You may have seen the commercials about expanding imports of Canadian oil sands. The slick advertisements feature interviews with "regular Americans" surprised to find out that Canada is the U.S.'s number one foreign supplier of oil. The ad goes on to claim that by 2030, Canada could supply 25 percent of America's imported oil. In order to facilitate that increase, the oil industry and the U.S. and Canadian governments are pushing for the creation of an oil pipeline from the tar sands oil fields in Canada to the marketplace along the Gulf of Mexico.
These ads want you to think that constructing this pipeline is the answer to all our oil needs, but if you look closer, a different picture begins to emerge. One that I hope will have you asking: "Who really benefits from the Keystone XL pipeline?"
Like any business, the oil industry runs on the basic premise of supply and demand. The more supply -- the lower the price. The higher the demand -- the higher price. In other words, the more people who can buy oil, the higher the price of oil.
Right now, there are a limited number of customers for Canadian oil. Due to simple geography -- and without the pipeline -- it's really only cost effective for Canadian oil producers to sell their oil to North American customers, mostly American Midwesterners. This is a good deal for those of us in the U.S. because it not only gives us access to a reliable source of oil from a trusted trading partner, it helps drive down the cost of oil in the United States by adding to our available supply of oil.
Building the Keystone XL pipeline, however, would change this.
The KXL pipeline would make it easy and cost effective for oil producers in Canada to transport oil to the Gulf of Mexico where it could be shipped to customers -- not just in the United States -- but around the world. More customers for Canadian oil means that Canadian producers can charge more for their oil, which then means that American businesses and consumers will pay more for oil. That's a good deal for oil producers, not such a good deal for American families and businesses that need to pay for oil.
And there is plenty of evidence to suggest that Canadian oil producers view the construction of the Keystone XL pipeline as an opportunity to charge more for their oil. According to TransCanada, Canadian oil shippers could use the pipeline to add up to $4 billion to U.S. fuel costs. As I indicated in a letter to the FTC earlier this year, seven Canadian oil producer have already shown signs of having colluded to raise prices on gasoline for American consumers. Testimony given during a public hearing in Canada by a representative of one of the oil companies suggests that the companies collectively agreed to accept a higher tariff on their product in order to manipulate supply levels to the U.S. Midwest and raise prices. In that April letter, I asked the FTC to investigate whether those companies illegally got together and decided to use the pipeline to raise prices, but I've yet to hear back.
Are there oversees customers for tar sands oil? Yes. There are 1.3 billion of them in China.
Just last week, the New York Times reported that Sinopec, a Chinese oil company owned by the Chinese government, bought Daylight Energy, a Canadian oil and natural gas producer. This is the third major acquisition of a Canadian tar sands oil company by the Chinese government in recent months.
China -- like the United States -- needs to import oil and natural gas to meet its country's energy needs. Also, like the U.S., China recognizes that importing oil from Canada would be a lot more reliable and create a lot less foreign policy issues than, for example, importing oil from the Middle East. But, unlike the Unites States, the Chinese do not currently have a cost effective means of getting Canadian oil to China.
Building the Keystone KXL pipeline would change that.
Building the pipeline would make it possible for the Chinese to transport their Canadian oil across the United States to Texas where they could put it on tankers for shipment to China.
Making it possible for the Chinese government to ship Canadian oil to China wouldn't just mean that the United States would be giving up its exclusive access to Canadian tar sands oil or that U.S. families and businesses would have to pay more for oil and gasoline or that the United States would have to import oil from countries less friendly to our foreign policy than Canada. Building the KXL pipeline would also mean that we would be helping our county's biggest global competitor -- China -- meet its energy import needs at the expense of our own. Sounds like a great deal for China, but not such a good deal for the United States.
Due to its international implications, the Keystone XL Pipeline cannot be built without the U.S. State Department's approval. And, if recent news reports are believed, that could happen very quickly.
The standard the State Department must consider is whether constructing the pipeline is in the United State's "national interest." To do that, the State Department needs to look beyond the potential for short-term construction jobs and the pipeline's environmental impact (which is a whole other issue) and instead consider whether giving the rest of the world access to Canadian tar sands oil is in the U.S.'s long-term strategic and economic best interests.
Yes, building the pipeline would be good for oil producers, which is why they are paying for the commercials. And it would be good for the Chinese government, which is why they are buying the Canadian oil companies. But it's the State Department's job to decide if this pipeline is in the best interests of regular Americans who don't work for oil companies and American businesses that need oil to operate. And, from their perspective, it's not such a good deal.
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