Republicans in Congress, GOP Presidential candidates, and Fox News commentators are littering the airways blasting President Obama for denying the permit for the Keystone XL pipeline. They blame the spike in gas prices on that action.
The question voters will have to consider is whether Obama’s denial of the permit is responsible for current gas price increases, and whether not building the pipeline will assure higher gas prices in the future.
The circumstances that gave rise to this current debate are primarily political. The State Department received an application from the Canadian company that wants to build the pipeline. It was in the process of reviewing the environmental impact of the pipeline, as it has with all others, when Republicans in Congress tacked an amendment on the payroll tax extension bill late last year mandating the President make a decision on the pipeline in 60 days.
They wanted to throw all environmental and fiscal impact studies out the window in order to allow their benefactors to make tons of money on the pipeline.
Various state and local governments notably Nebraska, and environmental groups, as well as the EPA expressed concerns about the route of the pipeline through the Nebraska sand hills under which is the largest aquifer in the country. That aquifer, the Ogallala aquifer is vital to provide drinking water and irrigation water for several states.
That apparently is of no concern to Republicans politicians.
Given the fact Republicans did not give time for completion of the normal environmental studies, President Obama denied the permit. This is really what Republicans wanted him to do because they really wanted a campaign issue.
The question remains, is there a connection between the pipeline denial and current high gas prices. The answer is NO. Gas prices are set by the oil companies. One factor in gas prices is the price of crude oil. Crude oil prices are not set by the US market but rather on a global basis. Demand in the US for gas is at a 10 year low, and domestic oil drilling is higher than under the Republican rule last decade. If US demand and domestic production affected prices, gas would be very cheap right now. It isn’t because commodity traders, OPEC, and oil companies set the price on arbitrary and self serving factors.
Would building Keystone lower future gas prices? Probably not. The purpose of the pipeline is to bring crude oil from Canada to refineries in the Gulf to refine so it can be exported. Some might be retained for domestic gas, but the bulk would be exported. Keep in mind, China is a 51% owner in a large part of the Canadian tar sand oil fields. They didn’t invest to supply oil to the US when their demand is growing exponentially. It is cheaper for the Chinese to build a pipeline through the sand hills than the Rockies.
Currently, the refineries in the US including the Gulf are running at capacity. They are not sitting idle waiting for oil. Domestic oil production is up and is out pacing refinery capacity. It is absolutely ludicrous for Republicans to assert that the pipeline would lower gas prices. Building new refineries to refine the oil we are now producing would have more of an affect than a pipeline.
NPR has been looking into the Keystone pipeline issue. They visited Cushing, Oklahoma which is the point where most transcontinental oil pipelines cross to deliver crude oil from all over the country including Canada to refineries in the Gulf. What NPR learned is that there is a glut of crude oil because we are drilling and producing it faster than we can refine it.
The glut of crude oil has resulted in a building boom in Cushing—not for refineries, but storage tank farms. If Keystone XL opened today, the glut would be greater and storage capacity would not keep up.
Another thing to take into account is that Keystone would bring foreign oil into our market. This seems contrary to the stated purpose of reducing our dependence on foreign oil—especially oil that is owned in part by the Chinese even if it comes from our friend, Canada.
So, harping about Keystone makes for good sound bites and bumper stickers, but it might not be good policy especially if we bypass all normal procedures to approve it. It won’t reduce gas prices.
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