second largest oil reserves in the world,” with 97% located in the oil sands. So, it’s not unusual for TransCanada to be thinking globally. On its web site, it refers to these reserves as: “A vital energy source for Canada and the world.” With the magnitude of these reserves, Canada’s energy export market will surely expand beyond the United States.

Whence China?

China has been involved in the expansion of the Panama Canal on many levels, including port enlargement both on the Pacific side at the Port of Balboa and on the Atlantic side at the Port of Cristobal through the Panama Ports Company (PPC), a subsidiary of the HPH Group, which, in turn, is a subsidiary of the Hong Kong-based conglomerate Hutchison Whampoa Limited.

Panama Canal Expansion (2014)
Cash rich China, due largely to its huge trade surpluses with the United States, has been buying up energy resources worldwide and the oil sands of Alberta, Canada are no exception, where it has invested billions. In 2005, the Chinese state oil company, CNOOC, purchased a 17% stake in Canadian oil sands company MEG Energy. In 2009, PetroChina invested $1.7 billion in Athabasca Oil Sands located in Alberta. In 2010, Sinopec bought into Syncrude, the largest Canadian oil sands producer to the tune of $4.6 billion. And in mid-2011 CNOOC purchased the Calgary-based oil sands company OPTI, following bankruptcy filing.

Of the OPTI purchase, CNOOC CEO Yang Hua said, “The Transaction strengthens our Canadian presence in the oil sands business. We believe that upside potential of the assets will facilitate local energy supply and our production growth in the long term.” Chinese state-run energy companies have a large and growing stake in Canadian oil sands.

East Asia and particularly China’s exploding energy demand has made Beijing’s strategic energy moves inevitable. For China, the Canadian oil sands are in play. It brings us back to the question of the primary purpose of TransCanada’s Keystone XL pipeline, which is to bring oil to market by utilizing the southeast Texas port and refining facilities in Houston and Port Arthur to supply customers, whether inside the continental United States or abroad. Free market economics – supply, demand and price – will determine the future of the Canadian oil sands not partisan propaganda.

Will it or won’t it?

Building the Keystone pipeline does not do much to help the price of gasoline go down either. Higher prices will come according to what TransCanada told Canadian regulators after the company’s 2010 report predicted it could boost its Canadian oil prices if Keystone was built. Philip Verleger, co-founder of an energy consulting firm in Colorado, PK Verleger LLC, notes that “the Canadian plan was to use their market power to raise prices in the United States and get more money from consumers. Prices may gain 10 to 20 cents in central states.”

In fact, since there’s currently an oversupply of oil in the Midwest hub of Cushing, Oklahoma, keeping the prices low and where the only buyer is the United States, many experts believe the whole purpose of extending the pipeline from Cushing to the Texas Gulf Coast is for the express purpose of opening up new global markets for Canadian oil, primarily to China where demand is exploding compared to the U.S. where demand is contracting. Valero Energy has told its investors that it will get the oil into U.S. Foreign Trade Zones where these companies can export the oil on the international market without paying U.S. taxes.

Canadian Natural Resources Minister, Joe Oliver, has stated publicly that it’s a national priority to find markets for Canadian oil other than the United States. He told attendees at the APEC Transportation and Energy Conference in California in 2011 that “we export 97 percent of our energy to the U.S. and we would like to diversify that.”

“Analysts and economists agree that building the southern leg of this pipeline will alleviate a glut of oil in Cushing, OK, and allow more oil products to be exported to other countries, thereby reducing domestic supply and raising gas prices,” Trevor Lovell of Public Citizen Texas said.

“The southern leg of this pipeline does not bring oil into the country…but does create a clear path to get oil out to export markets,” he continued. “Since refined oil products are now the largest export commodity in the U.S., it is obvious that pushing more oil to the Gulf Coast will result in more export activity and less supply for Americans.”

A 2009 report done by TransCanada and submitted to the Canadian government essentially makes the same claim, so does a 2008 report submitted to the Canadian National Energy Board, where TransCanada justifies building the southern leg – from Cushing to Houston-Port Arthur – of the Keystone pipeline despite a glut of capacity because shifting Canadian oil from the Midwest to the Gulf Coast will result in Americans paying $3.9 billion more for their oil.

Verleger also predicts the oil will end up in China, not the U.S., according to his analysis noted in National Geographic in August 2011.

“The bottom line for Verleger is that refineries on the Gulf Coast have long-term commitments to buy oil from current suppliers—including Saudi Arabia, Venezuela, and Mexico. Those nations don’t want to cede market share to Canada. All three have ownership in Texas refineries, and they can also match any discount that comes with the Canadian crude. ‘There will be too much oil, it’s got to go somewhere, and it’s going to China,’ Verleger says.”

Developing Canadian oil sands exclusively for the American consumer market also implies that doing so will drive down the price of gas at the pump. So it makes you wonder, why all the hype pushing this pipeline as an energy source for America? The Keystone pipeline is a project that likely won’t reach either goal of achieving American energy independence or massive job creation being touted as the chief reasons to build it. Let’s face it, the Keystone XL oil pipeline project is meant to link Canadian oil with American refineries – full stop!

So Americans need to carefully examine what’s at stake here before getting on the bandwagon that leads to the erosion of property rights and even higher gas prices, while watching oil that’s currently exclusively sold to the U.S. go to China.

Terri Hall is the founder of Texans Uniting for Reform and Freedom (TURF), which defends against eminent domain abuse and promotes non-toll transportation solutions. She’s a home school mother of eight turned citizen activist. Ms. Hall is also a contributor to

SFPPR News & Analysis.